Product Life Cycle Model

8/3/2019 Product Life Cycle Model

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The Product Life Cycle is the name given to the stages through which a product passes overtime. The classic Product Life Cycle has four stages:

1. Introduction,

2. Growth,

3. Maturity, and

4. Decline.

3.1 Introduction

At the market introduction stage the size of the market, sales volumes and sales growth are small.

A product will also normally be subject to little or no competition. The primary goal in theintroduction stage is to establish a market and build consumer demand for the product.

There may be substantial costs incurred in getting a product to the market introduction stage.

Substantial research and development costs may have been incurred, for example, thinking of the

product idea, developing the technology, determining the product features and quality level,

establishing sufficient manufacturing capacity, preparing the product branding, ensuring trademark protection, etc. Marketing costs may be high in order to test the market, launch and

promote the product, develop a market for the product, and set up distribution channels.

The market introduction stage is likely to be a period of low or negative profits. As such, it is

important that products are carefully monitored to ensure that sales volumes start to grow. If aproduct fails to become profitable it may need to be abandoned.

Some of the considerations in the introduction stage include:

Product development: research and development of the basic technology and product

concept, determining the product features and quality level.
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Pricing: should penetration pricing or a skimming price strategy be used? A skimming

price strategy might be appropriate where there are very few competitors.

Distribution: distribution might be quite selective until consumer acceptance of theproduct can be achieved.

Promotion: marketing efforts are aimed at early adopters, and seek to build product

awareness and to educate potential consumers about the product.

3.2 Growth

If the public gains awareness of a product and consumers come to understand the benefits of theproduct and accept it then a company can expect a period of rapid sales growth, enter the

Growth Stage. In the Growth Stage, a company will try to build brand loyalty and increase

market share.

Profits are driven by increased sales volume (due to growth in market share as well as anincrease in the size of the overall market). Profits might also be driven by cost reductions gained

from economies of scale, and perhaps more favourable market prices. Competition in the GrowthStage remains low, although new competitors are expected to enter the market. Whencompetitors enter the market a company might be subject to price competition and increase its

marketing expenditure.

Some of the considerations in the Growth Stage include:

Product improvement: product quality might be improved, additional features and

support services added, and packaging updated. Pricing: if consumer demand is high the price might be maintained at a high level.

Distribution: distribution channels might be added as consumer demand increases.

Promotion: promotion is aimed at a broader audience. A company might spend a lot ofresources on promotion during the Growth Stage to build brand loyalty.

3.3 Maturity

When a product reaches maturity, sales growth slows and sales volume eventually peaks andstabilises. This is the stage during which the market as a whole makes the most profit. A

companys primary objective at this point is to defend market share while maximising profit.

In this stage, prices tend to drop due to increased competition. A companys fixed costs are low

because it is has well established production and distribution. Since brand awareness is strong,

marketing expenditure might be reduced, although increased marketing expenditure might beneeded to retain market share and fight increasing competition. Expenditure on research and

development is likely to be restricted to product modification and improvement, and perhapsresearch into improved production efficiency and product quality.

Some considerations for the mature product market include:


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perfect tool. Products often do not follow a defined life cycle, not all products go through each

stage, and it is not always easy to tell which stage a product is in at any one time. Consequently,

the life cycle concept is not well-suited for the forecasting of product sales.

The length of each stage will vary depending on the product and the marketing strategies

employed. A Product Life Cycle may be as short as a few months for a fad or as long as acentury or more for a product like petrol cars. In many markets the product life cycle is longer

than the planning cycle of the organisations involved. Major products often hold their positionfor several decades or more, indeed, Coca-Cola was introduced in 1886 and is still the leading

brand of cola.

The Product Life Cycle is only one of many considerations that a company must bear in mind.

The product life cycle of many modern products is shrinking, while the operating life for manyof these products is lengthening. For example, the operating life of durable goods like household

appliances has increased substantially. As a result, a company that produces these products must

take their market life and service life into account when planning.

Some critics have argued that the Product Life Cycle may become self-fulfilling. For example, if

sales peak and then decline a manager may conclude that a product is on the decline and cut back

on marketing, thus precipitating a further decline.

Documents

Product Life Cycle Model