He said: "The purpose of a business is to create a customer." Thus, in a 10-word sentence he has made two profound statements: one about the corporate purpose, its essence and its goals; the other about the tasks necessary to achieve those purposes and goals.
Ted Levitt, Robert Heller, Philip Kotler and many others have stated in one way or another that Peter F. Drucker’s frameworks for marketing analysis, planning, implementation and control inspired many of their contributions to the field.
This article synthesizes the constancy of Drucker’s marketing message, with the straightforward reasoning of several of his most notable admirers.
When a product slips into marginal profitability, management is often caught in disbelief.
Only yesterday, the rhetoric goes, the company was thriving, profits were lush, production costs were under tight control and competitors were virtually nonexistent.
The product life cycle concept not only explains the inevitability of some problems. It enables management to identify and forecast other potential marketing vulnerabilities and take early corrective action.
Thus, its most important uses are as a planning tool—in formulating marketing strategies that protect short-term profits and provide direction in setting long-term growth goals.
There are four distinct phases in the product life cycle (Clck on diagram to enlarge.):
(Introduction/Growth/Maturity/Decline)
The actual time span for each phase depends upon the industry, the product, the brand—and the cunning of management.
Some companies and brands remain in the third phase of the product life cycle for 50 years. Others don’t live out six months.
Most products and new companies, of course, never survive the introductory phase.
Consumers resist the product. Design and production problems plague early versions of it. Inadequate distribution networks hamper sales. Insufficient capitalization or lack of patience, curtails customer-getting activities.
In his classic Harvard Business Review article "Exploit the Product Life Cycle," Ted Levitt pointed out that the length of time a product remains in the introductory or market development stage is unforeseeable. He asked:
"What factors tend to prolong [this] stage and therefore raise the risk of failure? The more complex the product, the more distinctive its newness, the less influenced by fashion, the greater the number of persons influencing a single buying decision, the more costly it is, and the greater the required shift in the consumer’s usual way of doing things."
Robert Heller presents this view in his remarkable book The Great Executive Dream:
"New products fail, and in phenomenally high proportions, because they offer no advantage worth having or, more simply because they are bad. Even an admirable original (such as Xerography or the Polaroid camera) customarily starts life badly: It is clumsy, hard to use, dear, unsatisfactory in its results."
Failure in this phase is also attributed to a "product concept" that’s fuzzy or poorly conceived. In an early edition of Marketing Management Philip Kotler demonstrates how a viable product concept is developed:
"Assume that a large food processor gets the idea to produce a powder that consumers could add milk to increase the nutritional level and taste…This is a product idea.
Consumers, however, do not buy product ideas—they buy product concepts…first, the question can be asked, who is to use this product? The powder can be aimed at infants, children, teenagers, adults, senior citizens, or some combination.
Second, what primary benefit should be built into this product? Taste, nutrition, refreshment, energy? What is the primary occasion for the drink? Breakfast, midmorning, lunch, mid-afternoon, dinner, late evening?
By asking these questions, many alternative product concepts can be formed…One is an instant breakfast drink aimed at adults who want a quick way to get nutrition…without preparing a breakfast.
Another is a health supplement aimed at senior citizens as a nighttime beverage. Still another is a tasty snack drink designed for children for midday refreshment."
Once the company has chosen a product concept, its competitors will be defined.
For example, if the product is "positioned" as an instant breakfast drink it will compete against cereals, bacon and eggs, and pastry, notes Kotler. If it positioned as a snack drink, it will compete against soft drinks and hot chocolate.
Hence, it is the product concept and not the functional or formal product that determines the field of competition.
Peter Drucker emphasized this, in Management: Tasks, Responsibilities, Practices, by emphasizing the questions asked to derive Cadillac’s early product concept:
"Does the man who purchases a new Cadillac buy transportation or does he buy primarily prestige? Does the Cadillac compete with Chevrolet, Ford and Volkswagen?"
Drucker reminded us that Nicholas Dreystadt, who took over Cadillac during the Depression, said, "Cadillac competes with diamonds and mink coats. The Cadillac customer does not buy ‘transportation’ but ‘status.’"
