中 華 大 學

中 華 大 學 博 士 論 文

以利潤極大化為基礎之第二代產品最佳上市 時機和訂價模式

Modeling the Optimal Launching Timing and Price-Setting of Second-Generation Product to

Maximize Overall Profit

系 所 別 ： 科技管理博士學位學程 學 號 姓 名 ： D09603012 倪 明 海 指 導 教 授 ： 楊 振 隆 博 士 魏 秋 建 博 士

中 華 民 國 100 年 1 月

中 華 大 學 博 士 班 研 究 生 論 文 指 導 教 授 推 薦 書

科技管理博士學位學程博士班倪明海君所提之論 文以利潤極大化為基礎之第二代產品最佳上市時 機和訂價模式，係由本人指導撰述，同意提付審查。

指導教授 ^{(簽章) (簽章)}

中華民國九十九年十月

中 華 大 學 博 士 班 研 究 生 論 文 口 試 委 員 會 審 定 書

科技管理博士學位學程博 士班倪明海君所提之論 文以利潤極大化為基礎之第二代產品最佳上市時 機和訂價模式，經本委員會審議，符合博士資格標 準。

論文口試委員會 召集人

委 員

學程主任

中華民國九十九年十二月三十

摘 要

由於科技的快速變遷，市場的激烈競爭，國際化和產品需求的差異化，產業界對 於產品生命週期管理 (Product life cycle management) 之精凖性更趨嚴謹。高科 技產業諸如資訊科技(Information Technology)，半導體 (Semiconductor) ，光電 (Optoelectronic) 和航太 (Aerospace) 產業等，對於產品生命週期中各個階段的轉 換 (Transition of stage) 和管控，會直接影響企業的經營績效，利潤的獲取和目 標的達成，最終影響企業之生存與發展。

在實務上，產品生命週期中，各個階段的轉換時機 (Timing) ，持續週期 (Sustainable period)和價格訂定(Price-setting)等主要變數，相當複雜且難以掌 控。長期以來，即便是時下，絕大多數世界級的企業，包括所謂的高科技產業的領導 者，皆無常態的機制來掌控產品生命週期。由於缺乏常態的掌控機制，企業的諸多經 營管理課題，舉凡人力資源，財務管理，製造管理，研發管理和行銷管理之策略規劃 和制訂，多會嚴重失真，最後導致企業極大之傷害和損失。

本研究基於上述的背景和企業的迫切需求，經由最周密的研究假設，遵循相關的

理論架構和嚴謹的數學推導，最終獲得了預期的計量模型、並驗證本研究在實務應用

上之可行性。

本研究於模式建構部份，針對產品生命週期管理中，以利潤極大化為基礎之新產

品上市時間 (Launching time) 和訂價的最佳化，發展出一套量化模型，以提供產品 生命週期敏感的產業，依據本研究所提供的模型，建立一套積極性的產品最佳上市時 間和訂價預測模式，使得企業能因此在營運上獲得最大的利益。於模式驗證部份，將 推導出來的計量模型，透過數個案例的驗證，同時把所有可能產生的參數組合，計算 其最終結果並詳列成表，藉以印證本研究在實務應用上極具可行性。 在討論的部份，

針對其他知名學者先前提出和本研究部份相關的計量模型，做了深入的比較和差異分 析，藉此能更明確的進一步驗證本研究所提出的模式在實務應用上之適用性。在結論 的部份，更明確的綜合了本研究所作出的具體貢獻和將來研究方向。並鼓勵對本研究

有高度興趣的學者，在模式和實務之接近性或實證研究上，做更深入的研究和驗證。

關鍵詞 : 產品生命週期管理、高科技產業、階段的轉換、價格訂定、產品最佳上市 時間

Abstract

The rapid changes in technology, market competition, globalization, and the requirements for product differentiation are causing industries that employ product life cycle management (PLCM) to become more meticulous High-tech industries such as information technology, semiconductors, optoelectronics and aerospace are sensitive to product life cycle management, especially in relation to stage transition, timing control and price-setting. PLCM can significantly influence the corporate performance, profit acquisition and the achievement of business goals and can ultimately affect the survival and prospects for future development.

In practice, it is difficult to control the major variables in PLCM, such as the timing of stages transition, the stages sustainability period and price-setting. Even the majority of world-class companies, including those at the cutting edges of technology employ no standard mechanisms to control the product life cycle effectively. Due to this lack of controllability, most areas of management such as the human resources management, financial management, manufacturing management, R & D management, marketing strategy planning and development, have serious inefficiencies that can greatly impact the financial performance of the company and possibly its survival.

In this context, this research focuses on the urgent needs of enterprises, through primitive hypothesis influence, within the relevant theoretical framework and rigorously derives the functional models required. Additionally, we test the feasibility of these models for practical applications.

In the model formulation part, a series of quantitative models are developed with the motivation of finding both the optimal launching time and price-setting for maximizing profit. Based on the proposed models, we strongly encourage companies in PLC sensitive industries to adopt proactive forecasting system to facilitate decisions about both launching

timing and price-setting. In the case implementation part, the proposed models are tested in several rigid cases that simulate genuine business situations. Moreover, the feasibility of this research in practical applications is confirmed by presenting several tables results composed by calculating possible parameters that meet the selected criteria. The discussion part compares the results with previous widely-cited studies involving related models. A variance analysis is performed to ascertain the feasibilities of this research for practical applications. The conclusion addresses the relative contributions of this research and the prospects for future research. Finally, encouragement is extended to others with a potential interest in continuing this both by approximating between proposed models and practical events and through empirical research.

