Guide: What Are The Stages Of The Product Life Cycle?
Updated 17 October 2022
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Product life cycle (PLC) is the period between the development and introduction of a product in the market to its eventual decline and removal from the market. Some products fail shortly after being launched, while some stay in the market for long periods of time and it all depends on how their product life cycles are optimised. Learning about PLC can help you forecast market situations, develop suitable marketing strategies and enhance product longevity. In this article, we discuss what are the stages of the product life cycle, the factors affecting it, the necessary marketing strategies and the importance of understanding PLC.
Related: New Product Development Process: Steps, Benefits And Tips
What Are The Stages Of The Product Life Cycle?
If you are wondering "What are the stages of the product life cycle?", there are mainly five that are important to know. They are:
This is the research stage when new product ideas are generated and operationalised. During this time, companies make decisions regarding product cost and service problems. They bring in investors, test product viability and strategise product launch. The sales are zero, profits are negative and investment costs are high. For some products, the development stage can last for years and require enormous capital investment. Outside funding resources may not be available in such cases. Companies usually rely on the profits from their existing products to fund new product development projects. For startups, funding often comes from entrepreneurs' personal resources.
Product designing, prototype making and testing are the main focus of the development stage. It is necessary to create a prototype that demonstrates the product function to potential customers and investors. This validates its market potential and makes it easier to land investments. This step plays a crucial part in determining how the product is likely to perform in the market.
Related: What Is A Product Designer? (Duties And Skills)
This phase starts when the product is launched in the market. The company invests in sales efforts and launches extensive advertising and marketing campaigns to spread product awareness and reach out to customers. As a result, this is a high-stakes period when costs are large, sales are slow and profit is negligible. Demand builds gradually as the company understands how the consumers are responding to the product, solves technical issues and tests distribution channels. There is little to no competition. The aim of this stage is to grow the popularity.
The common pricing strategies used in this stage are:
Price skimming: Setting the initial price high, then lowering it to attract an additional group of price-sensitive consumers as the market grows.
Price penetration: Setting the initial price low to penetrate the market quickly, then escalating the price as demand grows.
Related: What Is Product Marketing? Definition, Importance And Steps
This is when the company starts earning a profit as its marketing efforts show results. If the product is truly market-ready, customers accept the product and purchase it spontaneously. Demand increases as the market for the product expands rapidly. The company has to invest in developing more distribution lines. This is also the stage when competition intensifies as they see the product's success and start pushing similar products into the market.
If the competition is extremely high, the company may still invest a substantial amount in advertising and marketing campaigns to make their product stand out. They keep improving product features to please existing customers and attract new sales leads. Price reductions may also occur. Companies aim all marketing initiatives at this stage to increase the product's market share and generate revenue.
4. Maturity and saturation
Maturity is the phase in a product's life cycle when companies make the most profit. Both production and marketing costs decline. It is the stage when a product is as successful as it can be and there is hardly any scope for growth. Followed shortly by maturity is the saturation stage when the market is filled with similar products and creating demand or increasing sales is very difficult. Only strong competitors with significant market shares remain at this point.
In these stages, sales slow down and companies start reducing their prices to stay competitive. The only aim of marketing at this point is to enhance brand image and ward off competition. Companies also start developing new products or altering existing ones, to keep up with technology and reach new customers. They may create new uses of the product and develop new markets. How long this phase is going to last depends on the product.
Related: What Is A Sales And Marketing Strategist? (Plus Duties)
The decline stage inevitably starts when the product is replaced by a better product that has entered the market or when consumer needs and buying behaviour change. Decline also happens when the company loses market share and fails to maintain steady revenue due to heightened competition. If there is a massive drop in sales, the company is going to struggle with other expenditures, such as production and marketing.
The only way to recover is to introduce major modifications or launch a replacement product to remain relevant. Prices are drastically decreased and marketing is aimed at loyal customers. Otherwise, companies try to delay this phase as much as possible to harvest the product's remaining profitability. If the losses are sudden and massive, the company might consider abandoning the product, selling the manufacturing rights, liquidating the company or merging with a stronger organisation.
Related: What Does A Product Manager Do? (With Skills And How To Become)
Factors Affecting The Product Life Cycle
Although product performance depends mostly on how well each stage of PLC is controlled, there are certain external factors that unavoidably impact the process. Such factors are:
Ease of entry: If the market is easy for competitors to enter, they can overshadow the product and shorten its life cycle. But if it is difficult for competitors to enter the market, the product life cycle is likely to be long.
Market acceptance: If the customers of a market accept a product readily, they are just as likely to accept other products, which increases the competition for existing products. The lesser the market acceptance, the longer the product life cycle and vice versa.
Technological advancement: The higher the rate of technical change in a market, location or industry, the shorter the product life cycles. This is because, in such markets, improved products soon replace outdated ones.
Risk bearing capacity: The more risks a company is able to withstand, the longer it can face challenges and survive in the market. Hence, the life-cycle of their products is going to be longer.
Economic conditions: If there is a sudden dip in the economy, the introductory phase is likely to be stretched out, before the product can experience any growth. Whereas, if the economy is booming, the introductory stage may be cut short as the growth stage expands.
Finances and management: A company with sound finances and capable management is likely to optimise its products better, elongating their life cycles.
Patent protection: A product with a registered patent cannot be duplicated easily. This enhances its life cycle.
Related: Top 10 Product Manager Skills and How To Develop Them
Marketing Strategies For Each Stage f PLC
The term product life cycle was first introduced in marketing literature because of how this concept revolutionises marketing initiatives for products. Implementing the right marketing strategies at the right stages of PLC ensures maximum effectiveness and return on investment. Here is the typical progression of marketing strategies from a product's development to decline:
Spreading awareness: In the development stage, companies incite curiosity by securing endorsements from established industry voices and starting publicity about the arrival of an innovative product.
Active promotion: In the introduction stage, companies focus on educating dealers and consumers through inbound marketing and content marketing initiatives. They create attractive offers through four primary marketing strategies, namely, rapid skimming, slow skimming, rapid penetration and slow penetration.
Establishing brand presence: In the growth stage, companies sustain market expansion by developing unique campaigns highlighting their brand image so that consumers choose them over competitors. They also advertise their increased distribution channels and new product features.
Service support and improvement: In the maturity stage, companies undergo market modification and product modification to keep attracting new customers and retain old ones. They stress brand benefits and encourage brand switching.
Clearing out: In the decline stage, companies focus on saving money. They may reduce their promotional expenditure, distribution outlets and prices to get rid of the inventory gradually.
Related: What Is A Marketing Manager? Definition, Roles And Skills
Why Is Understanding The Product Life Cycle Important?
It is imperative to recognise the distinct stages in a product's sales history, aka, the product life cycle, for a plethora of reasons. Product life cycle helps in:
Forecasting sales within a product's lifespan
Providing product-related information that helps in decision-making
Supplying data about market trends and competitors
Facing competition through well-planned strategies
Reducing waste of energy, materials and workforce by avoiding common pitfalls
Controlling losses by reducing the overall cost of manufacturing
Deciding the profit margin and estimating profits
Timing the market for sales strategies
Marketing the product and brand by targeting the right audience
Optimising marketing investments
Offering better organisation and process management
Increasing product longevity
Preparing for the decline of a product and the development of something new
Related: What Is Product Planning? (With Steps and Examples)
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