Product Life Cycles
The Product Life Cycle
Every product goes through the various life cycle phases of introduction, growth, maturity and decline.
LEARNING OBJECTIVES
Discuss the rationale behind the marketing concept of product life cycles
KEY TAKEAWAYS
Key Points
- Depending on its current stage in the product life cycle, a product will have different marketing, financing, manufacturing, purchasing and human resource requirements.
- In the market introduction stage (following product development ), the product is released on to the market.
- Sales are low and costs are high in the market introduction stage, thus, no profits are made. There is little to no competition and demand must be created through heavy promotion.
Key Terms
- decline stage: when a product is not predicted to continue to be successful or upgraded
- product life cycle: The process wherein a product is introduced to a market, grows in popularity, and is then removed as demand drops gradually to zero.
- maturity stage: when a product is no longer in the growth stage, but not yet in the decline stage
Product Life Cycle: Overview
The product life cycle (PLC) describes the life of a product in the market with respect to business/commercial costs and sales measures. It proceeds through multiple phases, involves many professional disciplines and requires a multitude of skills, tools and processes.
This is not to say that product lives cannot be extended – there are many good examples of this – but rather, each product has a ‘natural’ life through which it is expected to pass.
The stages of the product life cycle are:
- Introduction
- Growth
- Maturity
- Decline
PLC management makes these three assumptions:
- Products have a limited life and, thus, every product has a life cycle.
- Product sales pass through distinct stages, each of which poses different challenges, problems and opportunities to its parent company.
- Products will have different marketing, financing, manufacturing, purchasing and human resource requirements at the various stages of its life cycle.
The product life cycle begins with the introduction stage (see ). Just because a product successfully completes the launch stage and starts its life cycle, the company cannot take its success for granted.
Product Development and Product Life Cycle: The Product Life Cycle follows directly after new product development.
A company must succeed at both developing new products and managing them in the face of changing tastes, technologies and competition. A good product manager should find new products to replace those that are in the declining stage of their life cycles; learning how to manage products optimally as they move from one stage to the next.
Product Lifecycle Management Stage 1: Market Introduction
This stage is characterized by a low growth rate of sales as the product is newly launched and consumers may not know much about it. Traditionally, a company usually incurs losses rather than profits during this phase. Especially if the product is new on the market, users may not be aware of its true potential, necessitating widespread information and advertising campaigns through various media.
However, this stage also offers its share of opportunities. For example, there may be less competition. In some instances, a monopoly may be created if the product proves very effective and is in great demand.
Characteristics of the introduction stage are:
- High costs due to initial marketing, advertising, distribution and so on.
- Sales volumes are low, increasing slowly
- There may be little to no competition
- Demand must be created through promotion and awareness campaigns
- Customers must be prompted to try the product.
- Little or no profit is made owing to high costs and low sales volumes
Growth
During the growth stage, the public becomes more aware of the product; as sales and revenues start to increase, profits begin to accrue.
LEARNING OBJECTIVES
Identify the conditions that exist when a product is in stage 2, growth of the Product Life Cycle
KEY TAKEAWAYS
Key Points
- Initial distribution is expanded as popularity increases, leading to increases in promotion as well.
- The company often looks at introduction improvements and innovations so as to cement their position in this stage, and discourage competitors from having any success in copying the product and selling substitutes.
- Increased competition in this stage may lead to falling prices as the company competes with others to gain and keep hold of market share.
Key Terms
- growth stage: The stage of the product life cycle where product sales, revenues and profits begin to grow as the product becomes more popular and accepted in the market.
The stages of the product life cycle are:
- Introduction
- Growth
- Maturity
- Decline
Product Lifecycle Management Stage 2: Growth
The growth stage is the period during which the product eventually and increasingly gains acceptance among consumers, the industry, and the wider general public. During this stage, the product or the innovation becomes accepted in the market, and as a result sales and revenues start to increase. Profits begin to be generated, though the break even point is likely to remain unbreached for a significant time–even until the next stage, depending on the cost and revenue structures.
Growth Stage: The graph shows the growth stage in the overall product life cycle.
Initial distribution is expanded further as demand starts to rise. Promotion is increased beyond the initially high levels, and word-of-mouth advertising leads to more and more potential customers hearing about the product, trying it out, and–if the company is lucky–choosing to use the product regularly. Repeat orders from initial buyers are also obtained.
If a monopoly was initially created, then it still exists in this stage. Because of this, the manufacturing company can look at ways to introduce new features, alterations, or other types of innovation to the product according to feedback from consumers and from the market in general. This would be done in order to maintain growth in sales and ensure that interest in the product continues to grow and not stagnate, thus maintaining the growth stage. In fact, the growth stage is seen as the best time to introduce product innovations, as it creates a positive image of the product and diminishes the presence of competitors who will be attempting to copy or improve the product, and present their own products as a substitute.
