POST GRADUATE EXECUTIVE MANAGEMENT PROGRAM BHARATIYA VIDYA BHAVAN, BANGALORE 18

INTERNATIONAL BUSINESS
PRODUCT LIFECYCLE International Product Lifecycle theory is one of the leading explanations of international trade patterns. The life cycle begins when a developed country, having a new product to satisfy consumer needs, wants to exploit its technology break-through by selling abroad. Later it shifts outside to reduce the cost and increase in demand outside. When the demand stagnates it switches to a standard product to be able to compete in cost.
ARNITA CHAKRAVORTY PG100924 10/23/2011

Raymond Vernon developed the international product life cycle theory in the 1960s. The international product life cycle theory stresses that a company will begin to export its product and later take on foreign direct investment as the product moves through its life cycle. Eventually a country's export becomes its import. Although the model is developed around the U.S, it can be generalised and applied to any of the developed and innovative markets of the world. The product life cycle theory was developed during the 1960s and focused on the U.S since most innovations came from that market. This was an applicable theory at that time since the U.S dominated the world trade. Today, the U.S is no longer the only innovator of products in the world. Today companies design new products and modify them much quicker than before. Companies are forced to introduce the products in many different markets at the same time to gain cost benefits before its sales declines. The theory does not explain trade patterns of today. The life cycle of a product generally indicates the beginning of a product which is compiled along with its stages of growth towards it declining stages. Due to continuous evolution the international marketing standards are constantly changing. International product life cycle comprises of five different stages and features. They are: Introduction Growth Maturity Saturation Decline

The five distinct stages (Stage 0 through Stage 4) in the IPLC can be shown on a graph by three life-cycle curves for the same innovation: one for the initiating country (e.g. The United States), one for other advanced nations, and one for LDCs (lesser developed countries) For each curve, the net export results when the curve is above the horizontal line; if under the horizontal line, net import results for that particular country. As the innovation moves through time, directions of all three curves change. Stage 0 Local Innovation Stage 0: Depicted as time 0 on the left of the vertical importing/exporting axis, represents a regular and highly familiar product life cycle in operation within its original market. Innovations are most likely to occur in highly developed countries because consumers in such countries are affluent and have relatively unlimited wants. From the supply side, firms in advanced nations have both the technological know-how and abundant capital to develop new products. Stage 1Overseas Innovation: As soon as the new product is well developed, its original market well cultivated, and local demands adequately supplied, the innovating firm will look to overseas markets in order to expand its sales and profit. Thus, this stage is known as a "pioneering" or "international introduction" stage. The technological gap is first noticed in other advanced nations because of their similar needs and high income levels. Not surprisingly, English-speaking countries such as the United Kingdom, Canada, and Australia account for about half of the
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sales of U.S. innovations when such products are first introduced overseas. Countries with similar cultures and economic conditions are often perceived by exporters as posing less risk and thus are approached first before proceeding to less familiar territories. Competition in this stage usually comes from U.S. firms, since firms in other countries may not have much knowledge about the innovation. Production cost tends to be decreasing at this stage because by this time the innovating firm will normally have improved the production process. Supported by overseas sales, aggregate production costs tend to decline further because of increased economies of scale. A low introductory price overseas is usually not necessary because of the technological breakthrough; a low price is not desirable because of the heavy and costly marketing effort needed in order to educate consumers in other countries about the new product. In any case, as the product penetrates the market during this stage, there will be more exports from the United States and, correspondingly, an increase in imports by other developed countries. Stage 2Maturity: Growing demand in advanced nations provides an impetus for firms there to commit themselves to starting Iocal production, often with the help of their governments' protective measures to preserve infant industries. Thus, these firms can survive and thrive in spite of relative inefficiency. Development of competition does not mean that the initiating country's export level will immediately suffer. The innovating firm's sales and export volumes are kept stable because LDCs are now beginning to generate a need for the product. Introduction of the product in LDCs helps offset any reduction in export sales to advanced countries. Stage 3Worldwide Imitation: This stage means tough times for the innovating nation because of its continuous decline in exports. There is no more new demand anywhere to cultivate. The decline will inevitably affect the innovating firm's economies of scale, and its production costs thus begin to rise again. Consequently, firms in other advanced nations use their lower prices (coupled with productdifferentiation techniques) to gain more consumer acceptance abroad at the expense of the innovating firm. As the product becomes more and more widely disseminated, imitation picks up at a faster pace. Towards the end of this stage, innovating firms export dwindles almost to nothing, and any production still remaining is basically for local consumption. The U.S. automobile industry is a good example of this phenomenon. There are about thirty different companies selling cars in the United States, with several on the rise, Of these, only three are U.S. firms, with the rest being from Western Europe, Japan, and South Korea Stage 4Reversal: The major functional characteristics of this stage are product standardization and comparative disadvantage. The innovating country's comparative
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advantage has disappeared, and what is left is comparative disadvantage. This disadvantage is brought about because the product is no longer capital-intensive or technology-intensive but instead has become labor-intensivea strong advantage possessed by LDCs. Thus, LDCsthe last imitatorsestablish sufficient productive facilities to satisfy their own domestic needs as well as to produce for the biggest market in the world, the United States. U.S. firms are now undersold in their own country. Black-and-white television sets, for example, are no longer manufactured in the United States because many Asian firms can produce them much less expensively than any U.S. firm. Consumers price sensitivity exacerbates this problem for the initiating country.