Drucker always stressed the necessity of asking and re- asking these critical questions:
- Who is to use the product?
- What specific benefits does the customer derive from buying it?
- How can the customer be reached?
- Which product concept is most likely to succeed?
Growth Phase
Satisfied first-triers become repeat purchasers, and delayed first triers become new buyers in the growth phase. This creates a "critical mass" of customers. Sales and profits soar.
But then competitors who didn’t think the product would gain acceptance, or those who suffered from a "not invented here" complex suddenly emerge.
Some enter with an exact duplicate of the originator’s product. Still, this news is not necessarily bad.
In most situations, the entry of new competitors forces the market to expand at a faster pace. Drucker stated:
"…the dominant supplier in a rapidly expanding [new] market is likely to do less well than if he shared that market with one or two other major and competing suppliers. This may seem paradoxical—and most businessmen find it difficult to accept.
But the fact is that a new market, especially a new major market, tends to expand much more rapidly when there are several suppliers rather than only one."
Even though a firm’s market share might shrink, total company sales will increase because of the accelerated growth in total industry sales.
Drucker added that a market dominated by one supplier will be limited by that supplier’s imagination.
During the growth phase, the firm should reconsider the strategic marketing questions mentioned earlier.
In addition, it must respond to some critical new questions. Are we smaller (financially and competitively) than our emerging competition? If so what specific actions are required to maintain our position?
Growth could be short-lived for the product originator if competitors are large, well-financed and possess the skills and knowledge essential for success. Heller describes what can happen:
"The harder a leviathan is hit by small-fry competition, the more likely it is to undergo the whale-like upheaval from which its progress mostly springs.
The leviathan can bask for decades at a time before some terrible shock (like the lumps that Wilkenson carved out of Gillette) makes it shoot out of the water on a sudden, usually brief, career of high-speed performance
And it is easier for giant companies, despite their inertia, to react to challenge than it is for the little challenger to meet the awakened giant’s attack."
Big companies have the managerial talent, and extensive funds for advertising, promotion, research and development.
Most importantly, they usually have a vast distribution network, proven systems and the ability to abandon their older product in favor of an "innovatively imitated" version of the originator’s product.
If retaliation by a large company seems likely, then future strategy choices are limited. Opening new markets, developing new channels of distribution, expanding the product line, improving the core product, pursuing neglected market segments and lowering prices are, of course, very tempting options.
But by expanding its efforts or doing too many things in an attempt to service the entire market, the small company is likely to only add to its current difficulties.
When strong competition appears inevitable, the best strategy for the smaller company is to concentrate its resources on one of a few substantial market segments, which the company has the knowledge and skills to serve particularly well.
Said Drucker: "By the time an industry growing rapidly has doubled in volume, the way it perceives and services in its market is likely to have become inappropriate. In particular, the ways in which the traditional leaders define and segment the market no longer reflect reality, they reflect history."
This Drucker insight provides a diagnostic benefit to those pursuing a niche in a given market space. But the inevitability of deep-pocketed competition, if the market is big enough, should force thorough and thoughtful planning long before the future arrives.
Competition that comes in later on a "me too" basis will have a difficult time in displacing a firm that has skillfully built up its reputation in a specific market segment.
By the same token, the "small fry" firms that get shaken out when the competitive onslaught begins are usually indistinguishable in their skills and offerings. They have no differential advantages in the eyes of the customer.
Marketing Science Institute’s PIMS study confirms that if a company creates a superior product, charges a premium price and develops a relatively high market share in its selected market segments, then the probability of high profits and high returns on the invested capital will be maximized.
Examples of companies using this strategy are plentiful. In the early television market, Zenith concentrated on a segment of the television market, which emphasized reliability and superior quality above other benefits. Perdue, Inc., appealed to the market segment that wanted quality chickens and the guarantee, if unsatisfactory, they could be returned. (For more information, read "How to Understand the Marketing Concept.")
The Maturity Phase
Sales and profits still tend to increase in the third phase of the product life cycle—but at a declining rate. And while most marketing experts have contributed little actionable thought to improving that rate, Ted Levitt was the exception.
