Every product that a company introduces to the market goes through distinct stages, known collectively as the product lifecycle. By understanding where their products currently are in this lifecycle, companies can develop appropriate strategies to maximize profits at each stage. This article will examine the typical stages of the product lifecycle and discuss implications for planning and operations.
Product Development
The first stage is Product Lifecycle Management where the company invests significant resources into research, design, and testing to ready a new product for launch. All associated costs are expensed during this time as there is no revenue yet. The main goals are to ensure technical and design viability as well as regulatory approval if needed. Management also works on initial manufacturing and distribution plans to have production capabilities in place for the launch.
When the product is first introduced to the available market it enters the introduction stage. Sales start out small as the company engages in promotional activities to generate awareness and demand. Pricing is typically at a premium to reflect the newness. Production volumes are low while costs may still be high since economies of scale have not been achieved. The focus is on securing a foothold in the target markets.
If the product is successful and gains customer acceptance, it will enter a period of strong growth as sales volumes increase rapidly. Market share expands as more and more customers adopt the new product. Manufacturing and supply chains are ramped up to handle rising output needs. Economies of scale take effect bringing down per-unit costs. The company invests significantly in further promoting and marketing the product. Profits start growing substantially during this growth stage.
Eventually sales growth begins to slow down as market saturation is approached. Most potential customers who want the product will have already purchased it by now. The product lifecycle enters maturity. However, volumes remain high even if the rate of increase declines. Market share gains fewer new customers and defending against competition becomes important. Cost cutting and efficiency programs are employed to boost profit margins further. Cash flows are strongest in this mature phase
When nearly all available demand has been tapped, the product reaches saturation. Sales levels stabilize with very little growth potential left. Competition is fierce from other substitutes. Cost advantages are necessary to maintain margins and market share. Innovation keeps the product fresh and relevant, otherwise declining interest sets in. Companies may look at brand or technology extensions to squeeze more life out of a saturated product.
Decline
If nothing is done to reinvigorate sales, the natural tendency is for the product to move into decline as customer needs are met by newer substitutes. Volumes and revenues start decreasing steadily and profits erosion may set in if costs are not realigned. Typically businesses withdraw investment and support for a declining product as resources are better deployed elsewhere. The life cycle ends when sales volume dwindles to uneconomical levels.
Product portfolio management
Given that products progress through these stages, companies have to manage their overall product portfolios strategically. There needs to be a pipeline of new offerings in development to replace maturing products and generate future growth. Mature products continue funding investments elsewhere. Businesses also look for ways to reuse technology platforms or brand equity to spawn new derivative products before core items decline. By understanding where each product stands in its lifecycle, management can apply varied approaches like investing, harvesting or divesting as needed.
Revenues, costs and profits over the lifecycle
Another key aspect is how underlying metrics change across the stages. Revenue naturally increases rapidly during growth before levelling in maturity and declining. Cost curves follow a different pattern - high introductory and development costs are recouped as volumes rise. Per-unit costs fall benefiting margins most during maturity. Profits tend to be negligible or negative early on swinging highest when balance of volumes and efficiency is struck. These patterns allow managers to assess performance expectations for products at varying lifecycle points.
Pricing strategies
Pricing approaches also differ through the lifecycle. New products command premium prices that gradually decrease to gain foothold. Volume discounts then improve affordability and market penetration during growth. Mature items see minimal fluctuation unless facing threats. Declining offerings may be sold at clearance rates as companies recover investment costs. Understanding where a product sits guides optimal pricing plans to maximize revenue contribution.
The stages in a product's lifecycle profoundly impact operational and strategic matters for businesses. Forward-looking companies seek to manage portfolios dynamically across the introduction, growth, maturity, saturation and decline phases. Analyzing individual items' lifecycle positioning allows tailored approaches on everything from investments to marketing to ensure commercial success at each stage. This framework provides powerful insights for planning business activities.
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About Author:
Vaagisha brings over three years of expertise as a content editor in the market research domain. Originally a creative writer, she discovered her passion for editing, combining her flair for writing with a meticulous eye for detail. Her ability to craft and refine compelling content makes her an invaluable asset in delivering polished and engaging write-ups.
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