Product Cycle Theory

Product cycle theory

Theory suggesting that a firm initially establish itself locally and expand into foreign markets in response to foreign demand for its product; over time, the MNC will grow in foreign markets; after some point, its foreign business may decline unless it can differentiate its product from competitors.

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Product Cycle Theory

The period of time from the introduction of a product to its decline and stagnation. Different analyses posit different stages of a product life cycle (usually four to five), but all emphasize that a product has a beginning, with technological innovation; a period of rapid growth; maturity and consolidation; and, finally, decline and possibly death. For example, in the video cassette recording (VCR) industry, the mid-1970s were a period of decentralized technological innovation, with the VHS and Betamax formats vying for dominance. Later, video cassettes very quickly became a common household item. In the maturity phase, different companies selling VCRs attempted to corner a greater market share for their own (identical) versions of the product. Finally, the industry declined and was eventually supplanted by DVD players. Factors may prolong a life cycle, whether they are the opening of new markets to the product, finding new uses for the same product, or even attaining government subsidies. The concept of product life cycles applies most readily to the sale of goods and is difficult to gauge how it works in a service economy.