During the stage of the product life cycle sales peak and profits begin to decline

The stages that a product moves through the marketplace

Inhaltsverzeichnis Show

• What is the Product Life Cycle?
• Stages in the Product Life Cycle
• Additional Resources
• Product Development Life Cycle Stages
• Introduction Stage of Product Life Cycle
• Growth Stage of Product Life Cycle
• Maturity Stage of Product Life Cycle
• Decline Stage of Product Life Cycle
• Product Life Cycle - Key takeaways
• At what stage of product life cycle the sales & profits will be at peak?
• What is the decline stage of the product life cycle?
• What happens to sales during the decline stage of the product life cycle?

What is the Product Life Cycle?

The Product Life Cycle (PLC) defines the stages that a product moves through in the marketplace as it enters, becomes established, and exits the marketplace. In other words, the product life cycle describes the stages that a product is likely to experience. It is a useful tool for managers to help them analyze and develop strategies for their products as they enter and exit each stage.

Stages in the Product Life Cycle

The four stages in the product life cycle are:

1. Introduction
2. Growth
3. Maturity
4. Decline

1. Introduction Stage

When a product first launches, sales will typically be low and grow slowly. In this stage, company profit is small (if any) as the product is new and untested. The introduction stage requires significant marketing efforts, as customers may be unwilling or unlikely to test the product. There are no benefits from economies of scale, as production capacity is not maximized.

The underlying goal in the introduction stage is to gain widespread product recognition and stimulate trials of the product by consumers. Marketing efforts should be focused on the customer base of innovators – those most likely to buy a new product. There are two price-setting strategies in the introduction stage:

• Price skimming: Charging an initially high price and gradually reducing (“skimming”) the price as the market grows.
• Price penetration: Establishing a low price to quickly enter the marketplace and capture market share, before increasing prices relative to market growth.

2. Growth Stage

If the product continues to thrive and meet market needs, the product will enter the growth stage. In the growth stage, sales revenue usually grows exponentially from the take-off point. Economies of scale are realized as sales revenues increase faster than costs and production reaches capacity.

Competition in the growth stage is often fierce, as competitors introduce similar products. In the growth stage, the market grows, competition intensifies, sales rise, and the number of customers increases. Price undercutting in the growth stage tends to be rare, as companies in this stage can increase their sales by attracting new customers to their product offerings.

3. Maturity Stage

Eventually, the market grows to capacity, and sales growth of the product declines. In this stage, price undercutting and increased promotional efforts are common as companies try to capture customers from competitors. Due to fierce competition, weaker competitors will eventually exit the marketplace – the shake-out. The strongest players in the market remain to saturate and dominate the stable market.

The biggest challenge in the maturity stage is trying to maintain profitability and prevent sales from declining. Retaining customer brand loyalty is key in the maturity stage. In addition, to re-innovate itself, companies typically employ strategies such as market development, product development, or marketing innovation to ensure that the product remains successful and stays in the maturity stage.

4. Decline Stage

In the decline stage, sales of the product start to fall and profitability decreases. This is primarily due to the market entry of other innovative or substitute products that satisfy customer needs better than the current product. There are several strategies that can be employed in the decline stage, for example:

• Reduce marketing efforts and attempt to maximize the life of the product for as long as possible (called milking or harvesting).
• Slowly reducing distribution channels and pulling the product from underperforming geographic areas. Such a strategy allows the company to pull the product out and attempt to introduce a replacement product.
• Selling the product to a niche operator or subcontractor. This allows the company to dispose of a low-profit product while retaining loyal customers.

Additional Resources

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:

• AIDA Model
• Beachhead Strategy
• Buyer Types
• Market Planning

You might have seen products like CDs become extremely popular and then eventually replaced by other new products. What are some of the product life cycle stages? How do products come into existence, and why, after some time, do they disappear? At which stage of the product life cycle do companies profit most?

You'll find out the answers to these questions and much more by reading this explanation!

Product Development Life Cycle Stages

Product development begins when a company turns an idea or a design into a product that will soon hit the market.

The product life cycle (PLC) stages are the stages a product goes through, from hitting the market to discontinuing production.

Companies use the product life cycle model to assist in the determination of advertising schedules, pricing points, expansion into new markets, redesigns of packaging, and other similar activities.

The administration of these tactical approaches to strengthen a product is referred to as product life cycle management.

The life cycle of a product is divided into four stages: the introduction stage, the growth stage, the maturity stage, and the decline stage.

However, before a product can reach these stages, it must go through the design, research, and development processes. After determining that a product can be manufactured, advertised, and sold successfully, the business can distribute the product on the market.

How a product is marketed to end users is contingent on the different phases of its life cycle.

When a product is introduced to the market effectively, there should be an increase in demand and popularity, which should cause previous items to be phased out of the market.

As the new product gains market share, the marketing efforts put into promoting it become less intensive, and the expenditures involved with marketing and manufacturing decrease.

As the product reaches its peak usefulness and begins to decrease in popularity, removing the product from the market might be necessary to make way for a more cutting-edge substitute.

Introduction Stage of Product Life Cycle

The introduction stage of the product life cycle is characterized by a brand new product on the market and sluggish sales. For the firm to increase sales, it will need to spend a significant amount of money advertising the product so that consumers find it enticing.

The first stage of the product life cycle is called the introduction stage, and it is at this stage that a business makes an effort to raise awareness about its product or service in a market where there are few or no other competitors.

