Product Life Cycle Theory and Characteristics of The Product Life Cycle
As business leaders, part of our job is to create and develop strategies that will put our organization in the best possible position for success. To do so we need to have a good understanding of how things work around us and how things are likely to work once we start to move forward.
Doing so will give you a much better chance of efficiently capturing market share.
To do so, we will need to have a solid understanding of the different characteristics of the product life cycle and how they might impact your business.
Those of you with a business background will recognize this as “product life cycle theory“.
Let’s dig in.
Product life cycle theory: Introduction phase
When a product is first introduced to a market, it’s referred to as being in the “introduction” phase of the product life cycle.
At this point in the life cycle, you’ll typically control very little market share and your sales volume will be very low. This is usually due to the simple fact that not a lot of people are aware of the product.
As a result, the fixed costs can not be spread out very well, which leads to a high cost per customer. The combination of low sales volume and a high cost per customer typically result in negative profits. During the introduction phase, it’s not very likely that there will be very much competition.
At this point in the life cycle, you will want to create a marketing mix strategy that has the sole purpose of educating your target market. Remember, nothing else matters if you can’t get in front of your customers.
Likewise, make sure that you consider market segmentation and determine whether or not you are actually targeting the right customers. Often times, post-launch market research can be much more beneficial that pre-launch market research.
Product life cycle theory: Growth phase
Unlike earlier product life cycle stages, as your product enters the growth phase of the product life cycle, your sales volume should start to rise rather rapidly.
As people become aware and start to buy your product, the overall cost per customer will ultimately decrease.
With more customers and a lower cost per customer, the product’s profitability should start to increase. During the growth phase, competition will start to take notice and will likely enter the market with a similar product.
At this point in the product life cycle, you’ll want to adjust your marketing mix strategy to address the concern about competition. When laying out your revised marketing mix strategy, consider the following questions:
- What have we learned about market segmentation and how accurate were our initial assumptions?
- In regards to competition, which competitors present a real threat to our business?
- How much would it cost to implement the necessary marketing mix strategy?
- Is there a substantial profit motive for us to move forward with the product?
- How much market share do we think we could ultimately capture as we move through the product life cycle stages?
Product life cycle theory: Maturity phase
Once your product finally enters the maturity phase of the product life cycle, your sales volume should start to level out.
Because the product is selling in such large volumes, the overall cost per customer should be very low. As a result, the product’s profitability should be at its highest point yet.
During the maturity phase, it’s likely that the number of competitors in the market has become stable, possibly even declining some.
At this point, consider how your product has performed as it’s moved through the different product life cycle stages. Use this insight to help you create a marketing mix strategy for this particular stage of the life cycle.
Here are a few other questions you may want to ask yourself:
- Is there a profit motive to continue to pump money into marketing this product?
- Is there still market share to be captured? And how much would it cost to capture that market share?
- What have we learned from the previous product life cycle stages and how can we apply that knowledge at this stage in the life cycle?
Product life cycle theory: Decline phase
And lastly, the decline phase of the life cycle.
During the decline phase of the product life cycle, the product’s sales volume should start to decline, while the cost per customer continues to stay relatively low.
Due to the declining sales volume, the product’s profitability will eventually start to decline. During the decline phase, competitors will likely leave the market.
At this point, you should already be moving towards your next big move.
Final words on product life cycle theory
As you can imagine, different product life cycle stages will present different opportunities to gain a competitive advantage over your competition.
The trick, however, is to actually be able to make your strategy happen.
For those of you who have studied product life cycle theory, what are your thoughts?