Question

Describe a product or service life cycle including the factors that must be considered as it progresses through the stages

Answer 1

SERVICE LIFE CYCLE

The service life cycle consists of the same four stages at the product life cycle: introduction, growth, maturity and decline. The characteristics of each stage are the same. The only difference lies in the strategies that can be used.

I INTRODUCTORY STAGE

A new service or a new form of a current service is said to be in the introductory stage when it is first offered. As with goods, many new services never obtain acceptance by customers and never get past the first stage of the service life cycle. An advantage that services have over goods is that many new services can be introduced on a small scale and expanded if acceptance grows. This small scale introduction reduces the financial risk associated with the introduction, making failure less costly.

II GROWTH STAGE

During the growth stage, the industry is growing rapidly. Most firms offering the new service are seeing a positive cash flow.

For eg: a patient can learn about the incubation period for chicken pox by either talking to a nurse or dialing into a vast library of prerecorded tapes. Second, patients can seek advice about routine illnesses such as congestion or abdominal pain.

III MATURITY STAGE

During the maturity stage, industry sales level off. Competition becomes very intense since the only way a firm can gain the market share or increase sales is to take them away from a competitor. The result of this increased competition is a decrease in overall industry profits. Weaker firms will be shaken out of the industry. At this stage in the service life cycle, consumers see very few distinguishable characteristics among the various firms in a service industry.

IV DECLINE STAGE

During the decline stage, industry sales decline. This sales drop is often due to a new technology that has been developed. For eg, typewriter repair services declined bcoz typewriters were largely replaced by computers which resulted in a need for a computer service technicians and computer programmers.

Companies with services in the decline part of the life cycle have five options: divest, harvest,prune, retrench, or rejuvenate.

a.When using the divestment option, timing is a critical decision. The highest price can be obtained if the divestment decision is made early in the decline stage or even in the latter part of the maturity stage.

b. A second strategy available to firms is to harvest the service. A harvesting strategy implies the firm wants to reduce expenditures as far as possible to extract as much profit from the service as possible. Recognizing demand will continue to fall allows a firm to reap the maximum profit possible before the service is discontinued or sold. Due to labour intensive nature of services, this strategy is seldom used.

c. A third strategy is pruning. Pruning involves reducing the number of services offered by a firm. The most unprofitable services are discontinued while the most profitable services are kept. Pruning is a common strategy for service operations.

d. Retrenchment is a fourth strategy and it involves selling off or closing the unprofitable accounts while keeping or expanding the profitable ones. This strategy is good for large firms with multiple outlets and for the business-to-business service sector.

Developing Brand new services:

New Service Characteristics:

Since services are intangible, it has to have 4 basic characteristics:

1.It must be objective, not subjective

2.It must be precise, not vague.

3.It must be fact driven, not opinion driven.

4.It must be methodological, not philosophical.