The product life cycle theory
The product life cycle theory is used to comprehend and analyze various maturity stages of products and industries. Product innovation and diffusion influence long-term patterns of international trade. This term product life cycle was used for the first time in 1965, by Theodore Levitt in a Harvard Business Review article: "Exploit the Product Life Cycle".
Anything that satisfies a consumer's need is called a 'product'. It may be a tangible product (clothes, crockery, cars, houses, gadgets) or an intangible service (banking, health care, hotel service, airline service). Irrespective of the kind of product, all products introduced into the market undergo a common life cycle. To understand what this product life cycle theory is all about, let us have a quick look at its definition.
What is a product life cycle?
A product life cycle refers to the time period between the launch of a product into the market till it is finally withdrawn from it. In a nut shell, product life cycle or PLC is an odyssey from new and innovative to old and outdated! This cycle is split into four different stages which encompass the product's journey from its entry to exit from the market.
Stages of Product Life Cycle
This cycle is based on the all familiar biological life cycle, wherein a seed is planted (introduction stage), germinates (growth stage), sends out roots in the ground and shoots with branches and leaves against gravity, thereby maturing into an adult (maturity stage). As the plant lives its life and nears old age, it shrivels up, shrinks and dies out (decline stage).
On the same lines, a product also has a life cycle of its own. A product's entry or launching phase into the market corresponds to the introduction stage. As the product gains popularity and wins the trust of consumers, it begins to grow. Further, with increasing sales, the product captures enough market share and gets stable in the market. This is called the maturity stage. However, after some time, the product gets overpowered by latest technological developments and entry of superior competitors in the market. Soon the product becomes obsolete and needs to be withdrawn from the market. This is the decline phase. This was the crux of a product life cycle theory and the graph of a product's life cycle looks like a bell-shaped curve. Let us delve more into this management theory.
After conducting thorough market research, the company develops its product. Once the product is ready, a test market is carried out to check the viability of the product in the actual market, before it can set foot into the mass market. Results of the test market are used to make correction if any and then launched into the market with various promotional strategies. Since the product has just been introduced, growth observed is minimal, market size is small and marketing costs are steep (promotional cost, costs of setting up distribution channels). Thus, introduction stage is an awareness creating stage and is not associated with profits! However, strict vigilance is required to ensure that the product enters the growth stage. Identifying hindering factors and nipping them off at the bud stage is crucial for the product's future. If corrections cannot be made or are impractical, the marketer withdraws the product from the market.
Once the introductory stage goes as per expected, the initial spark has been set, however, the fire has to be kindled carefully. The marketer has managed to gain the consumer's attention and works on roping in loyal customers. He also works on increasing his product's market share, by investing in aggressive advertising and marketing plans. He will also use different promotional strategies like offering discounts, etc. to increase sales. As output increases, economies of scale are seen and better prices come about, conducing to profits in this stage. The marketer maintains the quality and features of the product (may add additional features) and seeks brand building. The aim here is to coax consumers to prefer and choose this product over those sold by competitors. As sales increase distribution channels are added and the product is marketed to a broader audience. Thus, rapid sales and profits are characteristics of this stage.
This stage views the most competition as different companies struggle to maintain their respective market shares. The cliché 'survival of the fittest' is applicable here. Companies are busy monitoring product's value by the consumers and its sales generation. Most of the profits are made in this stage and research costs are minimum. Any research conducted will be confined to product enhancement and improvement alone. The manufacturer is constantly on the look out for new ideas, to improve his product and make it stand out among the competitor's products. His main aim is to lure non-customers towards his customer base and increase the existing customer base. Since consumers are aware of the product, promotional and advertising costs will also be lower, as compared to the previous stage. In the midst of stiff competition, companies may even reduce their prices in response to the tough times. The maturity stage is the stabilizing stage, wherein sales are high, but the pace is slow, however, brand loyalty develops, thereby roping in profits.
After a period of stable growth, the revenue generated from sales of the product starts dipping due to market saturation, stiff competition and latest technological developments. The consumer loses interest in the product and begins to seek other options. This stage is characterized by shrinking market share, dwindling product popularity and plummeting profits. This stage is a very delicate stage and needs to be handled wisely. The type of response contributes to the future of the product. The company needs to take special efforts to raise the product's popularity in the market once again, either by reducing the cost of the product, tapping new markets or withdrawing the product from the market. The manufacturer will cut down all non-profit distribution channels and continue focusing on improving the product design and features, so as to gain back the lost customer base. However, if this strategy fails, the manufacturer will have no option, but to withdraw the product from the market.
It is important to note that, not all products go through the entire life cycle. Just as how not all seeds sown germinate, not all products launched into the market succeed. Some flop at the introductory stage, while some fail to capture market share due to quick fizzling out. Moreover, some marketers quickly change strategies when the product reaches decline phase and by various promotional strategies regain the lost glory, thereby achieving cyclic maturity phases. Also, there are no time frames for the stages. The growth stage for a product may take a very long time, while the maturity stage may be extremely short. Time frame for each stage differs from one product to another.
Application of product life cycle is important to marketers, because via this analysis they can manage their product well and prevent it from incurring losses. A well-managed product life cycle leads to rise in profits and does not necessarily end. Product innovations, new marketing strategies, etc. keeps the product appealing to customers for a very long period of time. Hope this article was informative and helpful!