What is the Product Life Cycle?
The product life cycle denotes the duration between a product’s introduction to the market and its eventual removal from shelves. This principle serves as a crucial factor for management and marketing experts when determining the optimal timing for actions such as boosting advertising, price reduction, market expansion, or packaging redesign. The systematic planning and implementation of strategies to consistently uphold and sustain a product is referred to as Product Lifecycle Management.
How the Product Life Cycle Works
The Introduction stage marks the initial introduction of a new product to consumers, necessitating significant investment in advertising and marketing campaigns to raise awareness about its benefits, especially when its functionality is not widely understood.
During this phase, there’s usually minimal competition, as rivals are just getting acquainted with the new offering. However, companies often face financial challenges due to lower sales, employing promotional pricing to drive customer engagement while refining their sales strategy.
Moving into the Growth phase occurs if the product proves successful, characterised by escalating demand, increased production, and expanded availability. The duration of the introduction phase before significant growth varies across industries and products.
In the Growth phase, the product gains popularity and familiarity. While advertising efforts might persist, the focus shifts to distinguishing the product from competitors rather than mere introduction. Companies might also enhance the product based on customer feedback.
Financially, the growth period boosts sales and revenue. As competitors introduce rival products, competition intensifies, potentially prompting price reductions and narrower profit margins.
The Maturity stage is the most profitable, marked by declining production and marketing costs. With a saturated market and heightened competition, some view this stage as when sales volume peaks.
Companies in this phase strategise on product innovation or ways to capture a larger market share, emphasising customer feedback and demographic research.
Competition peaks during Maturity, with rivals introducing improved products. Sales stabilise, and companies aim to prolong their product’s presence in this stage for as long as possible.
With increased competition and emulation by other companies, a product may witness a decline in market share. Sales start dwindling due to market saturation and the emergence of alternative products. Consequently, the company might opt against further marketing efforts, considering that customers have likely formed their loyalty preferences towards the company’s offerings.
In the event of a complete product phase-out, the company ceases support and entirely discontinues marketing initiatives. Alternatively, the company might opt to reinvigorate the product or introduce a completely revamped, next-generation model. If the upgrade is significant, the company might reintroduce it into the product life cycle by launching the new version to the market.
The stage within a product’s life cycle significantly influences its marketing approach. A new product necessitates explanation, whereas a mature product requires differentiation from competitors.
Advantages of Product Life Cycle
The product life cycle offers marketers and business developers a comprehensive understanding of how each product or brand fits within a company’s portfolio. This understanding empowers companies to strategically allocate resources to specific products based on their position within the life cycle.
For instance, a company might opt to redistribute the time of its marketing staff towards products entering the introduction or growth phases. Alternatively, it could consider investing more in labour costs for engineers or customer service technicians as a product matures.
Naturally, the product life cycle positively influences economic growth by fostering innovation and discouraging the support of outdated products. As products progress through life cycle stages, companies that use this cycle recognise the necessity of enhancing their products, making them more effective, cheaper, or better tailored to meet client needs.
Limitations of Product Life Cycle
Despite its value in planning and analysis, the product life cycle doesn’t universally apply to every industry and isn’t consistently effective for all products. For instance, consider popular beverage lines where the primary products have remained in the maturity stage for extended periods, while variations or new iterations of these drinks from the same company have struggled or failed.
Additionally, the applicability of the product life cycle can be artificial in industries constrained by legal or trademark limitations. For example, the patent term is a significant factor. A drug might be entering its growth stage but faces adverse impacts from competition when its patent expires, regardless of its developmental stage.
Another downside of the product life cycle is the potential for planned obsolescence. When a product reaches maturity, a company might feel inclined to plan its replacement, even if the existing product still holds considerable benefits for customers and has an extended shelf life. For manufacturers who frequently introduce new products within short intervals, this tendency can lead to product waste and inefficient utilisation of product development resources.
Product Life Cycle vs. BCG Matrix
The Boston Consulting Group (BCG) Matrix is a strategic planning tool that evaluates a company’s portfolio of products. It categorises products into four quadrants based on market growth rate and market share:
- Stars are the products with both strong market growth and market share.
- Cash cows are of high market share but low market growth.
- Question marks are capable of high market growth and low market share.
- Dogs are the opposite of Star products – low market growth, low market share.
While there exists no direct correlation between the matrix and the concept of the product life cycle, both methodologies scrutinise a product’s market growth and saturation. Nevertheless, the BCG Matrix typically does not convey the projected direction of a product’s movement. For instance, when a product enters the maturity stage of its life cycle and is anticipated to decline next, the BCG Matrix doesn’t visually represent this trajectory in its depiction.
Example of Product Life Cycle
On April 23, 1985, Coca-Cola introduced a new formula for its renowned beverage, known as “new Coke.” With Coca-Cola’s declining market share over the previous 15 years, the company aimed to revive interest in its product by launching a revised recipe.
Following its debut, Coca-Cola’s customer service line was inundated with 1,500 daily calls, predominantly expressing dissatisfaction with the change. Advocacy groups managed to rally 100,000 supporters in favour of reinstating the “old” Coke.
A mere 79 days after its release, the entire product life cycle of “new Coke” came to an astonishing end. Despite a lack of significant growth or maturation, its market introduction sparked vehement opposition. Within less than three months of unveiling the new recipe, Coca-Cola announced its decision to revert to the original formula.
Throughout various stages, companies use different strategies to manage the product life cycle effectively, such as pricing adjustments, marketing campaigns, product enhancements, and diversification. Understanding where a product stands in its life cycle helps businesses make informed decisions about resource allocation, investment, and strategic planning.
DISCLAIMER: This article is for informational purposes only and is not meant to supersede official business advice.