Page 178 - DMGT408DMGT203_Marketing Management

Unit 7: New Product Development and Product Life Cycle Strategies

7.4.4 Decline Stage Notes

Decline stage sets in when customer preferences change due to the availability of technologically
superior products and consumers’ shift in values, beliefs, and tastes to products offering more
value. The number of competitors dwindles and generally few product versions are available.
Those who stay, may cut their promotional budgets and further reduce their prices. The onset of
decline stage may be gradual or fast. There may still be a small residual segment that remain
loyal to the product.
Sales take a nose-dive, costs increase, and profits are almost non-existent. All these factors create
overcapacity. If the industry has low-exit barriers, many companies leave the market. This may
increase the sales volume of remaining companies to the extent that their exit may be delayed,
and for a short time strong contenders may even prosper.
Marketing Mix Changes during Decline Stage: In this stage if the decline is slow and exit barriers
are low, prices tend to remain stable because there are still some enduring profitable segments,
customers are fragmented and weak in bargaining power, and there are only few single-product
competitors. In case the exit barriers are high and decline is fast and erratic, price-cuts are stiff,
there are no enduring segments, only a few large single-product competitors are present, and
customers exercise high bargaining power. Consumer goods companies try to persuade
distributors to continue keeping the product. Companies consider the options of harvesting or
divesting the product.

Case Study Video Games

he rise of personal computers in the mid 1980s spurred interest in computer games.
This caused a crash in home Video game market. Interest in Video games was
Trekindled when a number of different companies developed hardware consoles
that provided graphics superior to the capabilities of computer games. By 1990, the Nintendo
Entertainment System dominated the product category. Sega surpassed Nintendo when it
introduced its Genesis System. By 1993, Sega commanded almost 60 per cent of Video
game market and was one of the most recognised brand names among the children.
Sega’s success was short lived. In 1995, Saturn (a division of General Motors) launched a
new 32-bit system. The product was a miserable failure for a number of reasons. Sega was
the primary software developer for Saturn and it did not support efforts by outside game
developers to design compatible games. In addition, Sega’s games were often delivered
quite late to retailers. Finally, the price of the Saturn system was greater than other
comparable game consoles.

This situation of Saturn’s misstep benefited Nintendo and Sony greatly. Sony’s Play Station
was unveiled in 1994 and was available in 70 million homes worldwide by the end of 1999.
Its “Open design” encouraged the efforts of outside developers, resulting in almost 3,000
different games that were compatible with the PlayStation. It too featured 32-bit graphics
that appealed to older audience. As a result, at one time, more than 30 per cent of PlayStation
owners were over 30 years old.
Nintendo 64 was introduced in 1996 and had eye-popping 64-bit graphics and entered in
more than 28 million homes by 1999. Its primary users were between the age of 6 and 13
as a result of Nintendo’s efforts to limit the amount of violent and adult-oriented material
featured on games that can be played on its systems. Because the company exercised
considerable control over software development, Nintendo 64 had only one-tenth the
number of compatible games as Sony’s PlayStation did.
Contd...

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