What Is the Product Life Cycle?
The term product life cycle refers to the length of time from when a product is introduced to consumers into the market until it's removed from the shelves. This concept is used by management and by marketing professionals as a factor in deciding when it is appropriate to increase advertising, reduce prices, expand to new markets, or redesign packaging. The process of strategizing ways to continuously support and maintain a product is called product life cycle management.
- A product life cycle is the amount of time a product goes from being introduced into the market until it's taken off the shelves.
- There are four stages in a product's life cycle—introduction, growth, maturity, and decline.
- A company often incurs higher marketing costs when introducing a product to the market but experiences higher sales as product adoption grows.
- Sales stabilize and peak when the product's adoption matures, though competition and obsolescence may cause its decline.
- The concept of product life cycle helps inform business decision-making, from pricing and promotion to expansion or cost-cutting.
Product Life Cycle
How the Product Life Cycle Works
Products, like people, have life cycles. The life cycle of a product is broken into four stages—introduction, growth, maturity, and decline.
A product begins with an idea, and within the confines of modern business, it isn't likely to go further until it undergoes research and development (R&D) and is found to be feasible and potentially profitable. At that point, the product is produced, marketed, and rolled out. Some product life cycle models include product development as a stage, though at this point, the product has not yet been brought to customers.
As mentioned above, there are four generally accepted stages in the life cycle of a product. Here are details about each one.
The introduction phase is the first time customers are introduced to the new product. A company must generally includes a substantial investment in advertising and a marketing campaign focused on making consumers aware of the product and its benefits, especially if it is broadly unknown what the item will do.
During the introduction stage, there is often little-to-no competition for a product, as competitors may just be getting a first look at the new offering. However, companies still often experience negative financial results at this stage as sales tend to be lower, promotional pricing may be low to drive customer engagement, and the sales strategy is still being evaluated.
If the product is successful, it then moves to the growth stage. This is characterized by growing demand, an increase in production, and expansion in its availability. The amount of time spent in the introduction phase before a company's product experiences strong growth will vary from between industries and products.
During the growth phase, the product becomes more popular and recognizable. A company may still choose to invest heavily in advertising if the product faces heavy competition. However, marketing campaigns will likely be geared towards differentiating its product from others as opposed to introducing the goods to the market. A company may also refine its product by improving functionality based on customer feedback.
Financially, the growth period of the product life cycle results in increased sales and higher revenue. As competition begins to offer rival products, competition increases, potentially forcing the company to decrease prices and experience lower margins.
The maturity stage of the product life cycle is the most profitable stage, the time when the costs of producing and marketing decline. With the market saturated with the product, competition now higher than at other stages, and profit margins starting to shrink, some analysts refer to the maturity stage as when sales volume is "maxed out".
Depending on the good, a company may begin deciding how to innovate its product or introduce new ways to capture a larger market presence. This includes getting more feedback from customers, and researching their demographics and their needs.
During the maturity stage, competition is at the highest level. Rival companies have had enough time to introduce competing and improved products, and competition for customers is usually highest. Sales levels stabilize, and a company strives to have its product exist in this maturity stage for as long as possible.
A new product needs to be explained, while a mature product needs to be differentiated.
As the product takes on increased competition as other companies emulate its success, the product may lose market share and begin its decline. Product sales begin to drop due to market saturation and alternative products, and the company may choose to not pursue additional marketing efforts as customers may already have determined whether they are loyal to the company's products or not.
Should a product be entirely retired, the company will stop generating support for it and will entirely phase out marketing endeavors. Alternatively, the company may decide to revamp the product or introduce a next-generation, completely overhauled model. If the upgrade is substantial enough, the company may choose to re-enter the product life cycle by introducing the new version to the market.
The stage of a product's life cycle impacts the way in which it is marketed to consumers. A new product needs to be explained, while a mature product needs to be differentiated from its competitors.
Advantages of Using the Product Life Cycle
The product life cycle better allows marketers and business developers to better understand how each product or brand sits with a company's portfolio. This enables the company to internally shift resources to specific products based on those products' positioning within the product life cycle.
For example, a company may decide to reallocate market staff time to products entering the introduction or growth stages. Alternatively, it may need to invest more cost of labor in engineers or customer service technicians as the product matures.
The product life cycle naturally tends to have a positive impact on economic growth, as it promotes innovation and discourages supporting outdated products. As products move through the life cycle stages, companies that use the product life cycle can realize the need to make their products more effective, safer, efficient, faster, cheaper, or better suited to client needs.
Limitations of Using the Product Life Cycle
Despite its utility for planning and analysis, the product life cycle doesn't pertain to every industry and doesn't work consistently across all products. Consider popular beverage lines whose primary products have been in the maturity stage for decades, while spin-offs or variations of these drinks from the same company have failed.
The product life cycle also may be artificial in industries with legal or trademark restrictions. Consider the new patent term of 20 years from which the application for the patent was filed in the United States. Though a drug may be just entering their growth stage, it may be adversely impacted by competition when its patent ends regardless of which stage it is in.
Another unfortunate side effect of the product life cycle is prospective planned obsolescence. When a product enters the maturity stage, a company may be tempted to begin planning its replacement. This may be the case even if the existing product still holds many benefits for customers and still has a long shelf life. For producers who tend to introduce new products every few years, this may lead to product waste and inefficient use of product development resources.
