Product Life Cycle

describes the stages a really new product idea goes through from beginning to end

There are 4 stages:

1. market introduction
2. market growth
3. market maturity
4. sales decline

Market Introduction

in this stage sales are low as a new idea is first introduced to a market

- customers aren't looking for the product and do not know of its superior value

- informative promotion is needed

Market Growth

in this stage industry sales grow fast, but industry profits rise and then start falling

- the inventor begins to make big profits as more and more customers buy

- competitors enter the market creating monopolistic competition

Market Maturity

this stage occurs when industry sales level off and competition get tougher

- many aggressive competitors have entered the race for profits (except in oligopoly situations)

- industry profits go down because promotion costs rise and some competitors cut prices to attract business

Sales Decline

in this stage new products replace the old

- price competition from dying products becomes more vigorous, but firms with strong brands may make profits until the end because they have successfully differentiated their products

Fashion

the currently accepted or popular style

- fashion-related products tend to have short life cycles because what is currently popular can shift rapidly

Fad

an idea that is fashionable only to certain groups who are enthusiastic about it

- these groups are so fickle that a fad is even more short lived than a regular fashion

New Product

one that is new in any way for the company concerned

- there are many ways a product can become "new"

- ex) fresh ideas and variations on an existing product idea

Federal Trade Commission (FTC)

(on new products)

according to the FTC a firm can only call a product new for six months

- this federal government agency polices anti-monopoly laws

- To be called new, the FTC says, a product must be entirely new or changed in a "functionally significant or substantial respect"

Consumer Product

Safety Act

set up the Consumer Product Safety Commission to encourage safety in product design and better quality control

- has a great deal of power

- can set standards, order repairs or return of unsafe products, and can back up its orders with fines and jail sentences

Product Liability

the legal obligation of sellers to pay damages to individuals who are injured by defective or unsafe products

- liability settlements may exceed not only a comapny's insurance coverage but its total assets

Concept Testing

getting reactions from customers about how well a new-product idea fits their needs

- uses market research - ranging from informal focus groups to formal surveys of potential customers

Product Managers

(Brand Managers)

manage specific products - often taking over the jobs formally handled by an advertising manager

- gives a clue to what is often their major responsibility, promotion, since the products have already been developed by the new-product people

Total Quality Management (TQM)

the philosophy that everyone in the organization is concerned about quality, throughout all of the firm's activities, to better serve customer needs

- first focused on reducing defects in goods produced in factories (seen as inevitable)

- now focuses on doing something right the first time so a company does not have to pay again to fix the problems

- the cost of a defect is not just that of the replacement, but also the cost to the customer who received that poorly made product

Continuous Improvement

a commitment to constantly make things better one step at a time

- if there is a better way to do something you find it

- the place to start is to clearly define "defects" from the customer's point of view

Pareto Chart

a graph that shows the number of times a problem cause occurs, with the problem causes ordered from most frequent to least frequent

- the worst problems often occur over and over again

- now the manager's attention can be focused on the quality problem to fix first

- Rule of Quality Management: "slay the dragons first" - or - start with the biggest problem

Fishbone Diagram

a visual aid that helps organize cause-and-effect relationships for "things gone wrong"

- used to solve identified problems

- the table also summarizes other causes for problems

Empowerment

giving employees the authority to correct a problem without first checking with management