In order to expand sales and profit potential during the maturity phase—and thus extend the life of the product—Levitt suggested what he called "market stretching," the set of actions a company should unleash in response to four distinct strategic questions.
To illustrate, he used two product examples: Du Pont nylon and Jell-O dessert. Nylon’s original uses, he reminded us, were primarily military—parachutes, thread, ropes. Its big boost came when it entered the circular-knit market, particularly women’s hosiery.
Jell-O’s early concentration was in the "fast preparation" dessert market segment. Now the strategic questions:
How can we promote more frequent use of the product by current users?
When Du Pont studies showed a growing trend toward "bare-leggedness among women," the company could have promoted the "social necessity" of wearing stockings for all occasions.
But that would have been difficult and very costly; and therefore, Levitt claimed, this was dismissed as a viable option. Jell-O’s product life extension along these lines was to increase the number of flavors from six to over a dozen.
How can we develop more varied usage by current users?
Du Pont introduced tinted, patterned and textured hose in well-planned sequence. Thus, hosiery was converted from a "neutral accessory" to a "central ingredient of fashion." Jell-O created more varied usage by promoting its product as a salad base.
How can we expand the market to create new users for the product?
Though it could have, Du Pont did not attempt to persuade teenagers, sub-teens and other nonuser groups to begin wearing nylon stockings. Jell-O created new users by appealing to the "stay-slim" market segment.
What new uses can we find for the basic product?
Levitt noted that Du Pont successfully incorporated nylon into rugs, tires, bearings and so forth. Jell-O introduced a flavorless gelatin as a food supplement that would strengthen fingernails.
While Levitt focused on these consumer product examples, his methodology actually applies to any product, company, institution or service. Museums and universities, for example must now "market stretch" to prevent dwindling attendance.
In any case, the key is to preplan a series of extension strategies that will postpone the inevitable slippage in sales or profits.
The Decline Stage
Eventually, most products and brands enter the "demise" phase, in which sales and profits begin to decline.
Kotler has said, "Companies differ in their strategies during this period. Many exit hastily in order to put their resources to better use.
This makes it advantageous for a few companies to remain, reaping positive and often increased profits in catering to the hard core buyers."
Certainly, some companies are too hasty in their decision to abandon a "sick" product. As stated by Heller:
"Brands lose market share or wither on the vine, not because they get overtaken by the march of history, but because executives stupidly neglect them.
There is no product life cycle; there is a mismanagement cycle. A confectionery executive once stumbled on this truth. He had an old line of cachous, a Victorian sweet that any whizzing young brand manager would have shot on sight…
Over the years, [its sales figures] had slid down the life cycle slope to a quarter of their one-time peak. The chief executive (who, since the family owned the business, was more possessive than marketing professionals) looked at the figures another way.
Certainly, they showed far fewer people wanted his candy. But the miracle, for un-promoted, old-fashioned gunk, was that so many people still drooled for the stuff…So he improved production to cut costs, spent the savings on promotion—and sales doubled."
Kotler cites another example of why "repair jobs" should be considered before complete abandonment: Ipana toothpaste, which was dropped from the Bristol Myers product line, was successfully "remarketed" under the Ipana name by another company.
Similar illustrations abound in almost every industry.
Though statistics are unavailable, it seems reasonable to assume that the probability of successfully re-energizing "yesterday’s proven product" exceeds the probability of successfully launching a new one. Surely, businesses need an "old product policy."
On the other hand, some products and brands are simply, as Drucker has labeled them, "yesterday’s breadwinners."
Since they cannot be probably re-launched, they just be pruned from the product line. Defending these products is defending yesterday—and that is commercial suicide because it drains valuable resources from today’s winners and tomorrow’s hopefuls. (For more information, read "Abandoing the Obsolete and Unproductive.")
In Conclusion
"But this is nothing but elementary marketing," most readers will protest, and they are right. But why, Peter F. Drucker once noted, "after decades of preaching basic Marketing, teaching Marketing, professing Marketing, so few executives are willing to follow, I cannot explain."
The fact remains that so far, anyone who is willing to use the product life cycle concept as a basis for strategy is likely to acquire leadership in an industry or a market niche fast and successfully.