Keywords: Product life cycle management, Hi-tech industries, Stage transition, Price-setting, Optimal launching time of product

誌謝辭

三年多的博士班生涯，就在論文被國外期刊接受之後被加速了，緊接著又忙碌於 撰寫博士論文，口試，修改論文最終獲得學位。一路走來苦樂交遞，只有經歷過的人 才能深刻體認個中三昧，實為人生一大樂事也。此刻最先要感謝，兩位治學嚴謹，學 養俱佳的指導教授，楊振隆教授和魏秋建教授，感恩兩位恩師在授業期間，無私的奉 獻和教誨，不僅在治學上，同時在處世上也獲益良多。沒有兩位恩師的教導，則本論 文必然無法順利完成。

本論文能順利完成，同時要感謝蘇朝墩教授、袁建中教授、張清靠教授、林淑萍 教授、李欣怡教授，諸位口試委員在口試前後，提供諸多寶貴的意見和指導，本論文 藉此得以更臻完善，在此誠摯的表達對諸位教授們最高的謝忱。

感謝留美學長龐開基博士的鼓勵和協助。受業期間系上所有師長的指導和教誨，

授業解惑之情深銘於心。同學間相互激勵亦為成長之動力，感謝秋月、阿澤、雅慧、

美蘭、碧雲、浩峰、銘杰和羽惠一路相挺。對於學術的追求，特別要感謝，前雲科大 林聰明校長和輔大丁瑞華教授，從小到大，長期的教導和鼓勵，並深深受益於他們所 樹立的典範。

家人的支持，提供了最大的能量和堅持。感恩媽媽、大哥、大嫂、小妹、妹夫長 期的支持和鼓勵。同時，最特別要感謝我的妻子-黃麗琴女士和可愛的女兒-珮瑄，由 於他們最大的支持和包容，讓我無後顧之憂，全力以赴，順利完成博士學位。

中 華 民 國 99 年 12 月

Contents

摘要……….i

Abstract……….iii

誌謝辭………....v

Contents……….vi

List of Table………viii

List of Figure……….xi

Chapter 1 Introduction……….1

Section 1 Background and Motivation………1

Section 2 Research Objectives………2

Section 3 Research Framework………...3

Chapter 2 Literature Review………...5

Section 1 Review of PLCM………5

Section 2 Review of Price-Setting………27

Chapter 3 Model Formulation……….36

Section 1 Modeling Timing Aspects……….36

Section 2 Model Development of Price-Setting………44

Chapter 4 Case Implementation………55

Section 1 Verifications of Timing Aspects………55

Section 2 Verifications of Price-Setting Aspects………...70

Section 3 Verifications of Strategic Pricing Policies……….83

Section 4 Sensitivity Analysis………...88

Section 5 Discussions………99

Chapter 5 Conclusions……….106

Reference………108

Appendix A……….116

List of Tables

Table 1 Stage Characteristics of Product Life Cycle………16

Table 2 Strategies of Each PLC Phase……….26

Table 3 Market Information of Case 1……….56

Table 4 Results of Case 1……….56

Table 5 Market Information of Case 2……….57

Table 6 Results of Case 2……….58

Table 7 Market Information of Case 3……….59

Table 8 Results of Case 3……….59

Table 9 Market Information of Case 4……….60

Table 10 Results of Case 4………...61

Table 11 Market Information of Case 5………62

Table 12 Results of Case 5………...62

Table 13 Results of Timing Variation Using Equation (12)……….64

Table 14 Results of Pricing Variation Using Equation (12)……….65

Table 15 Results of Timing and Pricing Variation Using Equation (12)……….66

Table 16 Results of Timing Variation Using Equation (13)……….67

Table 17 Results of Pricing Variation Using Equation (13)……….68

Table 18 Results of Timing and Pricing Variation Using Equation (13)……….69

Table 19 Market Information of Case 6………..71

Table 20 Results of Case 6………..71

Table 21 Market Information of Case 7………..72

Table 22 Results of Case 7………..73

Table 23 Market Information of Case 8………..73

Table 24 Results of Case 8………..74

Table 25 Market Information of Case 9………...74

Table 26 Results of Case 9………...75

Table 27 Market Information of Case 10……….75

Table 28 Results of Case 10……….76

Table 29 Results of Timing Variation Using Equation (31)……….78

Table 30 Results of Pricing Variation Using Equation (31)……….79

Table 31 Results of Timing and Pricing Variation Using Equation (31)………..80

Table 32 Results of Timing Variation Using Equation (32)……….81

Table 33 Results of Pricing Variation Using Equation (32)……….82

Table 34 Results of Timing and Pricing Variation Using Equation (32)………..83

Table 35 Market Information of Case 11………..84

Table 36 Results of Case 11……….84

Table 37 Market Information of Case 12……….85

Table 38 Results of Case 12……….85

Table 39 Market Information of Case 13……….86

Table 40 Results of Case 13……….87

Table 41 Market Information of Case 14……….88

Table 42 Results of Case 14……….88

Table 43 Sensitivity Analysis of p to Y(t)………..89 ₁ Table 44 Sensitivity Analysis of p₂ to Y(t)………90

Table 45 Sensitivity Analysis of p₃ to Y(t)………...91

Table 46 Sensitivity Analysis of t to Y(t)……….92 Table 47 Sensitivity Analysis of t to Y(t)……….93 ₁ Table 48 Sensitivity Analysis of t to Y(t)……….94 ^"

Table 49 Sensitivity Analysis of p to t………95 ₁

Table 50 Sensitivity Analysis of p₂ to t………..96 Table 51 Sensitivity Analysis of p₃ to t……….97 Table 52 Sensitivity Analysis of t to t………..98 ₁ Table 53 Sensitivity Analysis of t to t………..99 ^"

Table 54 Revenue Loss Comparison………..102 Table 55 Revenue Loss from Prasad’s Model………104 Table 56 Revenue Loss from Proposed Model………..105

