Product Life Cycle

The Product Life Cycle is an important part of the external analysis, part of writing a business plan. A product, like people go through a life cycle. They grow (in sales), then decline and are eventually replaced by another product. This is especially important for companies in that the majority of products will eventually become obsolete as their sales volume and market share become replaced by new and improved products or technology. Bear in mind also that as a product ages its profitability will also generally decline. So as a company if your products are not changed or replaced, sales volume is at risk.

Demand and Technology

To fully understand and utilise the product lifecycle it is helpful to understand the concept of it.

A product exists to provide a solution to meeting a consumer’s need. You must, as a company, decide when you exit one product and move to the new ‘demand technology’.

The need for a product is constantly changing and can provide us with a demand life-cycle curve.

From the chart you can see that there is a new demand or consumer need – a Demand Cycle. This demand cycle once it has emerged, grows over a period of time until it reaches maturity and then declines.

A product comes in that will fill that consumer need (See the black new technology line)

As new technology comes in it will start to satisfy that need (See the black new technology line). As that technology starts to ‘slow’ you will see the next advanced product come into play and will eventually bypass the previous technology (see the purple new technology line). So the process continues. If you think how computers have developed over the years since their conception you can appreciate this concept.

What this chart highlights is that you need to constantly look at the bigger picture within your market – look for the technological advances and keep up to date with the market. If your product is in the maturity or decline market – what do you need to be doing to stay ahead.

The Product Life Cycle

The product lifecycle looks at the various stages of a products sales history. Depending on the stage that product is at, it will help determine the potential opportunities and also problems with respect to your marketing strategy.

As the diagram indicates there are four stages in a product life cycle, introduction, growth, maturity and decline.

The introduction period shows slow sales as a new product is introduced to the market. The profits will be low at this point as there will be a lot of money being spent in introducing the new product.

The growth period is where the market is rapidly beginning to accept the product and it is becoming more widely known, which will produce higher profits.

The maturity period is where the market slows down because the product has achieved acceptance by most of the potential buyers. This period will also have increased marketing costs because you are now working to defend your product against that of the competitors, thus profits will stabilise or even possibly decline. This will depend in large how many competitors there are of your product within the market.

The decline period is when the sales slow down and with it the profits. It may be that new technology has come in and is replacing your product type.

For your business you can look at the product life cycle from a few angles. Say for example that you sell Hewlett Packard Laptops.

You can look at it as a product category, for example computers. Look at the product life cycle of the computer industry in general. You can also look at the product type, laptops. Look at the life cycle of the laptop market. Then also look at the brand, for example look at the product lifecycle of a Hewlett Packard Laptop model number XXX. Is this model being superseded by new technology?

Determining your market strategy:

By looking at the product life cycle of your chosen business, you can start to see some marketing strategies that you could be putting in place.

Introduction Phase:

Here you are creating new product awareness and possibly even trailing the product. Strategies may therefore include just offering the basic product (no accessories). Pricing will be the cost of the product plus your profit. You will be working on building specific distribution and product awareness not only to the end user but also the suppliers. There will be a need for heavy sale promotion.

Growth Phase:

Here you will be looking to maximise your market share. Strategies will include offering product extensions, things such as servicing and warranties. You will be looking to price your product to enable you to penetrate the market. Extensive distribution will be needed and you will need to be building awareness and interest in your product within the mass market. Sales promotion will be less here than in the introduction phase as you will be taking advantage of the heavy consumer demand.

Maturity Phase:

In the maturity phase of the market you will be looking at defending your market share and also maximising your profits. At this point you will be looking to possibly diversify your product range. With regards to pricing, you will be wanting to match or beat your competitors. Distribution again will be intensive and advertising will be focussed on the differences and benefits of your products as opposed to the those of your competitors. Sales promotion at this point will be increased to encourage people to go with or stay with your brand.

Decline Stage:

Here you will be looking to reduce the expenses on this product and get what you can out of the declining market. You will be beginning to phase out this product and cut the pricing. Distribution will start to reduce, as will advertising and sales promotion.

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