The Product Life-Cycle Concept
The product life cycle is the sales pattern of growth and decline of a product over a period of time. This period may be the whole life of the product from its launch until it is withdrawn because it is no longer profitable or because it has been replaced.
Product life-cycle analysis is the process of describing and forecasting the pattern of sales for a product for a period of time or the whole of its life.
The typical cycle
Stage 1: Introduction. This is the period immediately following the launch when, if all goes according to plan, sales will grow slowly but steadily as the product is progressively introduced to the market. Profits are probably non-existent during this stage because of the costs of introducing the product; promotional costs are high in proportion to sales, and costs per unit of output are high because of low volume.
Stage 2: Growth. This is the period when market penetration increases rapidly. If the new product is successful, the rate of sales growth gains momentum as consumer/user demand expands following increased knowledge and acceptance of the product because of advertising, sales promotion and field sales effort.
This growth in customer awareness and satisfaction is exploited progressively during this period by segmentation and differentiation and by expanding into new markets. Profits increase steadily during this period.
Stage 3: Maturity. When this stage is reached, the basic product concept has gained considerable consumer acceptance. However, although the demand for it may continue to rise slightly, the rate of increase has diminished considerably and may eventually 'plateau out' or even decline. The reduced rate of growth is partly caused by increased competition from other companies either entering the market with new versions of the product or attacking the market share achieved by the product through more aggressive advertising, promotion, selling or pricing policies. The slowdown in sales growth may also be caused by the market becoming saturated for the product as it exists. During this stage profits stabilize or decline because of increased marketing outlays to defend the product against competition.
Stage 4: Decline. The sales of most product forms and brands eventually dip because of consumer shifts in tastes, increased competition, technological advances and the availability of substitute products. The market may be saturated and, unless action is taken, sales and profits will decline to zero or petrify at a low level. Purchases will tend to be of the replacement type, but brand loyalties will progressively diminish if nothing is done about it.