Just like humans, products go through different stages throughout their lives; progressing from introduction to decline. This means that long-established products eventually fade out, while new goods increase exponentially after their launch. This sequence is refereed as the Product Life Cycle and is composed by four stages which are defined by the respective product’s profit and revenue. It is important to keep in mind that not all products go through all four stages since some may continue to grow while others may fall unexpectedly (Levitt, 1965).
Stage 1: Introduction
This is when a new product is first introduced to the market. Here, the firm aims to create a market for the product by creating brand awareness. How long this will take depends on many factors such as the fit into consumer needs and the presence of competition. At this stage sales are low and profits will start to creep along slowly. The company faces increasing expenses such as research and development, marketing activities and product testing.
Stage 2: Growth
The growth stage is characterized by increased demand and a rapid acceleration in sales. The increased popularity for the product brings in bigger number of profits. This in turn makes it feasible for the company to invest in marketing communication campaigns and promotional activities to maximize the potential of this stage.
Stage 3: Maturity
At this point, competition increases, price pressures upsurge and sales start to level off. Although sales units might be at their peak, the rate of growth is slowing down as new competitors enter the industry and the market starts to become saturated. At this stage, the firm tries to maintain the market share they have built up so far through product modifications, improvements to the production process and intensification of the product distribution.
Stage 4: Decline
This is the final stage of the Product Life Cycle and at this point the market for a product starts to shrink. This might be due to market saturation or increased competition. A primary question that arises within this stage concerns whether the firm will choose keep the product and rejuvenate it with some improvements or alternatively choose to discontinue the product from the market.
The Product Life Cycle is a strategy tool that helps firms to predict the sales and profit sequence for a typical product. Although the Product Life Cycle model seems pretty simplistic at first sight, many goods do not follow the classic life cycle model. For instance, some may move quicker into the decline phase due to a superior competitor entering the market. On the other hand, other products which are well-established in the market might experience a very long life cycle and enjoy an extended maturity phase. Therefore, it is wise to say that a product’s life cycle depends upon many things such as the product’s complexity, the amount of competition and substitute products, and the fit into the customer needs.