Every product has a definite life and in business through the various stages of product life cycle, we measure its performance and success rate in the market. This means that when a new product has been developed then it would pass through product life cycle (PLC) in which it would show different levels of sales and profit. The business organization has the desire to cover all the risk and efforts made in developing and selling that product. The business is always looking for a new product, which clears that every new product will never be sold forever. Every time you need to go towards new product.
Different products have different product life cycle depending on their demands and changing trends in the markets. Some products quickly obsolete, like related to IT, while other has longer duration of useful life. But every new product is passed from the five stages in which the sales and profits shows different proportions. So the business should adopt certain strategies relative to the feasibility of each of the stage.
Stages of Product Life Cycle
- Product Development
Each of these stages is discussed below.
- Product Development
It is the first stage of product life cycle in which the business starts the process of new product development that include idea generation, conversion into product concept and resulting testing and the actual physical development of product. As the new product is developed so its sale is zero which means that the profit is negative because the business is only incurring costs.
In this stage the new product is introduced in the market for sale. Introduction of a new product is a slow process as most of people have not any awareness about the features of the new product of the business. Therefore the sales are low and the profit is negative. The business spends money on the distribution and promotion aspect of the product, so that sufficient awareness and proper availability of new product is kept for the customers in the market. New distributors are captured for the effective distribution to every distinct place of the market. As the new product is not famous and the profits are low, so the rate of competition is also low at this stage.
The marketing strategy used by the business should be in accordance with its positioning strategy. Especially the market leader should take into account long run profits rather than considering the short term profit, because in the later stages the pricing, promotion and distribution requirements would change.
When the new product is successfully introduced in the market, people starts considering it a value able item that can effectively fulfill their demands. So the sales start growing upward which result in increase of the profits. The reason is that the increasing sale and reduction of unit cost, helps the business to increase revenue. The increasing sales and profits start attracting new investors that result in increase in the level of competition. The price of the new product in the market is relatively stable resulting into little decline. Business is also facing competition so more efforts are made to improve the distribution and promotion of new product. Business covers new segments of the market and competitive products influence towards improvements in the product by adding new features. The quality of new product is also raised in this stage and business spends its money in conviction of product and its purchase rather than on just awareness.
The business can also reduce its price at the correct time to capture more market share. On one hand the profits are increasing but on the other side, the costs of business are also increasing and the business hopes to get more revenue in future.
It is the fourth stage of the product life cycle in which the product enters into the stage of maturity. The sales start diminishing and new challenges come in front of the business management. Most of the products in the markets are passing through maturity stage.
As the sales slowly decreases, the businesses are forced to make further improvements in their product by the addition of new versions. This would further increase the promotional spending of the businesses as they acquire their relative market share. The profits start decreasing and the rate of competition is highest at this stage, and even some weak businesses exit from the market.
Due to the high competition, the business organizations are focusing more towards advancements in the product according to the changing trends of the customers. The quality of the product is enhanced along with the enhancement in the styles and features of the existing products. The distribution efficiency is also improved and new segments of the market are targeted. Some businesses lower the prices of their products to increase the sales and to capture the customers of competitors.
The last stage is called decline stage in which the sales become quite low. Some categories of product shows quicker decline period while others shows slow stage of decline that is spread over several years. The sales may fall due to a number of reasons like changes in the tastes of customers, advancements in technology and rise in competition. The low sales would further reduce the profits and this decline would dishearten some competitors and they leave the market. This would eventually result in lowering the competition. As the sales and profits fall increasingly, businesses adopt different set of marketing strategies. They quit smaller segment of the market, leave smaller distribution channels and lower their prices. Lesser amount is spent on the promotion aspect and if any product line is not profitable for a business, it liquidates its non profitable product line and keeps only potential products.
At this stage probably two methods are used by business organizations for increasing the Product Life Cycle of the products. These two methods are as follow.
01- Increase the market share by adding new market segments with new customers.
02- Modify the product by increasing variation, addition of new features and styles, so that it changes the reaction of customers and hence it increased the demand of a new product.