List of Figures

Figure 1 Research Framework………...4

Figure 2 Product Adoption Model………..6

Figure 3 Stages of Product Life Cycle………...9

Figure 4 Patterns of Product Life Cycle………...14

Figure 5 Components of PLC………...18

Figure 6 Sales and Market Share Advantages of Early Product Introduction………..20

Figure 7 Cost and Price Advantages of Early Product Introduction………20

Figure 8 Computation of Revenue Loss Due to Delay Market Entry………..32

Figure 9 Pricing Framework……….32

Figure 10 Factors that Affect Pricing Decisions………..33

Figure 11 PLC Combinations of Product Portfolio in Timing Aspects………37

Figure 12 PLC Combinations of Product Portfolio in Pricing Aspects………45

Figure 13 Optimal Launching Time of Case 1……….57

Figure 14 Optimal Launching Time of Case 2……….58

Figure 15 Optimal Launching Time of Case 3……….60

Figure 16 Optimal Launching Time of Case 4……….61

Figure 17 Optimal Launching Time of Case 5……….63

Figure 18 Optimal Launching Time of Case 11………...84

Figure 19 Optimal Launching Time of Case 13………...87

Figure 20 Sensitivity Analysis Chart of p to Y(t)………...89 ₁ Figure 21 Sensitivity Analysis Chart of p₂ to Y(t)……….90

Figure 22 Sensitivity Analysis Chart of p₃ to Y(t)………91

Figure 23 Sensitivity Analysis Chart of t to Y(t)………..92 Figure 24 Sensitivity Analysis Chart of t to Y(t)……….93 ₁

Figure 25 Sensitivity Analysis Chart of t^" to Y(t)………94 Figure 26 Sensitivity Analysis Chart of p to t………95 ₁ Figure 27 Sensitivity Analysis Chart of p₂ to t……….96 Figure 28 Sensitivity Analysis Chart of p₃ to t……….97 Figure 29 Sensitivity Analysis Chart of t to t………...98 ₁ Figure 30 Sensitivity Analysis Chart of t to t………..99 ^"

Figure 31 Revenue Losses Due to Delayed Market Entry……….103

Chapter 1 Introduction

This chapter consists of three sections. Section 1 identifies the background and motivation. Section 2 proposes the research objectives. Section 3 concludes this chapter with a research framework which on a block-diagram basis.

Section 1 Background and Motivation

1. Background

Human societies today are characterized by an ever increasing consumption of processed materials such as refined foods, daily consumables, IT products and automobiles.

This high level consumption leads a booming economy and drives rapid technological development incentivized by the strong market demand for new products. Enterprises, in the pursuit of high profit and growth, have learnt to continuously to introduce new products while simultaneously phasing old products out. It is known that when an increasing number of new products are launched into the market at a higher rate, the phase-out of old products quickens the product life cycle shorter and ever more difficult to control. Such events often lead to a change in management style and content and to a new management philosophy.

Previously, most modern enterprises, whether manufacturing or service related, needed to maintain the most advanced and efficient production system, or develop the most sophisticated information service system, and control this key technology platform, enabled success. Highly competitive market made the PLC more difficult to control.

Theoretically, the stage transition of PLC directly influences the marketing strategy and competitive advantage. The PLC also directly impacts most management issues such as production management, marketing management, human resource management, R & D management and financial management. In practice, full control over PLCM is the most critical issue for modern companies.

High-tech industries have recently played a key role in the global economy. The hi-tech companies are highly sensitive to the PLC. Most high-tech companies accept operational uncertainty, short product life cycles, rapid technological development, and operational risks. Hi-tech companies generally possess:

1. Market uncertainty 2. Product uncertainty

3. Technological uncertainty 4. Competitors uncertainty

2. Motivation

In recent years, globalization caused increasing levels of competition among international companies. Competitor unpredictability leads to increased operational risks forcing companies to react more quickly and to adopt a more competitive nature and a new style of management.

In practice, PLCM is a complex and management issue for companies. High-tech companies in particular must overcome this issue if they are pursuing excellence and continuous growth. Previous studies found that even cutting edge technology companies still helpless when dealing with PLCM issues. Only a few world-class companies are even aware of the importance of PLCM and fewer are willing to pay attentions to critical PLCM issues. Some smaller companies have conducted some qualitative-oriented approaches but none to have applied the quantitative-oriented techniques that are viewed as complete PLCM solutions for the hi-tech industry. This research is acting on this strong incentive.

Section 2 Research Objectives

In the context of the previous statements of Section 1, the main objectives of this research are identified as follows:

1. To explore product life cycle management (PLCM), in association with the launching

timing and price-setting for a new product with aim of maximizing overall profits.

2. To explore all possible solutions to the launching timing and price-setting problem with a series of quantitative-oriented approaches.

3. To formulate all the aforementioned solutions into a sets of working models.

4. To verify the proposed models with rigid verification processes to ensure feasibility for practical applications.

5. To examine weather the results of this research meet the basic conditions that justify future research.

Section 3 Research Framework

This research consists of five sections, Chapter1 the introduction identifies both background and research motivation. A set of objectives aim at addressing both academic and practical concerns are presented. Figure1 presents the research framework in a typical block-diagram. Chapter 2 surveys and summarizes hundreds of related papers and books- with the purpose of performing a comprehensive literature review. Chapter 3 is the core of this research-it describes the methodology in a rigid algorithmic setting with quantitative techniques operations. Chapter 4 utilizes a series of demonstration and verification processes to assure the proposed models for practical application. The verification process succeeded for timing, price-setting and interaction issues. Chapter 5 discusses some of the critical issues such as the timing, price-setting and total synergy effects totally. The conclusion summarizes all significant findings and facts, addresses the relative contributions of this research and suggests avenues of future research.

zxzxzxxzx●●ytyit

Figure 1 Research Framework

Chapter 1 Introduction

Introduction Sec 1 Background and

Motivation Sec 2 Research

Objectives Sec 3 Research

Framework

Chapter 2 Literature Review

Sec 1 Review of PLCM Sec 2 Review of

Price-Setting

Chapter 4 Case Implementation

Case Imppppppppp

Implementation Imple

Sec 1 Verifications of Timing Aspects Sec 2 Verifications of

Price-Setting Aspects Sec 3 Verifications of

Strategic Pricing Policies

Sec 4 Sensitivity Analysis Sec 5 Discussions

Chapter 3 Model Formulation

Sec 1 Modeling Timing Aspects

Sec 2 Model

Development of Price-Setting

Aspects

Chapter 5 Conclusions

Chapter 2 Literature Review

This chapter consists of two sections. Section 1 reviews the related literatures concerning the PLCM and ever published by other researchers. Section 2 reviews the related literatures regarding to issues of price-setting.

