The life cycle concept is a model, not a prediction.
Product life cycle concept enables a firm to examine its portfolio of goods and services as a whole.
The profitability and sales of a product can be expected to change over time. The product life cycle is an attempt to recognize distinct stages in a product’s sales history.
I. Introduction
• New product takes time to find acceptance by would-be buyers and there is a slow growth in sales. Unit costs are high because of low output and expensive sales promotion.
• There may be early teething troubles with production technology.
• The product for the time being is a loss-maker.
II. Growth
• If the new product gains market acceptance, sales will eventually rise more sharply and the product will start to make profits.
• Competitors are attracted. As sales and production rose, unit costs fall.
III. Maturity
• The rate of sales growth slows down and this product reaches a period of maturity which is probably the longest period of a successful product’s life. Most products on the market will be at the mature stage of their life. Profits are good.
IV. Decline
• Eventually sales will begin to decline so that there is over-capacity of production in the industry. Severe competition occurs, profits fall and some producers leave the market. The remaining producers seek means of prolonging the product life by modifying it and searching for new market segments. Many producers are reluctant to leave the market, although some inevitably do because of failing profits.
The relevance of the product life cycle to strategic planning
In reviewing outputs, planners should assess products in three ways:
(a) The stage of its life cycle that any product has reached.
(b) The product’s remaining life, ie how much longer the product will contribute to profits.
(c) How urgent is the need to innovate, to develop new and improved products?
(source: BPP Learning Media)
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