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For second-tier PC manufacturers this is the phase of the product lifecycle where pricing becomes the competitive weapon of choice, and in many cases, the other aspects of the marketing mix are ignored. Pricing as the only differentiator used during this phase often impacts the largest, most capital-intensive vendors the greatest. Prior to their acquisition by HP, Compaq was well-known for having one of the highest cost structures in the industry, which inevitably lead Compaq to offer price protection on inventories that are obsoleted due to lack of sales through distribution channels (Lee, Padmanabhan, Taylor, and Whang 2000).
The next phase of the product lifecycle is typically called the maturity phase. For products that have been successfully launched and nurtured through their lifecycles, this is the phase where sales are at their peak, the cost per customer is low, and as costs of the products' development have been covered in previous phases, profitability is high. As a result, the marketing mix concentrates on maximizing profits while looking to diversify product lines through either product line extensions or the introduction of entirely next generation products. This is also the phase where pricing becomes the most dominantly used competitive differentiator as by this point many other PC manufacturers have been able to either develop or acquire feature-based technologies and functionality. Price wars are common during this phase of a PCs' product life cycle, and advertising often shifts from purely concentrating on the product's benefits to focusing more on the entire brands' value and its trustworthiness and service reputation. An example of this is Dell's reliance on brand messaging in their enterprise-oriented and large-business oriented laptop and PC systems marketing strategies.
The last phase of the product lifecycle is called decline or harvesting, and concentrates on overcoming pure price competition through intensive bundling, extensive use of price protection to move quickly obsoleting products through indirect distribution channels, and a heavy reliance on brand-based selling. The promotional efforts at this point in a product's life are aimed at moving the PCs off the shelves of retailers through cash incentives to sales people and the use of sales contests as well. Typically manufacturers will move their products in this phase of their lifecycle into alternative distribution channels as well, hoping to gain sales with a minimal erosion of their own gross margins. It is the most unprofitable and most difficult phase of the product lifecycle to manage, where PC manufacturers must think through the decisions around pricing to retain as much of the gross margins they can earn as possible.
The phases of the product lifecycle form an excellent framework for evaluating how PC manufacturers manage their marketing mix strategies over time. As the PC industry is renowned for rapid product lifecycles driven by innovation and price pressure, the use of each attribute or strategy of the marketing mix is critical for anticipating both opportunities and risks in each phase and reacting to them successfully and profitably.
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Jay Rao, Sam Perkins. (2004). Testing…[continue]
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