Section 1 Review of PLCM

1. Basic Concepts of PLC

Dean (1950) in exploring the price policies to new products, put forward the basic concept of product life cycle and considered that a product life cycle is like the life of a human being, starting from infancy through early childhood, and then to adulthood and finally old age. Furthermore, he justified that the price policy depends on the stages transition of the product life cycle. He proposed these notions beginning in the 1950s, thus it is regarded as the pioneering concept and the source of product life cycle theory.

Moreover, he also presented some more specific findings that in pricing products of perishable distinctiveness, a company must study the cycle of competitive degeneration in order to determine its major causes, its probable speed, and the chances of slowing it down.

Pricing in the pioneer stage of the cycle involves difficult problems of projecting potential demand and of guessing the relation of price to sales. The first step in this process is to explore consumer preferences and to establish the feasibility of the product, in order to get a rough idea of whether demand will warrant further exploration. The second step is to mark out a range of prices that will make the product economically attractive to buyers.

The third step is to estimate the probable sales that will result from alternative prices. If these initial explorations are encouraging, the next move is to make decisions on promotional strategy and distribution channels. The policy of relative high prices in the pioneering stage has much to command it, particularly when sales seem to be

comparatively unresponsive to price but quite responsive to educational promotion. On the other hand, the policy of relative low prices in the pioneering stage, in anticipation of the cost savings resulting from an expanding market, has been strikingly successful under the right conditions. Low prices look to long-run rather than short run profits and discourage potential competitors. Pricing in the mature stages of a product’s life cycle requires a technique for recognizing when a product is approaching maturity. Pricing problems in this stage, border closely on those of oligopoly.

Figure 2 Product Adoption Model

Rogers (1962) indicated that the product life cycle comes from the diffusion and adoption theories, which is the process by which an innovation is communicated through certain channels over time among the members of a social system. The diffusion of innovations is also a theory of why and at what rate new ideas and technology are spread through cultures. These concepts are shown in Figure 2 and Figure 3. As indicated in Figure 2, the obvious figures show the characteristics of the curve of diffusion of innovations. There were 50% of the users at the peak of the curve and this is also helpful in

estimating potential customers at the initial stage. These concepts help the high-tech industry arrange sales activities when catering to a shorter product life cycle.

As to the identification of stages, Wind (1981) shows four distinguishing features of PLC as:

1. A constraint on long run growth within a length of saturation 2. A S-shaped diffusion curve

3. An assumption about the homogeneity of consumers 4. No explicit consideration of marketing decision variables

Norman (1998) proposed that as a new technology matures so is the product or service that uses this technology. The change that occurs during a technology life cycle has a unique reflection on the customers and so on the product life cycle. In the early days of a new technology, early adopters and technology enthusiasts drive a market since they demand just technology. This drive and demand is translated as the introduction phase of a new product by many companies. As technology grows old, customers become more conservative and demand quick solutions and convenience. In this case a product usually enters in the realm of its growth and as time passes its maturity. As shown in Figure 2, the

“chasm” which depicts the difference between the early and late adopters. Each needs different marketing strategies and each is translated to a product’s different phase of its life cycle. One should note that the late adopters hold the greatest percentage of customers in a market. This is why most products begin their life cycle as technology driven and change into customer driven as time passes by. A good example of this is the computer market. In one hand customers ask for ease of use, convenience, short documentation and good design.

On the other hand customers rush out to purchase anything new regardless of its complexity. This is why companies in the computer industry withdraw their products long before they reach their maturity phase. This is the moment that a product reaches its peak

i.e. the time that both early and late adopters buy the product.

Leavitt (1965) observed that the product life cycle refers to a product from inception until it is withdrawn from the market; the sales volume during this period changes in relationships. Besides, he also pointed that most alert and thoughtful senior marketing executives are by now familiar with the concept of the product life cycle. Even a handful of uniquely cosmopolitan and up-to-date corporate presidents have familiarized themselves with this tantalizing concept. Yet a recent survey I took of such executives found none who used the concept in any strategic way whatever, and pitifully few who used it in any kind of tactical way. It has remained as have so many fascinating theories in economics, physics, and sex - a remarkably durable but almost totally unemployed and seemingly unemployable piece of professional baggage whose presence in the rhetoric of professional discussions adds a much coveted but apparently unattainable legitimacy to the idea that marketing management is somehow a profession. There is, furthermore, a persistent feeling that the life cycle concept adds luster and believability to the insistent claim in certain circles that marketing is close to being some sort of science. The concept of the product life cycle is today at about the stage that the Copernican view of the universe was 300 years ago ; a lot of people knew about it, but hardly anybody seemed to use it in any effective or productive way. Now that so many people know and in some fashion understand the product life cycle, it seems time to put it to work.

Leavitt (1965) and Clifford (1977) pointed that PLC is essential to enterprises under contingency principles; different strategies should be considered in the different stages of PLC then it yields the greatest benefits. Kolter (1991) defined that the PLC is an indicator to reflect the obvious stage transition in accordance with the historical marketing status.

Polli (1968) concluded that the PLC describes the attributes of a new product and progress of market characteristics and features. PLC is a vital reference for marketing

activities and choices of plans.

Smallwood (1973) categorized the product life cycle into: (1) introduction stage (2) growth stage (3) maturity stage (4) decline stage (5) termination stage. Rink & Swan (1979) declared that product life cycle should be divided into: (1) introduction stage (2) growth stage (3) maturity stage and (4) declining stage of this mode, as shown in Figure 2.

Moreover, they proposed that there were twelve types of PLC the most common PLC pattern is the classical, bell-shaped curve, but it is not the sole shape. The application of various forecasting techniques across the PLC has met with merely moderate success. Very little research has been conducted either on how different characteristics of the firm influence the PLC or on the actual use of various PLC-strategy theories by business planners. Finally, investigators have focused almost exclusively on validating the existence of the PLC concept among nondurable consumer goods.