Features of the growth stage:
- Costs reduced due to economies of scale: as production and distribution are ramped up, economies of scale kick in and reduce the per unit costs.
- Sales volume increases significantly: as the product increases in popularity, sales volumes increase.
- Profitability begins to rise: revenues begin to exceed costs, creating profit for the company
- Public awareness increases: through increased promotion, visibility and word of mouth, public awareness grows.
- Competition begins to increase with a few new players in establishing market
- Increased competition leads to price decreases: price wars may erupt, technology may get cheaper, or other factors can ultimately lead to falling prices.
Maturity
During the maturity stage, sales will peak as the product reaches market saturation, and competition will grow increasingly fierce.
LEARNING OBJECTIVES
Identify the market conditions of a product in stage 3, maturity of the product life cycle.
KEY TAKEAWAYS
Key Points
- As the company will attempt to prolong the maturity phase as long as possible, it will likely introduce alterations and innovations to the product to keep customers interested and stay a step ahead of the competition.
- Advances in technology and changes in consumer taste and demand may also add to the slowing down of sales growth of the product during this phase.
- Prices tend to drop in this phase due to lower costs as well as a high level of competition, and so industrial profits will fall as well.
Key Terms
- maturity: The stage in the product life cycle where sales growth ultimately peaks, then slows as the product reaches widespread acceptance, and competition is fierce.
- market saturation: A situation in which a product has become distributed within a market to the fullest possible extent, leaving demand for the product at a minimum. The actual level of saturation can depend on consumer purchasing power, competition, prices, and technology.
The stages of the product life cycle are:
- Introduction
- Growth
- Maturity
- Decline
Product Lifecycle Management Stage 3: Maturity
The maturity stage follows the growth stage in the product’s life cycle (see ).
Maturity Stage: The maturity stage of the product life cycle shows that sales will eventually peak and then slow down.
During this stage, sales growth has started to slow down, and the product has already reached widespread acceptance in the market, in relative terms. Ultimately, during this stage, sales will peak. The company will want to prolong this phase so as to avoid decline, and this desire leads to new innovation and features in order to continue to compete with the competition which, by now, has become very established, advanced and fierce. Competitors ‘ products will begin to cut deeply into the company’s market position and market share. However, despite this, sales continue to grow in the early part of the maturity phase. But, these sales will peak and ultimately decline, as the graph shows.
Demand for the product ultimately decreases due to competition and market saturation, as well as new technologies and changes in consumer tastes. Actions the company takes may include:
- Improving specific features in order to resell the product (for instance, in the case of a car, the manufacturer may include alloy wheels, new colors, sport or hybrid versions, or other changes in order to keep sales going);
- Lowering prices in order to fight off competition;
- Intensifying distribution and promotional efforts;
- Differentiation efforts, in the hope that new customers will start to buy the product.
- Finding a new targeted market.
The stage that lasts the longest in the product life cycle is the Maturity stage. It is at this time that repeat business and purchases take the place of new customer buying. So, during the maturity stage, the following occurs:
- Costs are lowered as a result of production volumes increasing and experience curve effects
- Sales volume peaks and market saturation is reached
- Increase in numbers of competitors entering the market
- Prices tend to drop due to the proliferation of competing products
- Brand differentiation and feature diversification is emphasized to maintain or increase market share
- Industrial profits go down
Decline
During decline, sales growth becomes negative, profits decline, competition remains high, and the product ultimately reaches its ‘death’.
LEARNING OBJECTIVES
Identify the characteristics of a product in the decline stage of the product life cycle.
KEY TAKEAWAYS
Key Points
- Sales volume declines as competition becomes too strong for the company in question; as well as the fact that changes in consumer tastes and new technologies also erode sales.
- Maintaining profitability increasingly becomes more about efficiency of production and distribution rather than about increasing sales.
- Usually, product termination is not about the end of the business cycle or the entire product class; rather, it is about the termination of a single product or market entrant that can no longer compete as it has reached the end of its life.
Key Terms
- decline: The stage of the product life style where low/negative sales growth, lower profits, and maximum competition occur, forcing the product into decline and ‘death’.
The stages of the product life cycle are:
- Introduction
- Growth
- Maturity
- Decline
Product Lifecycle Management Stage 4: Decline
The decline stage of the product life cycle is the one where the product ultimately ‘dies’ due to the low or negative growth rate in sales (see ).
Decline Stage: The decline stage of the product life cycle is the terminal stage where sales drop and production is ultimately halted.
