Product Life Cycle
Every product has a definite life and is in business through the various stages of the product life cycle. So 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 the product life cycle (PLC). Basically in which it would show different levels of sales and profit.
The business organization has the desire to cover all the risks and efforts made in developing and selling that product. This product life cycle includes different products having different life cycles depending on their demands along with changing trends in the markets.
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 a new product. Some products quickly become obsolete, like those related to IT. On the other hand, others have a longer duration of useful life. However, every new product is passed from the five stages. So in which the sales and profits show different proportions. Thus the business should adopt certain strategies relative to the feasibility of each stage.
Stages of Product Life Cycle
- Product Development
Each of these stages is discussed below.
It is the first stage of the product life cycle in which the business starts the process of new product development. In addition that includes idea generation, and conversion into a product concept. So that resulting testing and the actual physical development of the product. As the new product is developed so its sale is zero. This 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. The introduction of a new product is a slow process. As most people do have not any awareness of 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 products are kept for the customers in the market. New distributors are captured for effective distribution to every distinct place in 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. Hence rather than considering the short-term profit. In the later stages the pricing, promotion, and distribution requirements would change.
When the new product is successfully introduced in the market. Then the people start considering it a valuable item that can effectively fulfill their demands. So the sales start growing upward which result in an increase of the profits. The reason is the increasing sale and reduction of unit cost.
That actually helps the business to increase revenue. The increasing sales and profits start attracting new investors. In fact, that results in an increase in the level of competition. The price of the new product in the market is relatively stable resulting in a slight decline.
Business is also facing competition so more efforts are made to improve distribution. Along with the promotion of new products. Business covers new segments of the market and competitive products. That influences improvements in the product by adding new features. The quality of a new product is also raised in this stage. Moreover, the business spends its money on the conviction of the product. Along with its purchase rather than 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. However, on the other side, the costs of business are also increasing. Hence the business hopes to get more revenue in the future.
It is the fourth stage of the product life cycle in which the product enters 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 the maturity stage.
As the sales slowly decrease, the businesses are forced to make further improvements in their product. Actually 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. In fact, some weak businesses exit the market.
Due to the high competition, business organizations are focusing more on advancements. Actually 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.
Moreover, enhancing the 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 sales. Moreover to capture the customers of competitors.
The last stage is called the decline stage in which the sales become quite low. Some categories of products show a quicker decline period. Therefore others show a slow stage of decline that is spread over several years. The sales may fall due to a number of reasons. Such as changes in the tastes of customers, advancements in technology, and a rise in competition. The low sales would further reduce the profits. However, this decline would dishearten some competitors and they leave the market.
This would eventually result in lowering the competition. As sales and profits fall increasingly, businesses adopt different sets of marketing strategies. They quit a smaller segment of the market, leave smaller distribution channels and lower their prices. The lesser amount is spent on the promotion aspect and if any product line is not profitable for a business. Then it liquidates its nonprofitable product line and keeps only potential products.
At this stage probably two methods are used by business organizations for increasing the PLC of the products. These two methods are as follows.
- Increase the market share by adding new market segments with new customers.
- Modify the product by increasing variation, and adding new features and styles. So that it changes the reaction of customers. Hence it increases the demand for a new product.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
Love my efforts? Don't forget to share this blog.