What Is the Industry Life Cycle?
The industry life cycle refers to the evolution of an industry or business through four stages based on the business characteristics commonly displayed in each phase. The four phases of an industry life cycle are the introduction, growth, maturity, and decline stages. Industries are born when new products are developed, with significant uncertainty regarding market size, product specifications, and main competitors. Consolidation and failure whittle down an established industry as it grows, and the remaining competitors minimize expenses as growth slows and demand eventually wanes.
- The industry life cycle refers to the evolution of an industry or business based on its stages of growth and decline.
- The four phases of the industry life cycle are the introduction, growth, maturity, and decline phases.
- The industry life cycle ends with the decline phase, a period when the industry or business is unable to sustain growth.
Understanding the Industry Life Cycle
There is no universal definition for the various stages of the industry life cycle, but commonly, it can be organized into introduction, growth, maturity, and decline. The relative length of each phase can also vary substantially among industries. The standard model typically deals with manufactured goods, but today's service economy can function somewhat differently, especially in the realm of Internet communications technology.
Industry Life Cycle Phases
The introduction, or startup, phase involves the development and early marketing of a new product or service. Innovators often create new businesses to enable the production and proliferation of the new offering. Information on the products and industry participants are often limited, so demand tends to be unclear. Consumers of the goods and services need to learn more about them, while the new providers are still developing and honing the offering. The industry tends to be highly fragmented in this stage. Participants tend to be unprofitable because expenses are incurred to develop and market the offering while revenues are still low.
Consumers in the new industry have come to understand the value of the new offering, and demand grows rapidly. A handful of important players usually become apparent, and they compete to establish a share of the new market. Immediate profits usually are not top priority as companies spend on research and development or marketing. Business processes are improved, and geographical expansion is common. Once the new product has demonstrated viability, larger companies in adjacent industries tend to enter the market through acquisitions or internal development.
The maturity phase begins with a shakeout period, during which growth slows, focus shifts toward expense reduction, and consolidation occurs. Some firms achieve economies of scale, hampering the sustainability of smaller competitors. As maturity is achieved, barriers to entry become higher, and the competitive landscape becomes more clear. Market share, cash flow, and profitability become the primary goals of the remaining companies now that growth is relatively less important. Price competition becomes much more relevant as product differentiation declines with consolidation.
The decline phase marks the end of an industry's ability to support growth. Obsolescence and evolving end markets negatively impact demand, leading to declining revenues. This creates margin pressure, forcing weaker competitors out of the industry. Further consolidation is common as participants seek synergies and further gains from scale. Decline often signals the end of viability for the incumbent business model, pushing industry participants into adjacent markets. The decline phase can be delayed with large-scale product improvements or repurposing, but these tend to prolong the same process.