Life Cycle

AAA

DEFINITION of 'Life Cycle'

The course of events that brings a new product into existence and follows its growth into a mature product and into eventual critical mass and decline. The most common steps in the life cycle of a product include the following phases:

Product Development Phase - Includes market analysis, product design, conception, and testing.

Market Introduction Phase - Initial release of the product, usually marked with high levels of advertising.

Growth Phase - Sales growth begins to accelerate, characterized with increasing sales year-over-year. As production levels increase, gross margins should steadily decline, making the product less profitable on a per-unit basis. An increase in competition is probable.

Maturity Phase - The product will reach the upper bounds of its demand cycle and further spending on advertising will have little to no effect on increasing demand.

Decline/Stability Phase - This is where a product has reached or passed its point of highest demand. At this point, demand will either remain steady or slowly decline as a newer product makes it obsolete.

INVESTOPEDIA EXPLAINS 'Life Cycle'

It is important for investors to understand a company's product life cycle. Firms that are predominately in the development phase will likely be characterized with small levels of sales and are more speculative in nature than firms in the growth or maturity phase.

When a firm reaches the maturity stage, it does not mean that a product is no longer a growing income source for the company, as there may still be further margin improvements and innovations. Furthermore, a more mature firm with mature products may be more likely to issue dividends than firms in the other phases.

RELATED TERMS
  1. Product Life Cycle Management

    The observation of an item as it moves through the typical stages ...
  2. Polynomial Trending

    A type of trend that represents a large set of data with many ...
  3. Absolute Physical Life

    The length of time that it takes for an asset takes to become ...
  4. Zacks Lifecycle Indexes

    A series of indexes developed by Zacks Investment Research, ...
  5. Economic Moat

    The competitive advantage that one company has over other companies ...
  6. Planned Obsolescence

    A manufacturing decision by a company to make consumer products ...
RELATED FAQS
  1. What are the main communication points between a CFO and a CEO?

    There are as many different types of chief executive officers (CEOs) and chief financial officers (CFOs) as there are companies. ... Read Full Answer >>
  2. What is an economic moat?

    The term economic moat, coined and popularized by Warren Buffett, refers to a business' ability to maintain competitive advantages ... Read Full Answer >>
  3. How can I calculate funds from operation in Excel?

    In general, the terms "work in progress" and "work in process" are used interchangeably to refer to products midway through ... Read Full Answer >>
  4. When does Q4 start and finish?

    Most companies such as Facebook have financial years that end on December 31st. For these companies, the fourth quarter begins ... Read Full Answer >>
  5. When is it useful to look at a company's fixed asset turnover ratio?

    It is useful to look at a company's fixed asset turnover ratio when an outside observer, such as an investor, wants to know ... Read Full Answer >>
  6. What is the difference between perfect and imperfect competition?

    Perfect competition is a microeconomics concept that describes a market structure controlled entirely by market forces. In ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Hidden Costs Of Product Rebates

    These cash incentives lure in consumers, who are often unable to collect on the deal.
  2. Professionals

    Advertising, Crocodiles And Moats

    Memorable advertising is a brick in the fortress that keeps competitors at bay.
  3. Retirement

    Consumer Confidence: A Killer Statistic

    The consumer confidence is key to any market economy, so investors need to learn the measures and how to analyze them.
  4. Professionals

    How To Target Ideal Customers

    Expand your definition of a lucrative client and uncover a new realm of possibilities.
  5. Options & Futures

    The Consumer Price Index: A Friend To Investors

    As a measure of inflation, this index can help you make key financial decisions.
  6. Professionals

    Lead The Charge With Product Development

    If you like to keep your finger on the pulse of the market, this could be the career for you.
  7. Economics

    What's Involved in Customer Service?

    Customer service is the part of a business tasked with enhancing customer satisfaction.
  8. Economics

    What is Involved in Inventory Management?

    Inventory management refers to the theories, functions and management skills involved in controlling an inventory.
  9. Economics

    What Does Accretive Mean?

    In the business world, accretive most often to refers to additional growth from outside sources.
  10. Economics

    Explaining Prime Cost

    Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center