Examples
Set out below are some suggested examples of products that are currently at different stages of the product life-cycle: INTRODUCTION Third generation mobile phones E-conferencing GROWTH MATURITY DECLINE

Portable DVD Players Personal Computers Typewriters Email Faxes Handwritten letters Shell Suits Cheque books

All-in-one racing skin- Breathable synthetic Cotton t-shirts suits fabrics iris-based personal Smart cards Credit cards identity cards

Analysis of Product Life Cycle Model

There are some major product life cycle management techniques that can be used to optimize a products revenues in respect to its position into a market and its life cycle. These techniques are mainly marketing or management strategies that are used by most companies worldwide and include the know-how of product upgrade, replacement and termination. To comprehend these strategies one must first make a theoretical analysis of the model of product life cycle. Nevertheless, a product manager must know how to recognize which phase of its life cycle is a product, regardless of the problems in the model discussed above. To do that a good method is the one, suggested by Donald Clifford in 1965, which follows. Collection of information about the products behavior over at least a period of 3 5 years (information will include price, units sold, profit margins, return of investment ROI, market share and value).
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 Analysis of competitor short-term strategies (analysis of new products emerging into the market and competitor announced plans about production increase, plant upgrade and product promotion). Analysis of number of competitors in respect of market share. Collection of information of the life cycle of similar products that will help to estimate the life cycle of a new product. Estimation of sales volume for 3 5 years from product launch. Estimation of the total costs compared to the total sales for 3 5 years after product launch (development, production, promotion costs). The estimate should be in the range of 4:1 in the beginning to 7:1 at the stage where the product reaches maturity.

Conclusion
Without an understanding of the product lifecycle, marketers are flying blind. Strategic decisions made under these circumstances tend to be short-term and not much more than guesses. Using the product lifecycle as a tool for evaluating your current business situation facilitates a longer-term perspective and can point out options for future strategic decisions. Managing a product must not be taken as a part time job or function. It requires continuous monitoring and review. Having said that, it is not clear why many companies do not consider product management as a discipline. The answer lies in the fact that product management is not taught as engineering or accounting i.e. does not have formalized training. The product manager as the person that will make a new product to work, needs to understand and have a strong grasp of the needs of the customer / market and therefore make the right decisions on market introduction, product life cycle and product cannibalization. To achieve the above he must balance the needs of the customers with the companys capabilities. Also he needs to balance product goals with company objectives. The way a products success is measured depends on where the product is in its life cycle. So the product manager must understand the strategic company direction and translate that into product strategy and product life cycle position.

A CASE STUDY KELLOGGS

Each product has its own life cycle. It will be born, it will develop, it will grow old and, eventually, it will die. Some products, like Kelloggs Corn Flakes, have retained their market position for a long time. Others may have their success undermined by falling market share or by competitors. The product life cycle shows how sales of a product change over time. The five typical stages of the life cycle are shown on a graph. However, perhaps the most important stage of a product life cycle happens before this graph starts, namely the research and development (R&D) stage. Here the company designs a product to meet a need in the market. The costs of market research - to identify a gap in the market and of product development to ensure that the product meets the needs of that gap - are called sunk or start-up costs. Nutri-Grain was originally designed to meet the needs of busy people who had missed breakfast. It aimed to provide a healthy cereal breakfast in a portable and convenient format. 1. Launch - Many products do well when they are first brought out and Nutri-Grain was no exception. From launch (the first stage on the diagram) in 1997 it was immediately successful, gaining almost 50% share of the growing cereal bar market in just two years. 2. Growth - Nutri-Grains sales steadily increased as the product was promoted and became well known. It maintained growth in sales until 2002 through expanding the original product with new developments of flavour and format. This is good for the business, as it does not have to spend money on new machines or equipment for production. The market position of Nutri-Grain also subtly changed from a missed breakfast product to an all-day healthy snack.

3. Maturity - Successful products attract other competitor businesses to start selling similar products. This indicates the third stage of the life cycle - maturity. This is the time of maximum profitability, when profits can be used to continue to build the brand. However, competitor brands from both Kellogg's itself (e.g. All Bran bars) and other manufacturers (e.g. Alpen bars) offered the same benefits and this slowed down sales and chipped away at Nutri-Grains market position. Kellogg's continued to support the development of the brand but some products (such as Minis and Twists), struggled in a crowded market. Although Elevenses continued to succeed, this was not enough to offset the overall sales decline.

Not all products follow these stages precisely and time periods for each stage will vary widely. Growth, for example, may take place over a few months or, as in the case of Nutri-Grain, over several years. 4. Saturation- This is the fourth stage of the life cycle and the point when the market is full. Most people have the product and there are other, better or cheaper competitor products. This is called market saturation and is when sales start to fall. By mid-2004 Nutri-Grain found its sales declining whilst the market continued to grow at a rate of 15%. 5. Decline - Clearly, at this point, Kellogg's had to make a key business decision. Sales were falling, the product was in decline and losing its position. Should Kellogg's let the product die, i.e. withdraw it from the market, or should it try to extend its life?

Strategic use of the Product Life Cycle When a company recognises that a product has gone into decline or is not performing as well as it should, it has to decide what to do. The decision needs to be made within the context of the overall aims of the business. Strategically, Kellogg's had a strong position in the market for both healthy foods and convenience foods. Nutri-Grain fitted well with its main aims and objectives and therefore was a product and a brand worth rescuing. Kelloggs aims included the development of great brands, great brand value and the promotion of healthy living. Kellogg's decided to try to extend the life of the product rather than withdraw it from the market.