Page 353 - Introduction to Business

CHAPTER 9 Developing the Product and Pricing Mixes 327

are from the secondary market, who are receptive to modifications in marketing
tactics and strategies by competitors designed to influence their purchase
allegiance. These tactics may be a major factor in causing a product or service to
enter the decline stage.
During the decline period, the secondary market is essentially lost to other firms.
Thus, sales volume drops markedly and sales are concentrated chiefly in the primary
market, as they were during the introduction period. Not all products slide into the
decline stage. In fact, companies often try to prevent this from happening as soon as
possible. Procter & Gamble has been quite successful in doing this; Ivory soap and
Crest toothpaste have been around for one hundred years and fifty years, respectively.
There are few, if any, competitors in the introduction phase, often because
many companies are waiting to see how well the new product does. However, once
they see revenues increasing during the growth phase, more of them will enter the
market. More competitors are added during the early portion of the maturity stage,
but as sales start to falter, they start to withdraw from the market. Their withdrawal
is hastened during the decline stage, often leaving the original company facing only
a handful of competitors.
Because the primary market dominates in the introduction stage and there are
few competitors, companies’ marketing mixes in the first stage of the PLC may not
need to be as aggressive as they will need to be in the subsequent phases. Prices can
be high on the one or few basic models offered, promotional expenditures can be
relatively low, few distributors will be required, and warehousing and trucking
operations will be leased. Because of the increasing importance of the secondary
market and the influx of more competitors, a more aggressive marketing mix will
usually be employed during the growth and maturity phases: lower prices, increas-
ing level of promotion and distributors, and ownership of warehousing and truck-
ing facilities. In recognition of a return to dominance by the primary market and a
shakeout of competitors during the decline phase, companies will shrink the level
of their marketing mix so that it often mirrors what is employed during the intro-
duction stage.
reality In what stage of the product life cycle would you place personal com-
CH ECK puters? What criteria did you use to make your decision?

Product Elimination. The performance of many products eventually becomes
so poor in the decline stage that they have to be considered for product elimination. product elimination The process
In fact, companies often find that a large percentage of their products provide whereby poorly performing products
are dropped
them with only a small percentage of their total revenues. This is called the 20/80
20/80 principle The idea that a small
principle: around 20 percent of a company’s products will account for about 80
percentage of a company’s products
percent of its revenues, and, conversely, 80 percent of its products will generate accounts for a large percentage of its
only 20 percent of its revenues. Thus, these 80 percent of the company’s products are revenues
primary candidates to be considered for elimination.
Some companies have benefited greatly from their product elimination efforts.
A small candy company dropped 796 of its 800 products, yet became one of the
most profitable firms in the industry. Hunt Foods’ sales increased eightfold over the
decade that it was discarding 27 of 30 product lines. American Optical freed up
additional executive time, dropped its inventory level, and made resources avail-
able for more-promising products. One year after its product elimination effort,
Shaklee’s net profits doubled. Chrysler dropped its 18-year-old Jeep Cherokee, a
product that had numerous defects and an obsolete design, and replaced it with the
Jeep Liberty, which was expected to help rejuvenate its sales. 16
Successful product elimination programs subject all products to a periodic
analysis—at least once a year. Because of the great number of products many

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