product life cycle

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Product Life Cycle

The period of time from the introduction of a product to its decline and stagnation. Different analyses posit different numbers of stages in 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 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, VCRs declined and were eventually supplanted by DVD players. A product life cycle can be prolonged by several factors, including opening new markets to the product, finding new uses for the same product, or even attaining government subsidies. The concept of a product life cycle applies most readily to the sale of goods, and it is difficult to gauge how it works in a service economy.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
Product life cycleclick for a larger image
Fig. 68 Product life cycle. Product B is launched before product A declines. A1 shows that product life may be extended by product modification.

product life cycle

The typical sales pattern of a PRODUCT over time from its introduction on to the market and its eventual decline as it is displaced by new, more innovative products or until demand for it falls, due to a change in consumer tastes.

The product life cycle for product A, as illustrated in Fig. 68, has four main phases: introduction/launch, growth, maturity/saturation and decline. Each phase can be characterized by the adoption of various MARKETING MIX formats (price, advertising, sales promotions etc.) to encourage both potential buyers to purchase the product and distributors to stock it:

  1. introduction/launch. This occurs following the successful technical development of a NEW PRODUCT and indications, from MARKETING RESEARCH and TEST MARKETING trials, that the product is likely to be a commercial success. In the introductory phase, sales volume is relatively low and limited in the main to pioneering or innovator customers. Firms may adopt a high MARKET SKIMMING PRICING policy aimed at high-income, price-insensitive buyers, or, alternatively they may wish to accelerate the move into the growth phase by a low MARKET PENETRATION PRICING policy backed by heavy advertising and other promotional spending to obtain the maximum physical distribution and consumer interest in the product;
  2. growth phase. In this stage, sales volume expands rapidly as the product increasingly commands acceptance by the mass market of consumers. The introduction of imitation brands by competitors tends to heighten competitive pressures, but at this stage the collective and cumulative marketing effort of suppliers expands the overall size of the market, resulting in sales gains for most producers;
  3. maturity/saturation phase. In this stage sales are largely repeat purchases to existing customers, since the majority of potential buyers have already made their first purchases. As the market becomes progressively saturated, firms are unable to benefit from further expansion of the market as a whole and must instead compete to increase or maintain their market share. It is at this point that BRAND LOYALTY becomes critical, leading to a heavy emphasis on advertising and sales promotion and back-up AFTER-SALES SERVICE etc. Fierce price competition is likely to be resisted, especially if the market is oligopolistic in structure (see OLIGOPOLY), in order to preserve the profitability of the market; firms may, however, have no choice but to compete on price if consumers see the product as increasingly a standardized item despite efforts by suppliers to differentiate their own particular brand of it;
  4. decline. This phase is characterized by falling sales. If left to follow this downward path, the product will eventually die as sales fall to very low levels, although long before this the firm may withdraw it from the market. However, the rate of decline may be slow and protracted in the absence of rapid technological change and bolstered by entrenched customer tastes, so that suppliers may continue to earn good profits from the product. (See ENDGAME STRATEGY).

In view of the product life cycle, firms must not only pay particular attention to how best to exploit their established products at various stages of their life cycle, but, importantly, must formulate appropriate PRODUCT RANGE strategies so as to provide for a balanced portfolio of new products, growth products and mature products. Thus, for example, as demand for product A begins to decline the firm must have already launched new products such as B as part of a regular programme of new product launches (see Fig. 68). In addition, it may be possible to modify an existing product such as A in order to extend its life cycle as depicted by A1 in the figure (SEE PRODUCT MODIFICATION).


Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
Product life cycleclick for a larger image
Fig. 158 Product life cycle. (a) See entry. (b) Household ownership of consumer durables in Great Britain, 1980–2004.

product life cycle

the typical sales pattern followed by a product (especially a CONSUMER DURABLE product) over time as changing consumer taste and technological INNOVATION cause new products to emerge that supersede existing products. The typical life cycle followed by a product introduced into a market is depicted in Fig. 158 (a). It consists of four main phases:
  1. product launch/introduction, which follows the successful development of a new product and its national launch. When the product is first put on the market, sales volume will be low until consumer resistance has been overcome, and at this stage the market is frequently limited to high-income consumers with more adventurous buying habits;
  2. product growth phase, where the product gains market acceptance and sales grow rapidly as the product reaches the mass market. During this phase competitors may begin to enter the field with rival products, so that the distinctiveness of the original product fades;
  3. product maturity/saturation, where sales are largely limited to repeat purchase by existing customers, since the majority of potential customers have already made their first purchase. At this stage the market is saturated, so competitors are unable to benefit from market growth and must compete intensely to maintain or increase their share of the constant market;
  4. product decline, where sales begin to decline as consumers’ tastes change or superior products are launched. If left to follow this downward trend, the product will eventually die as sales fall to low levels, although long before this managers may decide to phase out the product.

Most companies market a number of different products and must formulate a product-range strategy, providing for a regulated process of new product launches, with new products, like B in Fig. 158 (a), growing as older products, like A, reach maturity, so as to maintain an appropriate PRODUCT MIX of newly launched products, growth products and mature lines.

A company's pricing policy for a product may be related to the stage of the product's life cycle. During the launch phase, managers will tend to opt for a high skimming price, which capitalizes on the new and distinctive nature of the product and the temporary monopoly power that these convey. In this early stage, demand for the product is likely to be less price-elastic (see PRICE-ELASTICITY OF DEMAND), for high prices will not deter high-income pioneer consumers. Furthermore, a high price will reinforce the quality image of the largely untried product as well as recouping research and development and heavy promotion expenditure. During the growth phase, managers may change to a low penetration price, lowering the price to bring the product within reach of the mass of consumers. At this stage demand is likely to be more price-elastic, for the average consumer is more price-conscious than the pioneer consumer. By lowering price, the firm can expand sales appreciably, gaining cost savings from large-scale production, and can maintain a large market share in the face of entry by competitors. Once the maturity phase is reached, with several similar products firmly established in the market, then prices will tend to stay in line with one another as any attempt by one firm to reduce its price and expand its market share will provoke retaliation as competitors fight to maintain their market share.

Similarly, other elements of the MARKETING MIX, such as advertising and sale promotion, need to be adapted to the phases of the product life cycle.

The product life cycle concept can also be extended to highlight changes in the sales profile of whole MARKETS and INDUSTRIES from birth through maturity to decline. For example, Fig. 158 (b) shows market penetration for a number of consumer durable products in Britain. See also BOSTON MATRIX, PRODUCT PERFORMANCE.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
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