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Product Life Cycle - Business Studies A-Level


The product life cycle happens to every product or service out there. Sometimes, it happens very slowly for some, others the life cycle can be very fast. Either way, its very important for a business to identify and know where its product is in the life cycle for the product to be a success.


Firstly, what is the product life cycle?
The product life cycle is a theoretical model which describes the stages a product goes through.


It's really that simple: its what the product goes through in its lifetime.


Now, there are six stages in the product life cycle:
Research and product development
Introduction 
Growth
Maturity
Decline
Rejuvenation or Termination


This theory on what a product goes through can be applied to a product, category, style, brand or model.


Now, when analysing the product life cycle, focus on how it affects net cash flow, profit and marketing strategy. Here you can analyse the implications each stage has.


1) Research & product development phase

This is before the product or service has launched, which evolves a lot of marketing research and development (kind of says it in the name) to make sure the product or service is suitable and ready to be launched into the market. It is often complex absorbing a lot of resources and can take years. Market research and a test launch is performed to help reduce the risk of product failure. Most product ideas don't even reach the launch phase showing how inefficient this phase can be.

Causes of Elimination before launch
- There's not enough demand for the product or service.
- Actions of competitors cause product to become unsuccessful.
- Change in the external be it the environment or market.
-  Production problems causing inefficiency.
- Does not fit in with product range of business.
- The product life cycle is expected to be too short.

The longer the product life cycle on a product or service, the more successful it will be.

Introduction Stage

This is the phase at which the product is launched into the market. At this stage, the product will have low level of sales and low capacity utilisation (current output/maximum output*100). The business will most likely face negative cash flow and may also find distributors are reluctant to take an unproven product on. 

Heavy promotion is used to make consumers aware of the new product. 

Both price penetration and skimming is used 

The introduction stage uses a lot of money on promotion which is why businesses want to get out of the introduction stage as soon as possible.

Growth Stage

This stage is when the product starts to grow and expand in the market but faces the arrival of competitors. Sales are now fast growing and capacity utilisation rises, reducing units costs which may cause cash flow to become positive. The product gains market acceptance however, when the market grows, although the profit will rise, the growing market will attract new competitors to enter the market.

Strategies of growth stage is to promote brand awareness and to increase number of distribution outlets. The product will possibly be able to turn into a price leader and control the market while price should stay at penetration. The business should try to target the early majority of potential buyers and try to improve their product with new features to make it stand out.

Maturity

At the maturity stage of the product, things tend to get slightly, well not good. Growth of sales slow down as the rivals from the growth stage enter the market (there's more intense competition and fight for market share). However, capacity utilisation stays high, cash flow remains strongly positive and those with high market share will have high profits while weaker competitors leave the market. 

Strategies of Mature Products
- Need to defend its position in the market.
- Change the product - differentiate it and improve it.
- Base prices on competitors.
- Promotion focuses on how the product is differentiated to market.
- Persuasive advertising.
- Enter new segments of the market.
- Attract new users.
- Reposition the product.
- Develop new uses for the product to expand target market.

Decline Stage

This is when the product starts to go downhill very fast...
Sales will start to fall on the product resulting in weaker profits and cash flow. There's a decline in capacity utilisation and more and more competitors will leave the market.

The product life cycle is important to businesses to help identify where there product is in this life cycle. Every business wishes that the product stays in the growth stage for the longest amount of time and every time it hits the maturity stage, they change the product to push it back in the growth stage. A good example of this is the Apple TV. When the first Apple TV came out, it reached the growth stage without hassle and stayed there for around a year. Then it reached the maturity stage and as it was about to peak into the decline stage, Apple "re-invented" it to spark up sales and push it back into the growth stage. This is how new products are released: when the product reaches the maturity or decline stage, the product gets updated.
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About Will Green

A student in England studying Automotive Engineering with Motorsport, Will created Ask Will Online back in 2010 to help students revise and bloggers make money. You can follow AskWillOnline via @AskWillOnline.

1 comments so far:

  1. thanks it was helpful indeed but don't you have something on the rejuvenation and termination stage ?

    ReplyDelete