Product life cycle
Product life cycle is a term used in marketing to describe the different stages a product goes through from the time of its development and market introduction to its eventual decline and withdrawal. The conditions in which a product is sold change over time and affect the sales and therefore have to be managed to maintain the optimal market performance.
There are 4 basic assumptions on which the PLC theory is based upon:
1. Products have a limited life span,
2. Like every living thing, the product and product sales pass through distinct and different stages, each posing new challenges and opportunities to the seller,
3. Profits rise and fall at different stages of the life cycle,
4. Products demand different strategies and approaches in each stage.
According to some authors, there are 4 stages of the product life cycle: the market introduction stage, the growth stage, the maturity stage and the stagnation and decline stage (although some authors like to divide the last stage into two separate stages – in that case there are 5 stages, but basically it is the same thing). The characteristics of each of those stages are:
1. The market introduction stage – It is characterized by high costs and little or no competition. Demand for this product has yet to be created, the customers have to be persuaded to try the product, the sales volume is low and the company often doesn’t make any money at this stage.
2. The growth stage – Costs are reduced due to economies of scale, the public becomes aware of the product’s existence, the sales volume rises and profitability increases. Also, competition begins to rise as new players enter the market and the increase in competition leads to lower prices.
3. The maturity stage – Costs lower even further due to production volume increase and the experience curve. But due to a further increase in competition, price dropping and market saturation, industrial profits decrease and a strong brand differentiation is needed to maintain or increase market share.
4. The saturation and decline stage – Costs become less than optimal (in relation to the price) and, because of the loss of customer interest, sales decline. To maintain sales, prices often go down even further and profitability diminishes.
Although this theory is useful (since it is based on factual assumptions), it is difficult to distinguish the stages as they occur since not every decline in sales is the sign of market saturation, or every increase a sign of growth.