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.
Examples of Product life cycle
- Cell Phone:
- Introduction: Cell phones are introduced as a luxury item and are expensive. They are marketed to those who need to communicate frequently and need to stay connected.
- Growing: Cell phones become more popular and become more affordable. They are marketed to a wider range of people, and new features are added to cell phones to make them more attractive.
- Maturing: Cell phones become the norm and are used by a wide variety of people. They are now marketed to those who want the latest features and technology.
- Declining: Cell phones become outdated and are no longer the latest and greatest. They are replaced by new technology and people look for new ways to stay connected.
- Introduction: Automobiles are introduced as a luxury item and are expensive. They are marketed to those who need a convenient way to get around.
- Growing: Automobiles become more popular and become more affordable. They are marketed to a wider range of people, and new features are added to automobiles to make them more attractive.
- Maturing: Automobiles become the norm and are used by a wide variety of people. They are now marketed to those who want the latest features and technology.
- Declining: Automobiles become outdated and are no longer the latest and greatest. They are replaced by new technology and people look for new ways to get around.
Advantages of Product life cycle
The Product Life Cycle is a useful tool for businesses to identify and plan for the stages of a product's life and how to maximize profits from it. Here are the advantages of using a Product Life Cycle:
- It helps a business identify the different stages of a product's life and plan accordingly.
- It helps a business identify potential opportunities and threats in the market.
- It enables a business to better focus their efforts on marketing and resource allocation to maximize profits.
- It allows businesses to identify and capitalize on trends in the market and anticipate changes.
- It helps businesses make better decisions on pricing, product features, and product placement.
- It helps businesses identify potential competitors and new markets.
Limitations of Product life cycle
The product life cycle goes through several stages, beginning with product introduction, growing, and maturing. However, there are several limitations to this cycle:
- The product life cycle does not take into account the individual needs of the customer. It only provides a generalised view of the market and does not consider the dynamics of the customer base.
- The product life cycle does not take into account the changing needs of the customer. It does not reflect the changing trends in the market or the changing customer preferences.
- The product life cycle does not take into account the changing technology and innovation in the market. It does not consider the impact of new technology or products on the market.
- The product life cycle does not take into account the external economic conditions. It does not consider the impact of economic downturns on the market or the customer base.
- The product life cycle does not take into account the competition in the market. It does not consider the impact of competitors on the market or the customer base.
Product life cycle is an important concept in marketing, which considers the stages a product goes through from its introduction to the market to its withdrawal. There are other approaches related to product life cycle such as:
- Product Adoption Life Cycle - This approach considers the stages of adoption of a product, beginning with the innovators and ending with the laggards.
- Perceptual Life Cycle - This approach analyzes the change in consumer perception of the product with respect to its life cycle.
- Revenue Life Cycle - This approach looks at the revenue of the product which increases after the introduction and then decreases with the decline of the product.
In conclusion, the product life cycle is an important concept in marketing and there are other approaches related to it such as the product adoption life cycle, perceptual life cycle and revenue life cycle.
- 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