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Home » Investment Banking Tutorials » Corporate Finance Tutorials » Product Life Cycle

Product Life Cycle

What is the Product Life Cycle?

Product Life Cycle refers to the entire process that a product has to go through from the time it is launched into the market until the time it is taken off from the market and is divided into four stages – introduction, growth, maturity, and decline. This concept is predominantly used by marketing professionals along with the management team because it is seen as the precursor for various marketing strategies, which includes increased advertising, price reduction, expansion to the new markets, etc.

Explanation

The underlying principle of the product life cycle is fairly simple – as a product grows old, it tends to become less popular, while the demand for a new and up-to-date product draws more demand that increases quite rapidly once the product gains acceptance after its launch. Most of the companies acknowledge the concept of the product life cycle and the fact that all the products that they deal with have a limited lifespan. Accordingly, these companies make regular investments to either develop a new product or extend the life cycle of an existing product, which would ensure that their businesses continue to grow.

Stages of Product Life Cycle

Let us look at the four major stages in more detail.

Product Life Cycle

# Stage 1 – Introduction

In the introduction stage, a new product is being launched into the market. During this stage, the company focuses on building more and more product awareness in order to develop a market for their product. The strategies employed during the introduction stage are:

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  • Establishment of brand and quality level along with filing for intellectual property rights, such as patents and trademarks.
  • Low pricing to penetrate the market in order to grow market share quickly.
  • Operate through limited distribution channels until consumers indicate product acceptance.
  • Promotion is focused on early adopters, who are believed to be potential consumers.

# Stage 2 – Growth

In the growth stage, the product is gaining acceptance and popularity among consumers. In this stage, the company intends to build the brand stronger. The strategies employed during the growth stage are:

  • Maintenance of product quality, along with the introduction of additional features.
  • Pricing is retained at a relatively higher level as the demand continues to increase.
  • More distribution channels are added to cater to the increased demand.
  • The focus of promotional activities is shifted to the broader audience.

#Stage 3 – Maturity

In the maturity stage, the growth in sales tends to slow down or stagnate, marking the point of market saturation of the product. As such, defending market share while maximizing profit becomes the only objective in this stage. The strategies employed during the maturity stage are:

  • May focus on adding new features to the existing product to stay in the competition.
  • Resort to lower pricing because of the competitive market.
  • Distribution channels are offered higher incentives to prefer their products over competing products.
  • The focus of promotion shifts to product differentiation.

#Stage – 4 Decline

In the decline stage, the product sales witness a significant drop as the demand for the product deteriorates. The strategies employed during the decline stage are:

  • Rejuvenate the product demand by adding some new features and identifying new uses.
  • Reduce the cost of production in order to improve profitability.
  • In case the above two steps fail, then stop the product sale.

Product Life Cycle Examples

  1. Typewriter: Introduced in the late 19th century, the demand for typewriters witnessed significant growth in popularity owing to improved technology. However, it eventually got replaced by computers marking the end of the decline stage.
  2. DVD: Growing popularity of online streaming services has resulted in phasing out of the DVDs, which is deep in the decline stage. Once considered to be the groundbreaking technology, DVDs find minimal demand nowadays.
  3. AI products: AI has been in the stage of research and development for quite some time now. There is a continuous push to develop new products in order to extend the product life cycle. Consequently, the demand for AI products has continued to remain at a certain given level.

Product Life Cycle Management

The process of building strategies to support the market share and popularity of a product is known as the product life cycle management. A strong product lifecycle management can result in better and faster product marketing, maintenance of superior product quality, increased sales opportunities, improved product safety, and lower mistakes & wastage.

Limitations

  • In the case of too many fluctuations in sales data, the graph used for building product life cycle becomes useless as it would fail to provide any meaningful insights.
  • Delay in collection and analysis of the sales data also makes the study of such a life cycle inefficient.
  • They might vary due to varying market conditions, i.e., a product that is popular in one place might not be popular in another.
  • This concept is valid for products only and not for the brands.

Conclusion

So, in order to be successful, companies usually intend to have multiple products at different stages of the product life cycle at any point in time. However, it is important that these companies proactively manage all the products during their lifespan by deploying adequate resources along with effective sales and marketing strategies.

Recommended Articles

This has been a guide to What is Product Life Cycle & its Definition. Here we discuss its different stages along with examples and limitations. You can learn more about from the following articles –

  • Organic Growth
  • Growth Equity
  • Sustainable Growth Rate Formula
  • What is Growth Capital?
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