The product life cycle is the course of the life of a product from when the product is in development to after it has been removed from the market. Analyzing the Product Lifecycle for Smart Investing
Whether you’re looking through your parent’s old VHS tapes or shopping for a new smartphone, you’re participating in and experiencing different stages of the product life cycle, or PLC.
When a product enters the market, often unbeknownst to the consumer, it has a life cycle that carries it from being new and useful to eventually being retired out of circulation in the market. This process happens continually – taking products from their beginning introduction stages all the way through their decline and eventual retirement.
But, how does the product life cycle actually work, and how can analyzing it help companies?
What Is the Product Life Cycle?
The product life cycle is the process a product goes through from when it is first introduced into the market until it declines or is removed from the market. The life cycle has four stages – introduction, growth, maturity and decline.
While some products may stay in a prolonged maturity state, all products eventually phase out of the market due to several factors including saturation, increased competition, decreased demand and dropping sales.
Additionally, companies use PLC analysis (examining their product’s life cycle) to create strategies to sustain their product’s longevity or change it to meet with market demand or developing technologies.
4 Stages of the Product Life Cycle
Generally, there are four stages to the product life cycle, from the product’s development to its decline in value and eventual retirement from the market.
Once a product has been developed, the first stage is its introduction stage. In this stage, the product is being released into the market. When a new product is released, it is often a high-stakes time in the product’s life cycle – although it does not necessarily make or break the product’s eventual success.
During the introduction stage, marketing and promotion are at a high – and the company often invests the most in promoting the product and getting it into the hands of consumers. This is perhaps best showcased in Apple’s (AAPL) – Get Report famous launch presentations, which highlight the new features of their newly (or soon to be released) products.
It is in this stage that the company is first able to get a sense of how consumers respond to the product, if they like it and how successful it may be. However, it is also often a heavy-spending period for the company with no guarantee that the product will pay for itself through sales. Analyzing the Product Lifecycle for Smart Investing
Costs are generally very high and there is typically little competition. The principle goals of the introduction stage are to build demand for the product and get it into the hands of consumers, hoping to later cash in on its growing popularity.
By the growth stage, consumers are already taking to the product and increasingly buying it. The product concept is proven and is becoming more popular – and sales are increasing.
Other companies become aware of the product and its space in the market, which is beginning to draw attention and increasingly pull in revenue. If competition for the product is especially high, the company may still heavily invest in advertising and promotion of the product to beat out competitors. As a result of the product growing, the market itself tends to expand. The product in the growth stage is typically tweaked to improve functions and features.
As the market expands, more competition often drives prices down to make the specific products competitive. However, sales are usually increasing in volume and generating revenue. Marketing in this stage is aimed at increasing the product’s market share.
When a product reaches maturity, its sales tend to slow or even stop – signaling a largely saturated market. At this point, sales can even start to drop. Pricing at this stage can tend to get competitive, signaling margin shrinking as prices begin falling due to the weight of outside pressures like competition or lower demand. Marketing at this point is targeted at fending off competition, and companies will often develop new or altered products to reach different market segments.
Given the highly saturated market, it is typically in the maturity stage of a product that less successful competitors are pushed out of competition – often called the “shake-out point.”
In this stage, saturation is reached and sales volume is maxed out. Companies often begin innovating to maintain or increase their market share, changing or developing their product to meet with new demographics or developing technologies.
The maturity stage may last a long time or a short time depending on the product. For some brands, the maturity stage is very drawn out, like Coca-Cola (KO) – Get Report.
Although companies will generally attempt to keep the product alive in the maturity stage as long as possible, decline for every product is inevitable. Analyzing the Product Lifecycle for Smart Investing
In the decline stage, product sales drop significantly and consumer behavior changes as there is less demand for the product. The company’s product loses more and more market share, and competition tends to cause sales to deteriorate.
Marketing in the decline stage is often minimal or targeted at already loyal customers, and prices are reduced.
Eventually, the product will be retired out of the market unless it is able to redesign itself to remain relevant or in-demand. For example, products like typewriters, telegrams and muskets are deep in their decline stages (and in fact are almost or completely retired from the market).
Examples of the Product Life Cycle
The life cycle of any product always carries it from its introduction to an inevitable decline, but what does this cycle practically look like, and what are some examples?
A classic example of the scope of the product life cycle is the typewriter.
When first introduced in the late 19th century, typewriters grew in popularity as a technology that improved the ease and efficiency of writing. However, new electronic technology like computers, laptops and even smartphones have quickly replaced typewriters – causing their revenues and demand to drop off.
Overtaken by the likes of companies like Microsoft (MSFT) – Get Report , typewriters could be considered at the very tail end of their decline phase – with minimal (if existent) sales and drastically decreased demand. Now, the modern world almost exclusively uses desktop computers, laptops or smartphones to type – which in turn are experiencing a growth or maturity phase of the product life cycle.
Many of us probably grew up watching or using VCRs (videocassette recorders for any Gen Z readers), but you would likely be hard pressed to find one in anyone’s home these days.
With the rise of streaming services like Netflix (NFLX) – Get Report and Amazon (AMZN) – Get Report (not to mention the interlude phase of DVDs), VCRs have been effectively phased out and are deep in their decline stage.
Once groundbreaking technology, VCRs are now in very low demand (if any) and are assuredly not bringing in the sales they once did.
The rise of electric vehicles shows more of a growth stage of the product life cycle. Companies like Tesla (TSLA) – Get Report have been capitalizing on the growing product for years, although recent challenges may signal changes for the particular company.
Still, while the electric car isn’t necessarily new, the innovations that companies like Tesla have made in recent years are consistently adapting to new changes in the electric car market, signaling its growth phase. Analyzing the Product Lifecycle for Smart Investing
While AI (artificial intelligence) has been in development (and application) for years, it is continually pushing boundaries and developing new products that are in the introduction stage of the PLC.
Amid dozens of new products, even AI-infused sex robots or autonomous vehicles are very much in a developmental (or introductory) stage in the market, as their products are still being tested and adopted in the market by consumers.
Uses of PLC Analysis
Conducting PLC analysis can help companies determine if their products are servicing the market they target efficiently, and when they might need to shift focus.
By examining their product in relation to the market on the whole, their competitors, sales and expenses, companies can better decide how to pivot and develop their product for longevity in the marketplace.
Examining their product’s life cycle, specifically paying attention to where their products are in the cycle, can help companies determine if they need to develop new products to continue generating sales – especially if the majority of their products are in the maturity or decline stages of the product life cycle.
For companies in an introduction stage with their product, there are several pricing models available to begin generating sales – either price skimming, which sets the price of the product initially high and lowers it to “skim” groups as the market expands, or price penetration, which sets the initial price low to penetrate the market more quickly and eventually increases it once demand grows.
Companies often run into trouble when they don’t understand the introduction stage of their product’s life cycle – especially when customers do not respond well to the initial product (either because of pricing or the inherent value and usefulness of the product).
It is important to examine product advertising and packaging in addition to pricing.
Is the product meeting the demands and needs of its target market? If sales are stale, many companies consider shifting their marketing strategy and focus on marketing to new demographics to help introduce their product to a potential new revenue stream.
Conducting a PLC analysis can help companies learn when they need to reinvent or pivot their product in a new direction. For example, online streaming service Netflix pivoted their product by going from a DVD-delivering service to primarily an online streaming service – which was met with great success.
By examining where their product is in the product life cycle, companies can continue innovating alongside new technology to diversify their product, keep up with competition and potentially elongate their product’s life in the market.