In this article, we define the product life cycle and its different stages. Moreover, we will investigate options to extend the profitable life of any product. So, keep reading to find out more about PLC.
What Is Product Life Cycle?
The product life cycle is a conceptual marketing concept that shows the phases. A product goes through in terms of sales from the point at which it is first introduced to the market until it is eventually removed from the market as it is shown in the picture below.
It is worth mentioning that not all products make it through all the stages of the lifecycle. Many products do not even make it past the first stage, such as products that simply flop and are then removed from the market. Another thing to note is that not all products follow this trajectory, for example, instant hit products.
So you can think of the product life cycle as giving us an insight into the lifecycle of most products but not all. We can use that insight to help us make better marketing decisions. Now let’s examine each stage of the lifecycle in turn.
Stage 1 of product life cycle – Introduction
The introduction stage happens when a product is first introduced to the market, and typically sales will be low in this stage. There can often be large costs involved in this stage that far exceed sales. For instance, consider a pharmaceutical company bringing a new drug to market, then sales will be zero despite huge R&D costs until the drug is approved and sales begin.
This stage is typically characterized by:
- Negative cash flow
- Low sales
- High unit cost
High unit cost applies, especially to physical products. For example, if you are running a factory, then your utilization of that factory will be low while sales are low, and marketing cost per sale alone can often result in negative cash flow. It happens when a business invests heavily to make its potential customers aware of its new product.
Introduction Phase Strategies
You could use a large advertising budget to build awareness of your new product.
You could focus on a single distribution channel.
Get your pricing strategy right:
You could use a skimming pricing strategy. That is where you have a high price, and by doing so, you are trying to capture the most value from customers.
You could use a penetration pricing strategy. That is where you have a low price because you are trying to sell as much as possible to capture as much of the market as possible.
Stage 2 of product life cycle – Growth
Not all products make it past the introduction stage, but those that do will enter the growth stage. This stage is identified in the model by rapid growth in sales. In this stage, sales grow faster than at other stages in the product life cycle. Costs incurred start to fall away as R&D work is minimal. Besides, economies of scale begin to kick in as volumes rise, and as a result, the costs decreasing and sales rising. Profits start to rise, or if they do not rise, they begin to get closer.
It is typically during this stage that competitors, unfortunately, begin to enter the market. They see the growth being experienced, and they want a piece of the action. The introduction of competitors results in price reductions as consumers begin to have more choices.
Growth Phase Strategies
Different strategies are required during the growth stage as you try to drive market penetration and maximize your market share. So strategies include:
- Widen your target customer base to increase your total addressable market, the total number of people who could potentially buy your product.
- Increase your distribution channels.
- Make enhancements to your product, for example, by adding new features. These enhancements are not a one-off event. It is a continuous process of product improvement to sustain your high growth for as long as possible.
Stage 3 – Maturity
Rapid sales growth cannot continue forever. Eventually, every product will enter the maturity stage. Counterintuitively, this is the stage when the most profit is earned by the market leaders. There are a few reasons why this happens:
- Weaker players start to leave the market.
- Less investment and marketing are required to maintain sales.
- Companies get efficient through better processes, and economies of scale, and that results in lower unit costs.
During this stage, the market is not growing, although the most revenue is generated. So firms fight to maintain or to grow their market share, and they do this by emphasizing the unique features of their product or their brand.
At this phase, the market starts to become saturated, and despite sales volume reaching its greatest, profits towards the end of this phase eventually begin to decline as competition is so intense and products and services become more and more commoditized.
Maturity Phase Strategies
If you have a dominant market position, then the key goal of this stage is to maximize the return on your product. The strategies to do that include:
- Your promotional activities should focus on what makes you unique.
- Maximize the number of distribution channels.
- Maximize the number of customer segments you offered the product
- Investigate ways to extend the maturity phase of the product lifecycle.
- Manage capacity and your inventories to maximize profits
Stage 4 – Decline
This final stage is characterized by falling sales. The market begins to shrink and the unit costs start to rise again because economies of scale begin to erode and that combined with sales decreasing means the profitability begins to slip.
In this stage, the market is completely saturated. There is excess capacity, and competitors begin to rapidly exit the market. There are many reasons why products enter the decline stage. One of the most common ones is technological advancement. To understand it, think about how streaming movies have replaced DVDs. Another common reason is changing consumer tastes.
Decline Phase Strategies
There are several strategies you can use to squeeze the final profit from your products during this stage:
- You could cut marketing and R&D spend.
- You could cut prices to maintain competitiveness.
- You could consider offering the product to only a loyal niche segment.
- You could discontinue the product. (If the product is no longer profitable during the decline stage, then you may want to discontinue it. It may also make sense to sell off any outstanding inventory or associated assets such as machinery.)
Product Life Cycle Extention
If you are a dominant player in the market and your product is in the maturity phase, then it is natural to want to extend this phase for as long as possible. That’s because this is the phase where you make the most profit.
There are some strategies available to help companies:
- Try advertising to find a new audience or reactivate the interest of the previous audience.
- Try finding new markets that can extend its life.
- Try reducing the price to make the product attractive to new people.
- Try repositioning the product. For example, a sugary sweet could be rebranded as a sports energy capsule.
- Try adding new features to stay ahead of the competition and attract new customers. For example, Apple didn’t stop developing the iPhone after they released the first version. They keep releasing new versions to try and extend their maturity phase of the iPhone forever.
- Try new packaging. For example, perhaps environmentally-friendly packaging could attract some new customers.
All these techniques are going to need advertising so that your customers or potential customers know about what changes you’ve made, but the options to extend the lifetime of your product are only really limited by your imagination.
Conclusion
In summary, using the product life cycle to understand how products change over time can help you make better marketing decisions. All products begin life in the introduction phase of the product lifecycle. Not all products make it beyond this stage but those that do, enter the growth stage. This is the stage identified by rapid sales growth. However, a market becomes mature and sales begin to slow. This is the maturity phase. Although strategies and tactics exist to extend this stage, finally this stage also comes to an end and the product enters the decline.