What is a '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.

BREAKING DOWN '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. Mature Industry

    An industry which has passed both the emerging and the growth ...
  2. Product Life Cycle

    The period of time over which an item is developed, brought to ...
  3. Product Life Cycle Management

    The observation of an item as it moves through the typical stages ...
  4. Phase 3

    The final phase of clinical trials for an experimental new drug, ...
  5. Mature Firm

    A company that is well-established in its industry, with a well-known ...
  6. Cyclical Industry

    A type of an industry that is sensitive to the business cycle, ...
Related Articles
  1. Investing

    Business Cycle Investing: Ratios to Use For Each Cycle

    Examine economic and sector performance over the business cycle to determine which ratios are most important for each phase of the cycle.
  2. Small Business

    Understanding the Product Life Cycle

    Product life cycle is the period of time during which a product is conceived and developed, brought to market and eventually removed from the market.
  3. Retirement

    What Is a Phased Retirement and How Do I Get One?

    Workers around the country are redefining what retirement looks like. One way is a phased retirement, in which you gradually exit the workforce.
  4. Financial Advisor

    How to Help Clients Plan a Phased Retirement

    The notion of phased retirement is gaining traction. Here's how advisors can help clients plan accordingly.
  5. Financial Advisor

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  6. Investing

    The 4 Stages of the Investor Emotion Cycle

    Investors have an emotional counterpart to each of the four stages of the market cycle.
  7. Investing

    How Do I Calculate Yield To Maturity Of A Zero Coupon Bond?

    Yield to maturity is a basic investing concept used by investors to compare bonds of different coupons and times until maturity.
  8. Investing

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
RELATED FAQS
  1. What happens during the consolidation phase of an investor's life cycle?

    Unlike the accumulation phase – where emphasis is placed on growing wealth – the consolidation phase is a balance between ... Read Answer >>
  2. What are the key metrics used to measure the business cycle?

    Learn what key metrics are used to determine if the business cycle is in a period of expansion, contraction, or at a peak ... Read Answer >>
  3. When phase of the economic cycle tends to be strongest for companies in the retail ...

    Learn why retail's cyclical nature leads it to perform best during periods of expansion and how savvy investors use sector ... Read Answer >>
  4. What happens during the spending/gifting phase of an investor's life cycle?

    The final phase(s) in an investor's life cycle is the spending/gifting phase, during which wealth accumulated over many years ... Read Answer >>
  5. What is the difference between research and development and product development?

    Understand the difference between research and development and product development. Learn why a company would want to invest ... Read Answer >>
  6. When during the economic cycle should an investor buy into the aerospace sector?

    Learn why the expansionary phase of the economic cycle is the best time to invest in the aerospace sector and how to use ... Read Answer >>
Hot Definitions
  1. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  2. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  5. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
  6. Interest Rate Swap

    An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for ...
Trading Center