The product life cycle is the period of a product from creation to end of its life. You might be surprised to know that companies and even industries have life cycles. But here, we will be discussing ‘Product life cycle’ in detail. Life cycle, in general, is the period from the creation of an item to its end. Products, Industries and even companies have a life cycle. There are four stages of the product life cycle:
This is the phase of product life where sales demand is very low. Firms are entering the market with the expectation to get returns at the onward stages. Key features of this stage can be summarized as:
- Sales Demand is low
- Investment costs are very high
- Operating costs or running costs are also high
- The product is not yet profitable as no to low returns are generated because of low demand.
In this stage of product cycle, demand for the product start growing rapidly. Consequently, prices rise. Seeing the growing trend in sales and profit, more and more firms enter the market. Key features of growth phase of product are:
- Sales Demand is high
- New firms are also able to earn profit rapidly as the product is in growth stage.
- Competition for the product increases.
- The product achieves the profitable stage.
Sales demand and profits achieve a stabilized stage at this stage of
- Prices, Profit and demand stabilizes.
- No more growth in the market.
The decline is the phase of the life cycle where the product is no more attractive. Demand decreases and consequently, prices start falling. Some firms might, however, try to extend the product cycle:
- By improving their product or
- By bringing in product updates.
- This way they might sell the product to a ‘niche’ market segment.
Product Life Cycle Curve
Important Points to be kept in mind Regarding Life Cycle Model
Not all products are profitable, so some products might not even achieve the growth stage.
Some products may achieve maturity phase again. This is possible where products are revamped or differentiated. This way the product is entered the life cycle one more time.
Some products have a life cycle of only one year while others have more than one year. A typical example is the smartphone market. New phones are launched in the market and growth is exponential in the market. Demand is very high. Meanwhile, another model is launched and the old one goes to decline stage. A common example of international product life cycle is that of Apple’s iPhone.
Importance of the product life cycle for strategic management
Strategic management is the continuous planning for an organization to meet its goals and objectives. Strategic management also involves monitoring and assessment. Costs and profitability can be compared for life cycle management. This way, strategic management might be more successful. Strategy manager can decide about:
- Expected sales over the entire life of the product,
- Expected costs over the entire life of the product,
- Whether to Enter a Market or Not and
- When to enter a market if decision about entry has been made.
The first three uses have already been discussed a lot in this article. Let’s see how life cycle strategy can help us in deciding the timing to enter the market.
There are two different timing to enter the market:
Entry in the Introductory Phase This decision is commonly taken by entrepreneurial entities who are looking for new opportunities to invest. They will enter the market with the expectation the product will generate greater returns in the longer phase.
Entry in the Growth Phase This decision is usually taken by risk averse entities. Such type of entities delays their entry to the market until the product achieve growth phase where sales demand is high and prices are increasing.
I guess, you are skilled enough to guess now that no firm will want to enter the market in the maturity phase or decline phase.
Life cycle Costing
Life cycle costing refer to the costs associated with the different phases of the life cycle. Every stage of the life cycle has its own costs, the following table indicates typical costs associated with the life stages of a product. Please keep in mind that these costs may vary from product to product.
|Introduction||Research and Development Costs |
Rising brand and product awareness
|Growth||Costs incurred to increase capacity |
Selling and Distribution Costs
|Maturity||Operating Costs Marketing costs (If the firm want to extend this phase) |
Product enhancement costs
|Decline||Disposal costs of assets |
Restructuring (not necessarily but possible)
Warranties (There may be some warranties to be supported)
Importance of Life Cycle Costing
Life cycle costing can be used to assess different costs that can incur in any phase of the product life cycle. Consequently, these costs can be compared with expected revenues at each stage. Thus, it enables the entity to predict profitability of a product before incurring any cost. Some benefits of life cycle costing for product life cycle strategy are:
- It can be used to predict the potential a product has to generate profits. This way the entity will not produce a product if it has no potential profitability. Similarly, if a product has a greater potential, the entity will start research and development.
- Life cycle costing enables us to predict costs that might be incurred in any stage of the the life. This will enable the firm to reduce costs significantly.
- If a product has greater potential, the firm might speed up the research and development process to enter the market early. This way, the firm might be able to gain a higher share of the market.
- After the life cycle has ended, the firm will compare actual costs with the expected costs. This way, it might learn lessons about the science behind the whole process. It can then apply their knowledge to future projects.
In this article, you’ve learned
- Definition of Product life cycle,
- Intermediate level understanding of Life cycle model,
- The classical product life cycle,
- Importance of product life cycle to strategic management and
- Costs implication of the product life cycle.
If you have confusion about any of the above concept, make sure to read the article again. If the confusion persists, you can comment.
Practice Question: Determine product life cycle for ‘Clothing’ market. You should focus the international product life cycle i.e. product life cycle analysis for the international market. Also write the product life cycle strategies.
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