Marketing: The Product Life Cycle
Watch this to unpack the product life cycle and its link to the sales v profit relationship in Higher Business (a big one for the Gamers)
Every year at Christmas, there’s always that one really popular present that’s in super high demand. It’s usually a product for kids or young people; like Furbies, Frozen Snow Globes, Barbies, Pie Face, or if you go back in time to when I was a kid – a BMX bike!
What was the number one product for Christmas 2020? I’d bet most of you would guess correctly, maybe even lucky enough to get one yourself – it was the PlayStation 5.
As a newly launched good, the PS5 is right near the beginning of a process we call the Product Life Cycle. This topic, which is part of the Marketing unit of Higher Business, is one which most have a general grasp of, but there is one common pitfall where students tend to lose marks. This video aims to highlight the differences between sales and profits as the PS5 moves through its Product Life Cycle.
This is thinkfour
The PS5 went on sale in mid-November; strategically timed of course by the manufacturer Sony to take advantage of the Christmas market.
Despite the high price tag of £450 plus the cost of games, controllers and so on, this did nothing to stop the product selling out almost immediately, leaving some customers disappointed.
It would seem logical then that both the sales and profit levels for this product would be really high. This isn’t necessarily the case, especially for profitability. To get to the root of this, it’s essential to understand what happens in those early stages of the Life Cycle.
The first stage isn’t the Introduction phase, it’s the Research and Development stage sometimes called Product Development. Bear in mind here that the PS5 is a high spec technical product and wasn’t developed overnight.
At this stage, Sony is developing the concept of the PS5; what will it look like, what features it will have, what component parts will be needed to build it, how big will it be?
Sony is likely to have had several designs on the above which they would turn into prototypes. These prototypes will be tested by potential customers to gain their feedback and Sony is also likely to have conducted market research to establish the current needs and wants of gamers. Eventually, once everything is finalized, the PS5 goes into mass production.
And all of this comes at a substantial cost to Sony.
This means that as the PS5 moves into the Introduction stage of the Life Cycle, Sony is currently making a loss on the product having spent a great deal and generated zero sales.
The business spends even more money during Introduction as it promotes the new release with adverts running on TV channels and advertising space across the globe; this further adds to the net loss.
So as we move from the Introduction phase into the Growth stage, only now do we start to see Sales rising and alongside that, Sony begins to recover the high costs of the Development stage. Eventually, those costs are completely covered and the PS5 is now profitable, especially keeping in mind that high price tag.
As the PS5 moves through the Maturity, Saturation and Decline stages the sales and profit levels become largely synchronous; hitting a peak around Growth and Maturity before gradually sloping off.
So the crucial thing to keep in mind here is that the profit levels are impacted by the costs which the business incurs. The sales level doesn’t account for creating and marketing the product.
In Higher Business, you may be asked to comment on trends in sales OR profits during the Product Life Cycle. Remember, they’re not the same thing.
So, do us both a favour; get that Higher Business studying done first, before you pick up that PS5 controller! Then you can truly defeat the boss, proceed to the next level and maybe one day complete the game! Good luck.
this was thinkfour, thanks for watching