Product Life Cycle

What is a Product Life Cycle?

  • A theoretical model which describes/predicts the stages a product goes through during its life

Using the Product Life Cycle Model can help by:

  • Forecast sales trends

  • Market targeting and positioning

  • Analyse and manage a product portfolio

  • Focus investment on products

Stages in the Product Life Cycle:

  • Development

  • Introduction

  • Growth

  • Maturity

  • Decline/End

Development Stage:

  • ‘New product development’ or NPD

  • Often complex

  • Absorbs significant resources

  • It may not be successful

  • It may involve a long lead time before sales are achieved

Introduction Stage:

  • New product launched

  • Usually low sales

  • Low capacity utilisation and high unit costs

  • Heavy promotion to make consumers aware of the product

  • Usually negative cash flow

Strategies:

  • Aim= encourage customer adoption

  • High promotional spending to create awareness and inform people

  • Either skimming or penetration pricing

  • Limited, focused distribution

  • Demand initially from ‘early adopters’

Growth stage:

  • Much faster-growing sales

  • The product gains market acceptance

  • Unit costs fall with economies of scale

  • The market grows, profits rise but attracts the entry of new competitors

  • Cash flow may become positive

Strategies:

  • Promote brand awareness

  • Intensive distribution- many news outlets

  • Market penetration

  • Wider target customer base

  • Improve the product- new features, improved styling, more options

Maturity Stage:

  • Slower sales growth as rivals enter the market = intense competition + fight for market share

  • Low unit costs = very efficient

  • High profits for those with high market share

  • Weaker competitors start to leave the market

  • Prices start to fall

  • Cash flow should be strongly positive (less need for investment and marketing)

Strategies:

  • Manage capacity and production

  • Promotion focuses on differentiation

  • Intensive distribution

  • Adopt extension strategies:

    • Attract new, late users

    • Develop new uses

    • Reposition in the market

Decline Stage:

  • Falling sales

  • Market saturation

  • Rapid fall in profits and weak cash flow

  • More competitors leave the market

  • Excess capacity and rising unit costs

Reasons why products enter the decline stage:

  • Technological advance

  • Changes in consumer tastes and behaviour

  • Increased competition

  • Failure to innovate and develop the product

Strategies for the decline stage:

  • Maintain market share of what is left

  • Minimise marketing spend

  • Cut prices to stay competitive

  • Support loyal customers

Criticisms of the Product Life Cycle model:

  • The shape and duration of the cycle varies from product to product

  • Strategic decisions can change the life cycle

  • Hard to know precisely where a product is in its life cycle

  • Length cannot be reliably predicted- the maturity phase can last a long time

  • Decline not inevitable