Product Life Cycle: Definitions and Impact on Your Business
The product life cycle refers to the stages a product goes through from its introduction to its eventual retirement. It is a useful concept for businesses to understand as it reveals how a product’s popularity and profitability change over time. By analyzing the different stages, companies can make informed decisions regarding product development, marketing strategies, and resource allocation.
Let’s delve into the various stages of a product life cycle:
1. Introduction:
At this initial stage, a new product is launched into the market. It aims to attract early adopters and build awareness among potential customers. Companies focus on promotion and distributing limited quantities of the product to gauge its market acceptance and overcome any early hurdles.
2. Growth:
As the product gains traction and more customers become aware of its benefits, the growth stage commences. Sales and revenues increase rapidly, leading to more extensive production and wider distribution. Competitors may also enter the market, creating pricing pressures and necessitating ongoing product improvements.
3. Maturity:
The maturity stage is characterized by a peak in sales and market saturation. The product has achieved broad acceptance, and competition intensifies. To maintain market share, companies need to enhance their products’ features, differentiate themselves, or adjust prices to retain customers. Marketing efforts focus on customer loyalty and enhancing brand image.
4. Decline:
In the decline stage, sales steadily decrease due to market saturation, changing consumer needs, or the introduction of newer products. Companies must decide whether to rejuvenate the product through improvements, repackaging, or targeting different customer segments. Eventually, if no viable opportunities arise, the product is withdrawn from the market.
Understanding the product life cycle is crucial for businesses as it impacts many aspects of their operations, including pricing, marketing, and product development. By recognizing which stage a product is in, companies can adapt their strategies and allocate resources accordingly.
Let’s consider a real-world example: smartphones. When smartphones were first introduced, they were in the introduction stage. As technology improved and more players entered the market, smartphones transitioned to the growth stage, experiencing rapid sales growth. Currently, smartphones are in the maturity stage, with incremental improvements and intense competition. However, with the emergence of new technologies like augmented reality and foldable displays, smartphones may experience a revival and enter a new growth phase.
In conclusion, the product life cycle provides valuable insights for businesses to make informed decisions about their products. By understanding the stages and their implications, companies can stay competitive, maximize profitability, and meet the ever-evolving needs of their customers.
Everything has a shelf life. Whether it’s a car, your phone, exercise equipment, or anything else — eventually its use and sales potential will run dry. That’s because anytime a product enters the market it follows specific product life cycle stages.
The stages of a product life cycle take it from being introduced as the next big thing, to something that everyone has and eventually everyone has forgotten about. This process is constant, meaning that every business needs to be aware of how it works and how it can affect their products. Let’s take a look at the ins and outs of the product life cycle and how you can leverage it to manage your business.
Table of Contents
What is a product life cycle?
The product life cycle is the length of time from when a product is introduced to the consumer market up until it declines or is no longer being sold. This cycle can be broken up into different stages, including: development, introduction, growth, maturity, saturation, and decline. The full product life cycle is typically used to determine when it’s appropriate to increase advertising, adjust pricing, explore new markets, redesign packaging, and even adjust your messaging.
What are the stages of a product life cycle?
Each stage has its costs, opportunities, and risks, and individual products differ in how long they remain at any of the life cycle stages. While there are differing opinions regarding the number of stages in the product life cycle, each option includes the following steps.
1. Development
The development stage of a product life cycle is the research phase before launch. It’s used to determine the viability of a product, confirm when it should go to market, and how to approach your official launch. Costs are accumulating with no corresponding revenue. Some products require years and large capital investment to develop and test their effectiveness. Risk is high, limiting outside funding sources. Existing companies often fund research and development from revenue generated by current products. For startup businesses, this stage is typically funded by the entrepreneur. It may be wise to land on a minimum viable product (MVP) as early as possible. This can be as minimal as a sketch or as complex as a sample or prototype version of the product itself. The earlier you can validate its market potential, the more likely you’ll be to land investment and launch.