Figure 3 Stages of Product Life Cycle

Bass (1995), Brockhoff (1967), Day (1981), Easingwood (1988), Harrell and Taylor (1981), and Midgley (1988) deemed that the product life cycle offered a solid foundation

both in theory and practice. The rigid definitions and concept are helpful for the real applications of enterprises. Industrial items, as well as major product changes, have been nearly ignored. The main conclusion is that additional research-more diversified and extensive in nature-as needed on many PLC topics.

William and McCarthy (1997) claimed that the product’s life cycle - period usually consists of five major steps or phases: Product development, Product introduction, Product growth, Product maturity and finally Product decline, refers to Figure 2. These phases exist and are applicable to all products or services from a certain make of automobile to a multimillion-dollar lithography tool to a one-cent capacitor. These phases can be split up into smaller ones depending on the product and must be considered when a new product is to be introduced into a market since they dictate the product’s sales performance. 1) Product development phase, this period begins when a company finds and develops a new product idea. This involves translating various pieces of information and incorporating them into a new product. A product is usually undergoing several changes involving a lot of money and time during development, before it is exposed to target customers via test markets. Those products that survive the test market are then introduced into a real marketplace and the introduction phase of the product begins. During the product development phase, sales are zero and revenues are negative. It is the time of spending with absolute no return. 2) Introduction phase, this period includes the product launch with its requirements to getting it launch in such a way so that it will have maximum impact at the moment of sale. This period can be described as a money sinkhole compared to the maturity phase of a product. Large expenditure on promotion and advertising is common, and quick but costly service requirements are introduced. A company must be prepared to spend a lot of money and get only a small proportion of that back. In this phase distribution arrangement are introduced. Having the product in every counter is very important and

regarded as an impossible challenge. Some companies avoid this stress by hiring external contractors or outsourcing the entire distribution arrangement. This has the benefit of testing an important marketing tool such as outsourcing. Pricing is something else for a company to consider during this phase. Product pricing usually follows one or two well structured strategies. Early customers will pay a lot for something new and this will help a bit to minimize that sinkhole that was mentioned earlier. Later the pricing policy should be more aggressive so that the product can become competitive. Another strategy is that of a pre-set price believed to be the right one to maximize sales. This however demands a very good knowledge of the market and of what a customer is willing to pay for a newly introduced product. A successful product introduction phase may also result from actions taken by the company prior to the introduction of the product to the market. These actions are included in the formulation of the marketing strategy. This is accomplished during product development by the use of market research. Customer requirements on design, pricing, servicing and packaging are invaluable to the formation of a product design. A customer can tell a company what features of the product is appealing and what are the characteristics that should not appear on the product. He will describe the ways of how the product will become handy and useful. So in this way a company will know before its product is introduced to a market what to expect from the customers and competitors. A market mix may help in terms of defining the targeted audience during promotion and advertising of the product in the introduction period. 3) Growth phase, it offers the satisfaction of seeing the product take-off in the marketplace. This is the appropriate timing to focus on increasing the market share. If the product has been introduced first into the market, then it is in a position to gain market share relatively easily. A new growing market alerts the competition’s attention. The company must show all the products offerings and try to differentiate them from the competitors’ ones. A frequent modification process of the

product is an effective policy to discourage competitors from gaining market share by copying or offering similar products. Other barriers are licenses and copyrights, product complexity and low availability of product components. Promotion and advertising continues, but not in the extent that was in the introductory phase and it is oriented to the task of market leadership and not in raising product awareness. A good practice is the use of external promotional contractors. This period is the time to develop efficiencies and improve product availability and service. Cost efficiency and time-to-market and pricing and discount policy are major factors in gaining customer confidence. Good coverage in all marketplaces is worthwhile goal throughout the growth phase. Managing the growth stage is essential. Companies sometimes are consuming much more effort into the production process, overestimating their market position. Accurate estimations in forecasting customer needs will provide essential input into production planning process. 4) Maturity phase, when a market becomes saturated with variations of the basic product, and all competitors are represented in terms of an alternative product, the maturity phase arrives. In this phase market share growth is at the expense of someone else’s business, rather than the growth of the market itself. This period is the period of the highest returns from the product. A company that has achieved its market share goal enjoys the most profitable period, while a company that falls behind its market share goal, must reconsider its marketing positioning into the marketplace. During this period new brands are introduced even when they compete with the company’s existing product and model changes are more frequent. This is the time to extend the product’s life. Pricing and discount policies are often changed in relation to the competition policies i.e. pricing moves up and down accordingly with the competitors’ one and sales and coupons are introduced in the case of consumer products.

Promotion and advertising relocates from the scope of getting new customers, to the scope of product differentiation in terms of quality and reliability. The battle of distribution

continues using multi-distribution channels. A successful product maturity phase is extended beyond anyone’s timely expectations. A good example of this “Tide” washing powder, which has grown old, and it is still growing. 5) Decline phase, the decision for withdrawing a product seems to be a complex task and there a lot of issues to be resolved before with decide to move it out of the market. Dilemmas such as maintenance, spare part availability, service competitors’ reaction in filling the market gap are some issues that increase the complexity of the decision process to withdraw a product from the market.

Sometimes it is difficult for a company to conceptualize the decline signals of a product.

Usually a product decline is accompanied with a decline of market sales. Its recognition is sometimes hard to be realized, since marketing departments are usually too optimistic due to big product success coming from the maturity phase. This is the time to start withdrawing variations of the product from the market that are weak in their market variation bring in the revenues. The prices must be kept competitive and promotion should be pulled back at a level that will make the product presence visible and at the same time retain the “loyal” customers.

Rink and Swan (1979) presented PLC patterns, as illustrated in Figure 4. Although not all of these PLC shapes have been empirically confirmed, but this gives an opportunity to discuss the possibility to influence the shape of the curve. There are ten types of PLC pattern suggested to identical business conditions; classical pattern coming up first then followed the cycle-recycle, cycle-half recycle, increasing-decreasing, high-low plateau, stable maturity, growth maturity, innovative maturity, growth-decline plateau and rapid penetration pattern respectively. One of the most likely happened pattern is the classical type which is frequently used for practical applications.

