What’s it: The introduction stage is the initial part of the product life cycle after the development stage. At this stage, the company launches a new product on the market. Synonym for this term is one of the launch stage and the pioneer stage.
What are characteristics and consequences for the company
The product life cycle typically has characteristics and implications unique to each stage. At the introduction stage, the company will focus on creating demand. And to do so, the company will usually pay a lot of money.
Low product awareness
Most consumers don’t know about the presence of a new product and what benefits it will bring to them. No consumer knows it. Therefore, the company struggled to promote to the market, hoping that one or two people would buy it. The focus of marketing communications is to build product awareness and educate potential consumers about the product.
Sales are slow
The company does not have a customer and market base. Therefore, companies must build it and develop product markets through aggressive promotions. If the promotion is effective, the company may be able to attract some consumers to buy. However, because most consumers are still reluctant to try new products, sales volume will grow slowly.
We call these early buyers as innovators. They are a small proportion of consumers who are willing to take risks to buy new products. In addition to innovators, at this stage, buyers usually also come from the early adopter category.
Little or no competition
Competition may not exist at this stage. For new inventions, for example, a company may be the only producer. The company patents its invention, which makes it impossible for others to sell it. If the company is successful in attracting consumers, the company can get first-mover advantages.
Pricing strategy options
Two pricing strategies that companies may adopt at an early stage. The first is the price skimming strategy, especially if it is a new innovation (it has never been on the market). Second is penetration pricing if the product is an improvement over existing products on the market (new products do better).
Under price skimming, companies charge high prices in a short period, considering that their new product is more innovative and better. They screen out customers who are willing to take the initial risk and pay more. The high price strategy is also essential to immediately recover the development costs they bear. As their customer base starts to increase, they will slowly lower their prices.
Meanwhile, a penetration pricing strategy works best if the product is an improved version. The risk of rejection from consumers is less because consumers already know the basic benefits of the product. Hence, the company charges lower prices to quickly achieve a significant market share.
More selective distribution channels
The company will be selective in building distribution channels until the customer shows acceptance of the product. The selection of distribution channels not only affects effectiveness in attracting new customers but also affects costs.
Companies have to create demand.
Companies must create demand by building consumer awareness at an early stage. They must develop a compelling marketing message to increase curiosity and to stimulate buying. So, at this stage, they have to spend a lot of money on promotions to attract customers.
Some companies may use sampling or trial incentives to capture the innovators and early adopters of a product or service. This method seeks to build product awareness, educate potential customers about the product, and convince them to purchase.
The main objective of promotion is to achieve market acceptance and develop a foundation for future growth. One way is to take advantage of network effects. If successful, the network effect results in exponential growth in sales volume.
How long the market will take depends on factors such as:
- Product complexity
- The product innovativeness
- Suitability with consumer needs
- The existence of competitive substitutes
The company incurs a loss rather than a profit.
In the beginning, most will probably bear losses as a result of low revenue and high costs.
Low revenue is due to slow sales volume. In fact, the company will probably only make a few sales until the customer realizes its benefits and is willing to buy.
At the same time, the company bears enormous costs. Advertising costs are high because it is necessary to build awareness among consumers. Also, the need to develop markets and distribution networks contributes to high costs.
The company should break through the losses at this stage with revenue at the growth stage and the maturity of the product life cycle.