Product Life Cycle

The product life cycle can be divided into four stages:

• Introduction

  • When a new product is launched, it first enters the introduction stage. Because consumers are unfamiliar with the product, acceptance may be low, so vendors must spend considerable time and money promoting it. With limited demand, costs are high and so are selling prices. During this period, profit typically turns from negative to positive.

• Growth

  • After promotion during the introduction stage, consumers begin to accept the product and demand grows steadily. As demand rises, production costs fall and profits increase. More competitors may enter during this period, raising supply and gradually moving the product into the next stage: maturity.

• Maturity

  • The market gradually saturates and sales slow. After profit peaks, vendors keep improving the product and cutting prices, so profit begins to shrink in the late maturity stage, and the product then enters decline.

• Decline

  • As technology evolves and consumer needs change, the product enters its final stage: decline. During this period the product is highly likely to be replaced, selling prices are low, and profits fall. Vendors may gradually exit supply of the product, and it reaches the end of its life cycle.

These are the four stages of the product life cycle. In addition, before the Introduction stage there is usually a development stage.

• Development

  • The development stage usually proceeds alongside market demand research. Specifications may still be uncertain, and substantial manpower and resources must be invested in development and validation, so profit for the product is negative at this stage.

Product life cycle analysis can help a company formulate product development and market sales strategies.

For example, when the product life cycle is in:

• Introduction: Conduct an initial assessment and survey of how consumers or customers use the product.

• Growth: Consider whether you have sufficient technical capability to enter the market.

• Maturity: There are many competitors at this point, so you usually need to consider whether you have a cost advantage.

• Decline: It is generally advisable not to enter the market at this stage.

Entering the market at any stage also requires accounting for the resources and costs invested during the Development stage: the higher the investment, the longer the product life cycle needed for profit to turn from negative to positive.