Extending the product life cycle A Kellogg's case study
Page 2: The product life cycle
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 Kellogg's 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 the graph. 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.
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-Grain's 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-Grain's 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.
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?