Figure 4 Patterns of Product Life Cycle

Note. From “Product Life Cycle Research: A Literature Review,” by D.R. Rink, and J.E.

Swan, Journal of Business Research, 7(3), p. 235.

Gardner (1987) clarified that the earliest reference to S-shaped curve similar to product life cycle was detected 1922-23 by Prescott, who proposed an equation that fit the growth of the automotive industry from 1900 to 1920 very well”. “The product life cycle concept is almost certainly one of the best-known if not most important concepts in marketing”. “Product life cycle is an almost inexhaustible concept because it touches on

nearly every facet of marketing and drives many elements of corporate strategy, finance and production”. These statements are excerpts from Gardner’s literature review of about 130 references. He summarizes his findings by concluding that there is much agreement among the writers concerning the life cycle concept as a descriptive variable, but it does not fulfill the criteria of being a theory. At the end of his review, he suggests that “future work should be tied, not only to increase our understanding of the phenomenon, but also increase our predictive ability.”

Burstein (1988) pointed out that life cycle costing becomes more and more crucial when the technology changes rapidly and the product life cycles become shorter. In addition, he enhances the concept by the customer view of the consuming life cycle.

Coredero (1991) claimed that the accelerated rate of product obsolescence increases the need to develop new products quickly enough to ensure timely introduction during the product life cycle. Uusi-Rauva et al. (1994) defined that life cycle as “the period of a product in the market”. The interpretation emphasizes the marketing point of view and revenue planning, but excludes the impacts of product creation and disposal for life cycle profitability. Life cycle analysis should consider the period between birth and decease.

Onkvist and Shaw (1989) developed both the definition and characteristics of each stage of product life cycle and summarized the interpretations in Table 1. Some critical issues are subject to the product life cycle, such as marketing programming, operational strategy and production management. Actually, the contents and implications of Table 1 are valuable for firms to follow regarding both strategy and execution.

Table 1

Stage characteristics of product life cycle

Stage Features

Introduction (Pioneering)

Growth (Acceptance)

Maturation (Saturation)

Decline

(Obsolescence)

Revenue slow Accelerated Stable Declining

Target market Hi-income group Middle-class Peak of market Poor group Competitor Less competitor Great numbers Stable numbers Less but specific

Revision Frequent Biggest yearly Seldom

Production and marketing cost

Both of high Both of lower Stable Higher P.C

Lower M.C

Treatment Rare Max Depends Rapid evacuated

Replacement No Less Most Seldom or no

Brand loyalty Uncertain Starting Strong Decreasing

Spare parts and services

Less parts and more services

High stock Expensive Less

Profit Small High Stable Survivor with

reasonable profit

Note From “Product Life Cycle and Product Management,” by S., Onkvist and J.J. Shaw, New York, Quorum Books.

Catry and Clievalier (1974) and Abell and Hammond (1979) proposed several important marketing strategies; the decision-making policy of market share is based on the stages transition of product life cycle. These mean that while in the growth stage of the product life cycle, a company should expand its market share. On the other hand, while encountering the saturation period of the product life cycle, the existing market share should be stabilized. Finally, as the product lifecycle is in the recession stage then the company should emphasize the essence of corporate profit aspects. Clifford (1977), Cox (1967), Dhalla and Yuspeh (1976), Doyle (1976), Levitt (1965) and Wright (1971) introduced that the concept of product life cycle played an important role in practicing contingency theory of strategic management of all companies, which means that different strategies should be applied at the different stages of product life cycle in order to produce

the greatest benefits. Mcgrath (2000) suggested that to be successful, perhaps even to survive, a company must master product strategy and skillfully navigate through proper development, and application and management of a product strategy that separates enduring success from failure.

Harrell et al. (1981) suggested a definition of PLC and said that the PLC is a quantitative expression of unit sales volume of a specific product category (or class) from introduction to market demise. Product category (or class) refers to the total product line.

For example, coffeemakers would be a product category, whereas perk or drip coffeemakers are substitutable forms of the product. As such, the new product form will take over a portion of the product category ; later it also may become displaced by another form of the product (bonnet hairdryer replaced by salon, replaced by styling dryer, replaced by pistol dryer), while the original product category (hairdryers) continues to evolve on its own particular product life cycle. The PLC is the basic fuel that supplies lifeblood of the electric housewares industry, contrary to Dhalla and Yuspeh (1976), the PLC is a basic and well in the electric housewares industry. When the housewares industry predates many consumer hard goods categories, it has constantly become characterized by product innovation and development of new product categories. Contemporary examples of new product categories included slow cooker, smoke alarm, food processor and curling iron.

New housewares product introduction have averaged about three per year. A study of the saturation curves for 10 of these new electric housewares product introductions indicated that no two are the same. The PLC model is a valid management tool for predicting the sales volume of a product class; however, its greater significance is related to developing the discipline of consciously addressing the factors that influence the shape and amplitude of the volume projections in order to access the opportunities and risks realistically. This discipline fosters the development of product and strategic alternates that can be evaluated

using the model and become a logical basis for short and long planning. The PLC model has been used within the housewares and electronics consumer goods businesses. It has also been used in conjunction with other techniques to evaluate the impact of various price erosion rates upon the industry and the firm. Because of the relative newness of the PLC model, the full potential of its possible uses has not yet been explored. This product form substitution process is significantly different from PLC and should be viewed as such;

otherwise some serious management misjudgments can be made by attempting to apply PLC theory to product form substitution situations. Likewise, it is equally fallacious to apply PLC theory to brand or market share situations that are dependent upon a completely different set of variables. Product form substitution and brand share situations will not be discussed. Product sales volume is composed of two elements: initial purchases, or saturation of the product’s target universe, and replacements of units that have worn out, been broken, or become obsolete. In the early stages of the PLC, initial purchases constitute the majority of sales volume; however, as ultimate saturation is approached, the replacement component usually becomes dominant (see Figure 5). Obviously, the PLC = (Original Purchases) + (Replacement).

