Apr 162017
 

One of the key challenges for the firm during the introduction phase, given the important role of innovators, is the limited level of sales and likely negative profitability. This occurs because only a small proportion of consumers – the innovators – will trial/purchasing new product in its early stages. Because the firm has its normal cost of supporting a new product and has likely invested a significant amount in its development and launch, new products are generally quite unprofitable in the introduction stage of the PLC.

Continue to support or withdraw the product?

This leads to a significant dilemma for a firm. If the new product takes a period of time to become successful, then the firm is required to support it financially. Keep in mind, that not every new product category will be successful. Even Apple has brought new products to market over its history that have not been successful and have not been widely adopted by consumers.

As you can imagine, perhaps over a period of months/years, the marketer is faced with the challenge of whether to continue supporting a product that is losing money or to consider whether the firm/brand would be better off by discontinuing and withdrawing the product from the market.

A good example here would be microwave ovens, which were commercialized in the mid-1960s, but were not widely adopted until the early 1980s. As you can see, this is a period of around 15 years or so, where a reasonable level of financial support would have been required to maintain the new product, on the basis (or hope) that it would eventually be financially successful. As we know, microwave ovens but now widely adopted, but not all new products prove quite as successful.

It is likely that during this period of “certainty” that the firm will discuss whether or not to keep supporting the product. Because new products frequently require promotional support (both at the consumer and at the trade level) and usually continued product improvement and fine-tuning, there are substantial investment costs (relative to the minor revenue in flow at the time). This means that the introduction phase of the PLC is a time when there is significant concern about the viability of the new product.