Product Life Cycle
If you are considering entering any service industry or making any product, this includes growing specialty crops or raising livestock, knowing where your product or service is in its life cycle provides valuable information; how to position, price, promote and distribute your product in the market. A product or service has a life of its own and goes through cycles. Although different products and services have different types of life cycles, they all go through a similar cycle of adoption and use. Typically, there are four stages that make up the life cycle. Each stage is different and requires marketing strategies unique to the stage.
At times, one sees “product life cycle” used to describe a product’s expected life span, either with respect to daily use, maintenance, shelf life, warranty, etc. This article looks at the evolution over time of a product or service offering in the market. Additionally, product life cycle theory is closely associated with two models: Ansoff’s Matrix and The Boston Matrix. These tend to consider the best management strategy for a company’s across-the-board product portfolio rather than a single product or service, but the underlying concepts are fully applicable. They are beyond the scope of this article, but are easily found and researched elsewhere on the Internet.
With respect to the four stages of the product life cycle, they are presented in the following sections, the secondary heading in parenthesis are frequently encountered descriptors used by The Boston Matrix.
Introduction (Development) Stage (The Pioneer)
This stage involves introducing a new previously unknown product. Sales are small, the production process is new; cost reduction through economies of scale/size or scope, and the experience curve are not yet in play. All marketing is to acquaint buyers with the product. Pricing focuses on enticing first-time buyers to try the product. Few people know of it, and it may be very difficult to sell.
Growth State (The Star)
Sales rapidly grow; buyers have become acquainted with the product and are willing to buy it. New buyers continue to enter the market, partly due to positive feedback from the early adopters, previous buyers come back as repeat buyers. People know the product or know of it and would like to have one. It may be expensive, but it is cool to be associated with or possess.
Production may need to be quickly ramped-up and the business may require large capital and expertise infusions. Cost reductions occur as economies of scale/size are realized and the business becomes more efficient as management and production’s experience curve develops. Oftentimes, profit margins are large; revised company structure, management and promotion, and pricing strategies follow to reflect the growth environment. Competitors may enter the market, but little rivalry exists, due to more-than-adequate expansion space within the rapidly growing market.
Mature Stage (The Cash Cow)
The market is now saturated. Production has caught up with demand and growth precipitously slows. There are some first-time buyers, but most buyers are repeat buyers. Competition becomes intense, with aggressive promotion and pricing to capture or maintain market share. The product is now mainstream, people buy it and the organization can "milk the cow" and expect predictable returns.
Although experience curves and economies of size/scale and scope are fully in play, competitive pricing and perhaps related promotional programs often result in decreased profit margin. Companies may desperately try to differentiate their product from the competition, but products actually become more standardized to meet the over-arching demand within the competitive market for that one, established, well-recognized thing. For example, consider the American light-beer industry’s brand battles when in reality light beer is perhaps the most homogeneous product across the beer industry.
Decline State (The Fading Star, The Dog)
More up-to-date products are of primary interest to purchasers or competition has resulted in a highly dilute market with intense rivalry among competitors, there are narrow profit margins and declining sales. Businesses adopt new product lines, rebrand/market, or leave the industry. This is the beginning of the end game and a pronounced “change event” for any business, ideally, the company has an exit or transition strategy in play.
Extending the Product Life Cycle
Once again, consider that all things, including our universe, has a life cycle. Inevitable change, if embraced instead of ignored, is a positive factor in the long-term survival of any project or business. Anticipating the product-, marketing- and risk-management associated with change ensures the sustainability of the venture. Elsewhere on AgMRC and in various places on the Internet, economies of scale/size and scope are discussed. Understanding how these concepts can increase efficiency and profitability can help extend the life cycle of a business or product line. Another concept, too broad to cover here, is that of “creative destruction.” The idea of creative destruction is that the evolution and eventual death of products is an integral and ongoing function of any market economy, and anticipating and managing the look, feel and lifespan of your business creates new opportunities for diversification, innovation and advantage over your immediate competition.
One of the first great thinkers on product life cycles, Theodore Levitt, in a 1965 article in the Harvard Business Review said, “The object is to suggest some ways of using the concept effectively and of turning the knowledge of its existence into a managerial instrument of competitive power.” To do that, it takes some long-range thinking and strategic planning about your role in the market. One that should include an exit strategy for your company at some point safely before your product or service becomes costly and irrelevant.
Extension strategies can include various innovative, tactical and strategic strategies to extend the life of the product or service before it goes into decline. All considerations are very important since at each stage of a product or service’s life cycle, each management decision must consider the competitive requirements of the next stage of the cycle. This kind of planning helps avoid money-wasting debacles; for example, wasting money on ineffectual advertising campaigns, short-term catastrophic cost-reductions, or wasteful mergers or acquisitions.
Design your planning around an orderly set of “sales-building actions.” To do this, review pricing, favorable and unfavorable marketing relationships and promotions; consider how these issues weight relationships with distributors and resellers. Re-branding and radical new marketing campaigns including highly targeted advertising can renew or expand interest in a “proven” product, or target an entirely new demographic. There are many examples were traditional production systems embraced radical new technologies to achieve unimagined economy of scale and price reduction to create renewed profitability and ensure market share.
Value addition can come in the form of increased expanded functionality or investment in new strategic alliances to exploit distribution or production through relationships that target untapped markets. Perhaps a simple update of packaging or changing who is distributing or retailing your product can expand market share. So, what is your competition planning? Be sure to consider the likely moves by new and existing competitors, consumer taste and demographic change, and the marketing and distribution needed to address them.
Life-extension thinking enforces strategic and systematic planning. In general, have an active rather than a reactive product-management policy. Structure your long-term marketing and product development efforts that center on product- and marketing-review plans and decision-making timelines driven by that orderly set of sales-building actions; incorporate decision triggers that come into play at those points at which sales and profits decline to a particular level.
Life-extension planning does not have to be some dark and dreary miserable task. It should be an inclusive team enterprise; one that energizes your organization’s focus. This is how you chart and direct your future. There is an old saying that there are two sides to every coin; those same developments in society and technology that negatively influence life span must conversely create opportunities for the successful evolution of your product or service.
Revised and expanded, March 2018