2. Introduction
The product life cycle introduction stage is when your product is first launched in the marketplace. It’s where you develop a market for the product and build product awareness. Here, you’ll work to carve out a target market, conduct a market analysis, and ideally land your first few sales. Marketing costs are high at this stage, as it is necessary to reach out to potential customers. The best approach when promoting a new product is to focus on testing distribution channels and messaging. Intellectual property rights protection is obtained. Depending on your market position, product pricing may be high to recover costs. It also may be lower, meaning you’ll initially be running at a loss until you gain traction. Landing initial funding efforts and mapping out your cash runway are vital to the success of your product.
3. Growth
In the product life cycle growth stage, the product has been accepted by customers, and you are now striving to increase market share. Demand and revenue are growing, ideally at a steady rate. Response during this phase is to fine-tune your messaging, solidify your brand presence, and expand into new distribution channels. Consider adding additional services to support and differentiate your product. Things like support services, add-ons, or insurance packages are options to consider. Having these additions available can better help you react to competitors and extend the return on investment from a customer.
4. Maturity and saturation
The mature stage is when sales level off. You won’t see the same level of rapid growth as before. Lower prices, free additions, or other adjustments are made to keep your products competitive. Production costs decline, manufacturing process errors are avoided, and marketing expenditure is refined and effective. Your competitors have likely solidified their offerings at this stage, taking a portion of the market. Adjustments to advance your product or the services that accompany it should be made. If adjustments aren’t possible, then your messaging, services, and add-ons should take full focus. Incremental changes can be marketed as refreshes accompanied by new features or benefits.
5. Decline
The decline stage for a product occurs when the market becomes saturated, competition peaks, and customer needs start to change. Options are to discontinue the product, sell the manufacturing rights, find new uses, or tap into new markets. Weigh the costs and benefits associated with each option. Consider product revision, unexplored features, and untapped markets. Run different forecasting scenarios to see the potential outcomes. Have other products to support your business when one declines. Ideally, have multiple products or iterations running at different points in the product life cycle.
How do you know what stage of the product life cycle your products are in?
There’s no guarantee how long a product will stay in a given stage. Knowing the characteristics of each stage can help you identify your current position. Look back at performance to determine your business’s position and trajectory. Tie this exercise into your financial forecasts and compare them to your financial statements. This ensures you’re always considering what comes next and helps you avoid poor strategic decisions. Understand the value of a given stage to apply the same methodology to other products.
How to use the product life cycle to manage your business
Knowing what stage you’re in can help you develop a strategy for your product. The stage influences your decisions and sales performance. Here’s how you can leverage your understanding of the product life cycle stages to manage and grow your business.
Establish authority
During the introduction stage, position your product as the cheaper, better, or any number of benefits over the competition. Solidify how you stand apart.
Set a pricing strategy
Each stage has a potential impact on your pricing. Adjust pricing to position against competitors and offset development costs. Consider availability, additional features, support, and other benefits.
Create a marketing strategy
Refine your marketing strategy. Explore different channels, test ad mediums, and connect with a target audience. Test new channels and adjust strategy during the maturity and decline stages.
Extend or vary product use
If signs of maturity or decline appear during the growth stage, explore ways to extend the value of your product. Do a refresh, add additional services, or tap into adjacent markets.
What factors affect the product life cycle stages?
Product creation, positioning, and marketing are under your control. External factors can influence product performance and life cycle duration.
Ease of entry
The competitiveness of the market can influence success and the number of competitors. Barriers to entry impact the length of the product life cycle.
Advancements in technology
Rapid technological advancement shortens a product life cycle. Limited advancement allows for longer relevance.
Rate of market acceptance
The rate at which consumers accept a product affects its life cycle duration.
Economic forces
The state of the economy can impact the duration of a product life cycle. Market trends should influence your strategy.
Keep your full product life cycle in mind
Understanding the product life cycle is vital to managing and growing your business. It helps you make better strategic decisions and create accurate financial forecasts. Regularly explore your market position and adjust accordingly.
Editor’s note: This article was originally published in 2014 and has been updated for 2023.
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I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
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