Notification messages such as Microsoft's alert that Windows 8.1 will sunset on January 2023 is an example of decline. Due to obsolescence of the operating system, Microsoft is choosing to no longer support the product and instead focus resources on newer technologies.
Product Life Cycle vs. BCG Matrix
A similar analytical tool to determine the market positioning of a product is the Boston Consulting Group (BCG) Matrix. This four-square table defines products based on their market growth and market share:
- "Stars" are products with high market growth and high market share.
- "Cash cows" are products with low market growth and high market share.
- "Question marks" are products with high market growth and low market share.
- "Dogs" are products with low market growth and low market share.
Although there is no direct relationship between the matrix and the product life cycle concept, both analyze a product's market growth and saturation. However, the BCG Matrix does not traditionally communicate the direction in which a product will move. For example, a product that has entered the maturity stage of the product life cycle will likely experience decline next; the BCG Matrix does not communicate this product flow in its visual depiction.
Introduction and Maturity: Special Considerations
Companies that have a good handle on all four stages can increase profitability and maximize their returns. Those that aren't able to may experience an increase in their marketing and production costs, ultimately leading to the limited shelf life for their product(s).
Back in 1965, Theodore Levitt, a marketing professor, wrote in the Harvard Business Review that the innovator is the one with the most to lose because so many truly new products fail at the first phase of their life cycle—the introductory stage. The failure comes only after the investment of substantial money and time into research, development, and production. This fact prevents many companies from even trying anything really new. Instead, he said, they wait for someone else to succeed and then clone the success.
To cite an established and still-thriving industry, television program distribution has related products in all stages of the product life cycle. OLED TVs are in the mature phase, programming-on-demand is in the growth stage, DVDs are in decline, and the videocassette is extinct.
Many of the most successful products on earth are suspended in the mature stage for as long as possible, undergoing minor updates and redesigns to keep them differentiated. Examples include Apple computers and iPhones, Ford's best-selling trucks, and Starbucks' coffee—all of which undergo minor changes accompanied by marketing efforts—are designed to keep them feeling unique and special in the eyes of consumers.
Examples of Product Life Cycles
Many brands that were American icons have dwindled and died. Better management of product life cycles might have saved some of them—or perhaps their time had just come.
Oldsmobile began producing cars in 1897. After merging with General Motors in 1908, the company used the first V-8 engine in 1916. By 1935, the one millionth Oldsmobile had been built. In 1984, Oldsmobile sales peaked, selling more cars in that year than any other year. By 2000, General Motors announced it would phase out the automobile and, on April 29th, 2004, the last Oldsmobile was built.
In 1905, Frank Winfield Woolworth incorporated F.W. Woolworth Co., a general merchandise retail store. By 1929, Woolworth had about 2,250 outlet stores across the United States and Britain, Decades later, due to increased competition from other discount retailors, Woolworth closed the last of its variety stores in the United States in 1997 to increasingly focus on sporting goods.
On April 23, 1985, Coca-Cola announced a new formula for its popular beverage, referred to as "new Coke." Coca-Cola's market-share lead had been decreasing over the past 15 years, and the company decided to launch a new recipe in hopes of reinvigorating product interest. After its launch, Coca-Cola's phone line began receiving 1,500 calls per day, many of which were to complain about the change. Protest groups recruited 100,000 individuals to support their cause of bringing "old" Coke back.
A stunning 79 days after its launch, "new Coke's" full product life cycle was complete. Though the product didn't experience much growth or maturity, its introduction to the market was met with heavy protest. Less than three months after it announced its new recipe, Coca-Cola announced it would revert its product back to the original recipe.
What Are the Stages of the Product Life Cycle?
The product life cycle is defined as four distinct stages: product introduction, growth, maturity, and decline. The amount of time spent in each stage will vary from product to product, and different companies have different strategic approaches to transitioning from one phase to the next.
What Are Product Life Cycle Strategies?
Depending on the stage a product is in, a company may adopt different strategies along the product life cycle. For example, a company is more likely to incur heavy marketing and R&D costs in the introduction stage. As the product becomes more mature, companies may then turn to improving product quality, entering new segments, or increasing distribution channels. Companies also strategically approach divesting from product lines including the sale of divisions or discontinuation of goods.
What Is Product Life Cycle Management?
Product life cycle management is the act of overseeing a product's performance over the course of its life. Throughout the different stages of product life cycle, a company enacts strategies and changes based on how the market is receiving a good.
Why Is Product Life Cycle Important?
Product life cycle is important because it informs management of how its product is performing and what strategic approaches it may take. By being informed of which stage its product(s) are in, a company can change how it spends resources, which products to push, how to allocate staff time, and what innovations they want to research next.
Which Factors Impact a Product's Life Cycle?
Countless factors can affect how a product performs and where it lies within the product life cycle. In general, the product life cycle is heavily impacted by market adoption, ease of competitive entry, rate of industry innovation, and changes to consumer preferences. If it is easier for competitors to enter markets, consumers change their mind frequently about the goods they consume or the market becomes quickly saturated. Then, products are more likely to have shorter lives throughout a product life cycle.
The Bottom Line
Broadly speaking, almost every product sold undergoes the product life cycle. This cycle of market introduction, growth, maturity, and decline may vary from product to product—or industry to industry. However, this cycle informs a company of how to best utilize its resources, what the future outlook of their product is, and how to strategically plan for bringing new products to market.