Product life cycle
|Product life cycle|
Product life cycle begins with product introduction, growing, maturating and ending with declining. The reason of that is continuous evolution of science and technology. Old and out-of-fashion things are in time replaced with new and fresh ones, which is absolutely natural event.
- Introduction: A period of slow sales growth as the product is introduced in the market. Profits are non-existent in this stage because of the heavy expenses incurred with product introduction.
- Growth: A period of rapid market acceptance and substantial profit improvement.
- Maturity: A period of a slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased competition.
- Decline: The period when sales show a downward drift and profits erode.
This stage begins with first moment of product sale, when it reaches shops or suppliers. Generated income is low because it is not yet known to the users, and they are influenced by their previous buying habits.
There are many types of products being introduced to the market:
- New-to-the-world products: New, innovative products that create an entirely fresh market, such as the Palm Pilot hand-held computerized organizer.
- New product lines: New products that allow a company to enter an established market for the first time, like Fuji's brand of disks for Zip drives.
- Additions to existing product lines: New products that supplement a company's established product lines (package sizes, flavours, and so on), such as Amazon.com’s auctions with e-mail greeting cards.
- Improvements and revisions of existing products: New products that show improved performance or greater perceived value and replace existing products, such as Microsoft Office 2000.
- Repositioning: Existing products that are targeted to new markets either market segments, such as repositioning Johnson & Johnson's Baby Shampoo for adults as well as youngsters.
- Cost reductions: New products that provide similar performance with lower cost, such as Intel's Celeron chip.
Companies take heavy costs to introduce the product to the market, promotion costs very much with a little profit coming from product sale. Some may say it is the most important phase in products life. Most likely there were many great products, great ideas that never brought much attention just because of the promotion expenditures.
Stage of growth is especially visible in rapid increase of product sale. Few people start to buy promoted product and the news are spreading very fast. For example, when CDs were introduced to the market it had few fans, however we were able to notice the growth phase when everybody started using CDs as form of data transfer, and started to push away standard till that day Floppy discs. Companies have to remain promoting their product however the income exceeds the promotion costs in this stage. It is important to encourage more and more customers to buy the product with ongoing upgrades, new models or with lowering prices.
In this period the sales income will start to slow down, as product enters its maturity, this stage is longer than the other ones but it is definitely the hardest to work with. At that time companies should look forward to make changes in the promotion or product itself to maintain at this level. Companies can alter the product or try to do it with the market. In most cases the promotion mix is being re-arranged.
At this phase companies have to make quick reactions to what is going on with their product, as they can see the fall of profits. To prevent their product from market extinction and profit loss there must be action taken. As the promotion cease to work there are several things that can be done.
- Increasing the firm's investments (to dominate the market or strengthen its competitive position),
- Maintaining the firm's investment levels until the uncertainties about the industry are certainly resolved,
- Decreasing the firm's investment levels selectively, by dropping unprofitable customer groups, while simultaneously strengthening the firm's investment in lucrative niches,
- Harvesting (milking, skimming strategy) the firm's investment to recover cash rapidly; and
- Divesting the business promptly by disposing of its assets as advantageously as possible.
Last thing to do when all methods fail is to withdraw the product from the market and exchange it with something new.
- Cadenillas, A., Lakner, P., & Pinedo, M. (2013). Optimal production management when demand depends on the business cycle. Operations Research, 61(4), 1046-1062.
- Day, G. S. (1981). The product life cycle: analysis and applications issues. The Journal of Marketing, 60-67.
- Kotler Ph., Marketing Management - Millenium Edition, Pearson Custom Publishing, New Jersey 2001
- Klepper, S. (1996). Entry, exit, growth, and innovation over the product life cycle. The American economic review, 562-583.
Author: Wojciech Turek