41. product life cycle

What is the product life cycle

It shows different stages of a product and the sales achieved. Can be short or long.

What does a product life cycle chart look like, describe the sections and stages

What happens in the research and development stage of the product life cycle

• product is being researched and designed

• Ideas are being investigated developed and tested

• Prototypes are produced

• Huge sums can be spent at this time as costs are high

• No sales at this stage so no revenue is made

What happens in the introduction stage of the product life cycle

Product is launched to new market, sales are usually slow as the product is new, costs will be high and sales quite low- unlikely business will be making a profit at this stage

What happens in the growth stage of the product life cycle

Once product is established sales grow rapidly, costs may fall as production increases due to e.o.s, product is likely to become profitable

What happens in the maturity stage of the product life cycle

Sales will eventually level off, product has become established with a stable market share, consideration for strategies for decline and how to prevent it

What happens in the decline stage off the product life cycle

Sales will eventually decline (most products eg. Not cash cows), it will be withdrawn as it has lost its appeal to customers,

What is an extension strategy

A plan to extend the life of a product and prevent a decline in sales

Examples of extension strategies

• promote product to a new market

• Change in appearance, format or packaging

• Encourage people to use the product more frequently

• Change the ingredients or components

• Update the design

What does cash flow look like alongside a product life cycle

Benefits of the product life cycle

• shows the broad trends in revenue for the product and gives indication of the profitability of a product at each stage

• Identifies points where a business may need new products/ extension strategies

• Identifies where and when spending is required

• Helps a business product portfolio

• Helps with decision making for products

Problems with the product life cycle

• only displays life cycle for one product - limited use for a firm with may different products

• Doesn’t predict actual timing of change in sales

• Doesn’t accurately show the actual number of sales throughout

• Should only be used as a management guide

• Shouldn’t determine decisions