- Created by: calum
- Created on: 01-02-12 14:38
This involves a business selling its product(s) in small, often lucrative, segments of a market. It is the opposite strategy to mass marketing. Many small businesses can identify unsatisfied consumer needs in a particular segment within a large industry, and they can develop products to meet these needs.
This allows the small businesses to exist in industries that are dominated by large businesses (e.g. Classic FM in the radio broadcasting industry, SAGA in the holiday industry). However, if larger rivals appear within the niche market, the smaller businesses will often find it difficult to compete effectively with these well-resourced businesses.
It is also dangerous for a business to offer just one product within the market, since any larger rivals are likely to be more diversified and have a wider product portfolio. Theses larger businesses could, therefore, reduce their prices to such a low level that the small business cannot compete profitably.
Nevertheless, during periods of economic growth and higher consumer spending, then niche markets can offer a very lucrative opportunity to many small businesses to offer a personalised, high value-added service/product.
This shows the various stages that a product is expected to pass through and it also indicates the likely level of sales that can be expected at each stage.
The length of the lifecycle will vary from product to product and from industry to industry (e.g. Oxo Cubes, Levi Jeans and Kellogg's Cornflakes have lifecycles that have lasted for over 50 years, but various pop groups and childrens' toys have a lifecycle that can last less than 12 months). Generally, there are six stages to the lifecycle - development, introduction, growth, maturity, saturation and decline, as illustrated on the diagram below :
During the development stage, much time will be spent designing and testing the product concept. A prototype will often be test-marketed, in order to assess the potential sales and profitability of the new product. A decision will then be made whether or not to launch the product. The business will, therefore, incur many expenses during the development stage of the product lifecycle and the product will produce a large, negative cashflow.
It is estimated that only 1 in every 5 new products actually pass the development stage and reach the introductory stage of the lifecycle.
The introduction stage commences with the launch of the product onto the market. Sales are low and costs are still very high (especially advertising and distribution). The product is, therefore, unprofitable at this stage. The length of this stage will vary considerably according to the product. Some products will take a long time to reach the growth stage of the lifecycle (e.g. new novels) whereas others will head straight from introduction into growth in a matter of days (eg new pop-music album releases).
Once the business has made customers aware of the new product and it has managed to achieve a high level of repeat-purchasers, then the product will head into the growth stage of the lifecycle. This is…