Profitability will fall, eventually to the point where it is no longer profitable to produce, and production will stop. As a number of companies start to dominate the market, it becomes increasingly difficult for the company in question to maintain its level of sales. Consumer tastes also change, as do new technologies which may make the product become ultimately obsolete (as in the case of CDs and DVDs, and now Blu-Ray).
Features of the decline stage include:
- A decline in sales volume as competition becomes severe, and popularity of the product falls;
- A fall in prices and profitability (the latter ultimately moving in the negative zone);
- A counter-optimal cost structure;
- Profit increasingly becomes a challenge of production/distribution efficiency rather than increased sales.
It is important to note that product termination is not usually the end of the business cycle; rather, it is only the end of a single entrant within the larger scope of an on-going business program.
Example: The Personal Computer (PC)
shows the actual sales and price of the personal computer from 1992 to 2002. The PC was state-of-the-art technology in 1992. Only technologically-advanced individuals would buy one at the very steep price of $1800 (and bear in mind, $1800 in 1992 was worth a lot more than it is today). A large number of companies were competing in the field. As the market grew, businesses learned to be more efficient in producing the PC and prices came down. The drop in prices and improvements in technology made PCs more attractive to other consumers. However, the market became saturated after 2000 and went into decline. PCs started to become obsolete as laptops, net books, tablets, and smart phones started to enter the market, shifting the emphasis from power to portability. The PC is still used all over the world, but its popularity has declined dramatically.
Product life cycle of the personal computer: The chart shows the rise and fall of personal computers.
Product Life-Cycle Curve
Product life cycles are a useful guide to lifetime sales and profits, and can help marketers understand what strategies to deploy & when.
LEARNING OBJECTIVES
Discuss characteristics of a product’s life cycle curve
KEY TAKEAWAYS
Key Points
- Different products will have differently shaped product life cycle curves. Products like Coke and Pepsi seem to be in a permanent maturity phase, while fads like the Tamagochi have short maturities as well as steep introduction and decline phases.
- Some products have very unpredictable product life cycles owing to high levels of uncertainty and risk. For these, the product life cycle model is less useful.
- During the early stages of the product life cycle, a product will not be highly profitable. Thus, the maturity stage should be extended as long as possible.
Key Terms
- fad: A phenomenon that becomes popular for a very short time; the product life cycle has a steeply-sloped growth stage, a short maturity stage, and a very steep decline.
Understanding Product Life Cycle Curves
It is important for marketing managers to understand the limitations of the product life cycle model. A rise in sales per se is not necessarily evidence of growth, just as a fall in sales does not typify decline. Some products like Coca Cola and Pepsi may not experience a decline at all.
Differing products possess different product life cycle “shapes. ” A fad product develops as a steeply-sloped growth stage, a short maturity stage, and a steeply-sloped decline stage (for instance, the pet rock phase in the 1970s). A product like Coca-Cola and Pepsi experiences growth, but also a constant level of sales over decades. A given product may hold a unique product life cycle shape such that use of typical product life cycle models are useful only as a rough guide for marketing management.
The duration of each product’s life cycle stage is unpredictable, making it difficult to detect when maturity or decline has begun. Due to these limitations, strict adherence to the product life cycle model can lead a company to misleading objectives and strategy prescriptions.
Rather, the product life cycle model should be used as a rough guide to predict how sales patterns may play out given competitive and economic conditions. All in all, it is a useful model, but not a certainty.
The two charts and demonstrate the break-even point reached during the product life cycle as well as sales and profits in general. They show that the product does not make much profit during early periods of the life cycle, meaning the maturity stage must be extended to maximise profits.
Sales and Profits: The diagram shows the sales and profits of a given product during the course of the product life cycle.
Break Even: The diagram shows when a product is expected to break even once it is introduced into the market.
Examples
Facebook is in the mature phase of the product life cycle. Once it became the norm for everyone to have a Facebook account, the growth stage passed. No new or obsoleting technology is expected to appear soon which would put Facebook out of business. While Facebook competes with other social media sites like Google+ and Twitter, it appears to be holding its own. Thus, we can say that Facebook is comfortably in the maturity stage.
iPod
The iPod touch is currently in the mature phase of the product life cycle. This is because the iPod touch is just an evolution of a product that has been around for long time. Competitors like Microsoft’s Zune have just followed Apple’s design and technology, while the iPod has evolved over multiple “generations,” each adding new features and functionalities. Today, the iPod touch is more than just a music player; it plays videos, runs apps and can be used as an organizer. Such a product may be difficult to classify using the product life cycle model – is it the same old iPod, or an entirely new product?