Figure 5 Components of PLC

Note. From “Modeling the Product Life Cycle for Consumer Durables,” by S.G. Harrel and E.D. Taylor, Journal of Marketing, 45, p. 70.

Prasad (1996) and Prasad (1997) proposed a product realization process in new product introduction and indicated that the weakness of new product introduction is the lapsed time required to bring the product to market. The process described the advantages when a company brings product into the marketplace before its competitors, and provided algorithms for computing projected shares of sales volume and possible loss of revenues when a company is not able to bring a product timely to the marketplace. New product introduction is similar to the improvement aspect of change management process.

The product realization process in new product introduction involves iterative and multiple incorporation of changes across different elements of the end product, including all aspects of life cycle considerations. These are: simultaneous change management from its initial stage; life cycle configuration management; and insertions of several “new tools and technology” along the way in product and process areas. A weakness of new product introduction is the lapsed time required to bring the product to market. Many manufacturing companies are losing the competitive race in this area to the speedy and effective execution process which other successful companies (for example, some Japanese electronic manufacturers) use. By introducing a product to market when demand or need for a product is at its peak, a company can lock-in a large sales volume. The process also modeled both sales and market share advantages (see Figure 6) and cost and price advantages (see Figure 7) due to early product introduction.

Figure 6 Sales and Market Share Advantages of Early Product Introduction

Note. From “Analysis of Pricing Strategies for New Product Introduction,” by B. Prasad, Pricing Strategy & Practice, 5(4), p.135.

Figure 7 Cost and Price Advantages of Early Product Introduction

Note. From “Analysis of Pricing Strategies for New Product Introduction,” by B. Prasad, Pricing Strategy & Practice, 5(4), p.136.

Norton and Bass (1992) proposed that a firm is born by successfully commercializing one new product. To remain profitably in business over the long term requires the firm to continue to develop and commercialize additional successful products, or at a minimum keep re-developing current products to better meet consumer needs as technologies and competitors change and improve. However, the time between innovations and innovation introductions to the market is shrinking and product obsolescence is occurring more quickly than it has in the past.

Kim (2003) proposed that the concept of product life cycle (PLC) is defined and established both empirically and theoretically in the literatures (Bass, 1995; Brockhoff, 1967; Day, 1981; Easingwood, 1988; Harrell & Taylor, 1981; Midgley, 1981). Although with some variations according to different researchers, PLC in essence postulates that a product goes through phases during its entire life span from introduction, growth, maturing, to decline stage. How long a particular PLC sustains depends on the characteristics of the industry to which the product belongs.

2. Product Life Cycle Management

Ali et al. (1995) defined four entry strategy variables. They are market pioneering, product advantage, relative promotional effort, and relative price. Ansoff and Stewart (1967) developed a typology of strategies based on the timing of the entry of a technological firm into an emerging industry. Miles and Snow (1978) created four strategic types based on the rate at which a firm changes its products or market in response to its environment. Cooper (1985) identified strategic types based on factors that contribute to new product success. Barczak (1995) developed three strategic types based on the timing of entry, first to market, fast follower, and delayed entrant. Hultink et al. (1997) developed four kinds of launch strategies according to two dimensions: product innovativeness and product newness, which are niche followers, niche innovators, mass marketers and would

be me-toos. Cravens et al. (1987) reported that enterprises regardless of the manufacturing sector or services, when they seek survival and the pursuit of excellence at the same time, need to ready themselves and continue their improvement of several core competencies, such as: productivity, R&D capabilities, human resources management, financial management, marketing management and other core competencies. With a view to a highly competitive international market, the corporations readying themselves with the mentioned competencies can be invincible. Marketing management is the most critical issue particularly for hi-tech industries to promote their business performances and achieve their goals. Corporations need to maximize profits in order to maintain the continued growth by means of outstanding marketing management. Among the important issues in marketing management, PLCM is whether to control the product life cycle of the dynamic market properly, which affects both the marketing tactics and strategies of business. In practice, the majority of companies release a combination of a variety of products (Product Portfolio) continuously to market to maintain market share and profits. Therefore, product life-cycle management in marketing management has become the primary subject;

meaning companies must be much focused so that the new products can be delivered at the optimal launching time in order to maximize overall profits.

Conventional new product strategies often do not provide a sufficiently flexible perspective for analyzing the determinants of success in a highly competitive environment (Calantone & di Benedetto, 1990). Although, much empirical work has shown the importance of strategy for success (Cooper, 1980), authors sometimes show their own results as limited by certain environmental forces in subsequent studies (cf., Cooper, 1990).

A number of issues recur as consistent correlates of new product success. One of the common factors identified is the impact of the new product’s launch strategy on success (Hultink et al., 1997).

New product strategy crafting varies widely across companies and competitors even in the same industry (Wind & Mahajan, 1988), a situation which points out the importance of the “match” or “fit” between the competitor environment and the new product strategy (Calantone & Cooper, 1981). Droge and Calantone (1996) specified environmental dominance as a possible moderator and structure as a possible mediator to evaluate for their impact on product strategy and performance that is positive.

As to the role of the product life cycle in the formulation of strategy, Day (1981) claimed that the derivation of generalized strategic prescriptions or each stage of the life cycle has been widely criticized - and for good reason. Such prescriptions are bound to be misleading for they assume a single role for the life cycle as a determinant of strategy, structure, and performance. Unfortunately this role is implicitly endorsed by a majority of marketing textbooks through an emphasis on strategic guidelines appropriate to the various stages. A more realistic view is that life cycle analysis serves several different roles in the formulation of strategy, such as an enabling condition, a moderating variable, or a consequence of strategic decisions. The life cycle serves as an enabling condition on the sense that the underlying forces that inhibit or facilitate growth create opportunities and threats saving strategic implications. Market growth - or the expectation of growth - enables competitors to enter the market and creates opportunities for offerings directed to segments previously uneconomic to serve. The stage of the life cycle also acts as a moderating variable through its influence on the value of market share position and the profitability consequences of strategic decisions.

