Product Life Cycle And International Product Life Cycle Economic And Marketing Perspectives

I. INTRODUCTION

A review of literature in economics and marketing suggests that since Raymond Vernon published his article "International Investment and International Trade in the Product Cycle" in 1966,1 there has been a simultaneous development of literature pertaining to the 'product cycle' in marketing. There are differences between Vernon's concept of the product cycle and marketers' perception of the product life cycle. However, when one reviews publications in areas where these disciplines tend to overlap, particularly in international marketing and international business, both of these terms tend to fuse together and be used almost interchangeably.

While discussing Vernon's model, Louis T. Wells, Jr. states that "the model claims that many products go through a trade cycle, during which the United States is initially an exporter, then loses its export markets and may finally become an importer of the product"2. Warren Keegan, a marketing scholar, on the other hand, refers to the International Product Life Cycle in the following manner: "The International Product Life Cycle model suggests that many products go through a cycle during which high income, mass consumption countries are initially exporters, then lose their export markets, and finally become importers of the product."3 These are clear instances where trade cycle and product life cycle have been defined almost identically in the international context.

There could be several possible explanations for the interchangeable use of the product cycle and product life cycle concepts. One explanation is that the product cycle, developed by economists as part of the international framework, was initially unknown to marketers when they developed the product life cycle concept.4 Another possibility is that marketers, in order to extend the product life cycle concept to international markets, borrowed the product cycle concept from economists who employed the concept to explain patterns of international trade. The interchangeable use has created conceptual fuzziness in the literature and has overshadowed the differences between the two.

II. PRODUCT CYCLE AND PRODUCT LIFECYCLE

The purpose of this paper is to make a distinction between the product cycle and product life cycle concepts, clarify the relationship between the two and redefine the international product life cycle. Raymond Vernon, attempting to explain patterns of international trade, observed a circular phenomenon in the composition of trade between countries in the world market. Advanced countries, which have the ability and competence to innovate as well as high-income levels and mass consumption become initial exporters of goods. However, they lose their exports initially to developing countries and subsequently to less developed countries and eventually become importers of these goods. Vernon's hypothesis was an attempt to advance the trade theory beyond the static framework of the comparative advantage of David Ricardo and other classical economists. It explored hitherto ignored or unexplained areas of international trade theory such as timing of innovation, effects of scale economies and the role of uncertainty and ignorance in trade patterns. His intent was not to propose a theory of product life cycle as commonly understood by marketing theorists.

The product life cycle concept, typically expressed as an "S" shaped curve in marketing literature, is based on the analogy of the human biological cycle.5 Products, like living organisms, go through stages of birth, development, growth, maturity, decline and demise. To be meaningful, the product life cycle concept has to be used in conjunction with its counterpart, market evolution that is comprised of various stages of market development. Philip Kotler links both product life cycle and market stages in his concept of market evolution.6

The product cycle concept identifies four stages that the trade patterns go through. Louis Wells identifies these four phases as follows:

I. U.S. Export Strength

II. Foreign production starts

III. Foreign production competitive in export markets and

IV Import competition begins 7

The product cycle is a macro level attempt to generalize patterns of trade between nations based on empirical data. It offers innovation and economies of scale as predominant explanatory variables. Vernon hypothesized a circular pattern of trade composition that occurs between trading partners in different stages of economic growth.

Unlike the product cycle with its macro orientation, the product life cycle concept in marketing theory is a micro level explanation of stages of the life cycle a product or service goes through in the context of its market life. Sales volume and profits become the critical micro variables in the product life cycle framework. In the introductory stage of a product's life, sales are typically slow and profits negative. In the growth stage, both sales and profits rise at a rapid rate. During maturity, sales volume may continue to rise at a declining rate and profit may stay high. In the decline state, both sales and profit decrease.1 Sales and profits are the principal variables for marketing decisions. The product life cycle is essentially a tool for firms to design marketing mix strategies for different, states of the life span of a product or service.

Vernon stresses the degree of standardization as evidence of maturation of the product. A mature product typically may become standardized across international markets. The yardstick for maturity in the product life cycle approach is the rate of sales growth. Changes in this rate mark the transition from one stage of the product life cycle to the next.

An interesting example of these differing perceptions of maturity can be found in the market for personal computers. In the past decade, many facets of the computer hardware and software products became standardized either through strength of market leaders such as IBM and Microsoft or by the joint efforts of industry, users and/or government to establish standards. Currently this market has standards but is by no means mature. It is still rapidly expanding domestically as well as globally. Using Vernon's yardstick of maturity, the computer industry is in a mature stage of the product cycle whereas it is still in the growth stage according to the product life cycle approach.

Vernon's product cycle model is fundamentally production oriented and does not focus on consumer oriented sociocultural and behavioral variables. Vernon's framework is

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