A considerable number of years passed before well-known items like iPhones and high-definition televisions moved into a phase of more rapid expansion.

Because of the low sales and the significant expenditures associated with distribution and advertising, the earnings at this stage are negative or low compared to the profits in subsequent phases. A substantial amount of capital is required to entice distributors and build their stockpiles.

The amount spent on promotion is also noteworthy. Businesses must educate consumers about the new product and convince them to try it. At this point, the market is not prepared for product enhancements; therefore, the business, along with its few other rivals, produces the product in its most basic form.

Companies at this stage concentrate their sales efforts on prospective customers at the most advanced stage of the purchasing process.

When the business has generated sufficient awareness about the product, either via advertising or through branding efforts, it will be able to turn its attention to other elements, like price and distribution.

Establishing a price for a product while it is still in the launch stage is highly significant for gaining market share.

Growth Stage of Product Life Cycle

If a product has survived the introduction stage, meaning that consumers liked it and the company could keep producing sustainably, it enters the growth stage.

During the growth stage of the product life cycle, the rate of increase in sales will accelerate.

Early adopters will continue buying the product, and later other consumers will start following their example, particularly if they hear positive word-of-mouth from early adopters. New rivals will join the market because the possibility of making a profit entices them. They will offer new product features, expanding the market for said product.

A rise in the number of rivals increases the number of distribution outlets, which in turn causes a build-up of inventory among resellers.

A rise in the number of rivals increases the number of distribution outlets.

During the growth stage, educating the market is still one of the company's primary goals, but it must now also focus on being competitive. The company employs several different techniques to stay ahead of the competition. It enhances the overall product quality and introduces new product versions and features.

When the company is in the growth stage, it must choose between having a significant market share or having high profits. The organization may achieve market dominance if it invests substantial resources in developing new products and marketing and distribution efforts. However, by doing so, it gives up the highest possible returns, which it expects to make up for in the subsequent stage.

Maturity Stage of Product Life Cycle

The increase in a product's sales will eventually level off, marking the beginning of the stage known as 'maturity'. The maturity stage of the product life cycle often lasts longer than the phases that come before it, and it presents significant difficulties to marketing management.

The maturity stage of the product life cycle is the stage in which the growth in sales slows down.

Due to the deceleration in sales, many manufacturers have a surplus of items. This excess capacity, in turn, increases the level of competition.

During the maturity stage, competitors begin lowering their prices, increasing the amount of advertising and sales promotions they run, and increasing the budgets they allocate to research and development of new and improved versions of the product. These actions will result in a decrease in earnings.

After a while, many poorly performing rivals go out of business, leaving just those who have built up a substantial reputation for themselves.

Although it may seem that many mature products continue to operate in the same manner for extended periods, the reality is that most successful products are constantly adapting to satisfy the ever-evolving requirements of their target markets.

For instance, companies like Harley-Davidson and Lynx scents, which have traditionally catered to male consumers, have developed goods and marketing strategies geared at female consumers. On the other hand, Weight Watchers and Dior have traditionally catered to women and have started offering goods and programs geared toward men.

Altering aspects of the product, such as its quality, features, design, packaging, or technological platforms, might be another strategy the firm uses to keep the customers it already has or win over new customers.

Additionally, during the maturity stage of the product life cycle, businesses experiment with tweaking the marketing mix, which may lead to increased sales by altering one or more components of the marketing mix.

Decline Stage of Product Life Cycle

The product life cycle's decline stage is the product's final stage. Due to various reasons, a product reaches a point where it no longer sells. It may be due to new product developments that replace the existing ones.

Consider CDs as an example. With the increase in products offering music, such as YouTube or Spotify, the demand for CDs has considerably dropped.

Theproductlifecycle's decline stage is when a product's sales fade away.

The decline stage may be gradual or quick and sharp. Sales may decrease to zero or drop to a level where they will remain low for several years.

The decrease in sales may be attributed to several factors, including technological developments, changes in customer preferences, and more market rivalry.

Some businesses decide to leave the market as their sales and profitability continue to fall. Those who remain could reduce the number of products they provide. In addition, companies could leave smaller market segments and abandon channels that have a minimal impact on their business. Alternatively, they might decrease their advertising budget and lower their prices even more.

Keeping a product on the market that is not up to par may be highly expensive for a business, not only in terms of lost profits but due to other expenses and costs.

A poor product often necessitates regular revisions to both the prices and the inventory. It demands marketing and attention from the sales team. Instead, these teams should focus on increasing the profitability of the "healthy" product for which there is high demand.

Because of these factors, businesses have to determine whether products are entering a declining stage and then choose whether to continue producing them, harvesting them, or discontinuing them altogether.

Often, the management team may conclude that it is in the company's best interest to keep the brand intact while either repositioning it or reinvigorating it in the hopes of bringing it back into the growth stage of the product life cycle. If these strategies are not viable, a company can choose to discontinue the product altogether.

Product Life Cycle - Key takeaways

• The product life cycle stages are the stages a product goes through, from hitting the market to discontinuing production.
• The first stage of the product life cycle is calledthe introduction stage.
• During the growth stage of the business cycle, the rate of increase in sales will accelerate.
• The maturity stageof the product life cycle is the stage in which the growth in sales slows down.
• Theproduct life cycle's decline stage is when a product's sales fade away.

At what stage of product life cycle the sales & profits will be at peak?

What is the decline stage of the product life cycle?

What happens to sales during the decline stage of the product life cycle?