This role is recognized through the inclusion of product growth rates or life cycle stages as a major dimension in virtually all portfolio classification models. Finally, a product life cycle forecast is not a fait accompli, which can only be reacted to, but instead is only one of several scenarios that are conditional on competitive actions. The product

life cycle is a versatile framework for organizing contingent hypotheses about appropriate strategy alternatives (Hofer, 1975) and directing management attention toward anticipation of the consequences of the underlying dynamics of the served market. To enhance both the descriptive and explanatory value of the concept, much more attention needs to be directed toward understanding recurring patterns of successful strategies organized according to the stages of the life cycle models that are adapted to differences in the important underlying forces.

Greenley and Bayus (1994) and Saunders and Jobber (1994) in empirical studies clearly pointed out that even the most advanced American and British companies for product life-cycle management are also very loose for the new market timing of the decision-making, as there is no formal process. Therefore, the study has substantial practical application needs and urgency. The primary concern of the study is to find the optimal launching time for a new product to replace the old one by building a set of quantitative models, and verifying examples to confirm the feasibility of application in practice.

Chiu et al. (2006) observed that technology development brings prosperity to nations, but the successful commercialization of this technology is the real meaning of innovation.

For this reason, all companies have tried their best to launch maximum numbers of products to market. However, the commercial success or failure of a product does not rest solely on the product itself. The launch strategy adopted also determines whether a product succeeds or fails. The key to success in the launch process often rests in finding the proper strategies.

Lim et al. (2006) claimed that with increasing emphasis on market leadership and shareholder value creation, firms view new product development as a source for obtaining growth, renewal and competitive advantage. Due to speedy technological development and

variety seeking consumers, many firms introduce many new products frequently. As more new products appear in the market, many old products could become obsolete, and hence, they should be phased out. Consequently, we have witnessed shorter product life cycles in many industries such as personal computers, cellular phone, electronics, various types of toys, etc. As product life cycles shortened, firms need to address various strategic issues when managing a product rollover (i.e., introduce a new product and phase out an old product):

1. Timing Issues. When shall we phase out the old product and introduce the new product?

Should we phase out the old product and introduce the new product simultaneously or should we introduce the new product first and then phase out the old product later on?

2. Pricing Issues. What would be the pricing mechanism for the old product (before and after the introduction of the new product)? What would be the pricing mechanism for the new product (before and after the elimination of the old product)?

3. Contingencies. What kind of contingency plan should be considered in anticipation of certain plausible events (e.g., competitors introduce new products, competitors dropped prices of old products, technical problems associated with the new products, having too much inventory or stockouts of the old products)? The answer to the above questions would be helpful to decision-makers when managing product rollovers.

Avlonitis (2001) proposed several important findings; Table 2 summarized the relationship among stages of PLC pertaining to some fundamental variables of marketing activities under a strategic consideration and outlined the activities in corresponding to stages that in connections with what the companies should do. Table 2 is a guide to decision-makers to consider situational decision-makings while dealing with the PLCM issues in strategic considerations and in handling the marketing activities such as: sales campaign, pricing in different PLC stages and the marketing share strategy as well.

Table 2

Strategies of each PLC Phase

Development Phase

Introduction Phase

Growth Phase

Maturity Phase

Decline Phase Strategic

Goal

Make Yours product known and establish a test period

Acquire a strong market position

Maintain your market position and build on it

Defend market position from competitors and improve your product

“Milk” all remaining profits from product

Competition Almost not there

Early entry of aggressive competitors into the market

Price and distribution channel pressure

Establishment of competitive environment

Some competitors are already withdrawing from market

Product Limited

number of variations

Introduction of product variations and models

Improvement -upgrade of product

Price decrease Variations and models that are not profitable are quit

Price Goal High sales to middle men

Aggressive price policy (decrease) for sales increase

Re-estimation of price policy

Defensive price policy

Maintain price level for small profit

Promotion goal

Creation of public-market product awareness

Reinforcement of product awareness and preference

Reinforcement of middle men

Maintain loyal to middle men

Gradual decrease

Distribution goal

Exclusive and selective distribution channels and creation of high profit

General and reinforced distribution through all distribution channels

General and reinforced distribution with good supply to the middle men

General and reinforced distribution with good supply to the middle men

Withdrawal from most channels of distribution except the development phase

Note. From “Strategic Industrial Marketing,” by G. Avlonitis, Stanoulis Urenio, Thessaloniki, Greece.

Section 2 Review of Price-Setting

1. Basic Concepts of Price-Setting

Dean (1950) indicated that the strategic decision in pricing a new product is the choice between (1) a policy of high initial prices that skim the cream of demand and (2) a policy of low prices from the outset serving as an active agent for market penetration.

Although the actual range of choice is much wider than this, a sharp dichotomy clarifies the issues for consideration. Skimming price, for products that represent a drastic departure from accepted ways of performing a service, a policy of relatively high prices coupled with heavy promotional expenditures in the early stages of market development (and lower prices at later stages) has proved successful for many products. There are several reasons for the success of this policy: (1) Demand is likely to be more inelastic with respect to price in the early stages than it is when the product is full grown. This is particularly true for consumer’s goods. (2) Launching a new product with a high price is an efficient device for breaking the market up into segments that differ in price elasticity of demand. The initial high price serves to skim the cream of the market that is relatively insensitive to price. Subsequent price reductions tap successively more elastic sectors of the market. (3) This policy is safer, or at least appears so. Facing an unknown elasticity of demand, a high initial price serves as a “refusal” price during the stage of exploration. How much costs can be reduced as the market expands and as the design of the product is improved by increasing production efficiency with new techniques is difficult to predict.(4) Many companies are not in a position to finance the product flotation out of distant future revenues. High cash outlays in the early stages result from heavy costs of production and distributor organizing, in addition to the promotional investment in the pioneer product.

High prices are a reasonable financing technique for shouldering these burdens in the light of the many uncertainties about the future. Penetration price, the alternative policy is to use