A LEVEL OF A CHI EVEM EN T B USI N ESS STUDI ES A LEVEL

RESOURCES. Issue 2 Sept 2001 Page 1

Product Life Cycle 2

The Product Life Cycle (PLC) describes the stages
a new product idea goes through from beginning to The Product Development stage begins when the
end. The PLC is divided into five major stages: company finds and develops a new-product idea. This
• involves translating trends in the macroenvironment,
Product Development, taking diverse pieces of information, and incorporating
•
them into a product concept.
Market Introduction,
•
Product concepts typically undergo several versions,
Market Growth,
• involving considerable time and money, before they
Market Maturity,
•
S ales Decline .

Total sales of the product, by all compa-

nies in the industry, vary in each of the
five stages.

They move from zero in the product de-

velopment stage,
very low in the
market introduc-
tion stage, to high
S ales and profits do at market matur-
not move together ity and then back
over time. to low in the sales
decline stage.
Industry profits M ore important,
decline while the profit picture changes, are exposed to target consumers via test markets. Con-
industry sales are too. These general relation- cepts that survive test market scrutiny are ready for
still rising. ships can be see in the graph. market introduction.

"Time to market," or the amount of development time

Product Life Cycle Stages necessary to move from product concept to finished
product, can be critical, especially when competitors
A particular firm's marketing mix usually must are working on similar products. Forward-thinking
change during the PLC. Customers' attitudes and marketing managers are using interactive concept test-
needs may change over the PLC. The product may ing via the Internet to obtain faster feedback from tar-
be aimed at entirely different targets at different get customers and to shorten their product develop-
stages. For example, a car is a product that provides ment timetables.
personal transportation, but our choice of vehicle
changes as our needs and situations change. During the product development stage, sales

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Title PLC 2 Page 2

are zero and profits are negative (i.e. anticipated fu- motion costs rise and competitors continue to cut
ture profits are being invested in product develop- prices to attract more business.
ment).
New firms may still enter the market during this stage.
In the Market Introduction stage, sales are low as a These late entries skip the early life cycle stages, in-
new idea is first introduced to cluding the profitable growth stage. They must try to
a market. Customers aren't take market share from established firms, which is dif-
looking for the product, and ficult and expensive in a saturated, flat market. Cus-
Most companies may not be aware of its bene- tomers who are satisfied with their current relationship
experience losses fits or advantages over cur- won't be interested in switching to an unknown brand.
during introduction rent offerings. In fact, they
because they spend may not even know about it. In the United Kingdom, the
a lot of money for Informative promotion is markets for most cars, boats, television sets, and most
promotion, product, needed to tell potential cus- household appliances are in
and place During the
tomers about the new prod- market maturity. This stage maturity phase, less
development. Of uct concept. may continue for many years - efficient firms can't
course, they invest - until a new product idea compete with the
the money in the Even though a firm promotes comes along that makes the old increasing pressure
hope of future its new product, it takes time product concept obsolete -- on prices and drop
profits. for customers to learn that even though individual brands out of the market
the product is available. or models come and go.
M oney is invested in developing the market in antici- Market maturity for
pation of future profits During the S ales Decline an entire industry
stage, new products replace the may continue for
In the Market Growth stage, industry sales grow old. Price competition from many years, even
quickly -- but industry profits rise and then start fal- dying products becomes more though individual
ling. The innovator begins to make big profits as vigorous, but firms with strong brands may come
more and more customers buy. But competitors see brands may make profits until and go
the opportunity and enter the market. Some just the end because they success-
copy the most successful product, or try to improve fully differentiated their products.
it to compete better. Others try to refine their offer-
ings to do a better job of appealing to some target They may also keep some sales by appealing to the
markets. The new entries result in much product va- most loyal customers or those who are slow to try
riety. new ideas. These buyers might switch later, smoothing
the sales decline
This is the stage where industry profits are largest,
but it is also when industry profits begin to decline Market Specific Product Life Cycles
as increased competition creates downward pressure
on prices. The product life cycle concept can describe a product
class (e.g. petrol-powered cars), a product form (e.g.
Market Maturity occurs when industry sales level estates), or a brand (e.g. the Ford Focus).
off. Competition gets tougher as aggressive competi-
tors have entered the race for profits. Industry prof- The PLC concept applies differently in each case.
its continue to go down during maturity because pro- Generally, however, the PLC is used to de-
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Title PLC 2 Page 3

scribe industry sales and profits for a product idea markets.

within a particular product market.
Product life cycles also depend on how broadly we de-
Sales and profits of an individual product, model, or fine the needs of customers in a product market, and
brand may not, and often do not, follow the life- who the competitors are. Consider, for example, the
cycle pattern. They may vary up and down through- needs related to storing and preparing foods. Wax pa-
out the life cycle -- sometimes moving in the oppo- per sales in the U.K. started to decline when Dow in-
site direction of industry sales and profits. Further, a troduced Cling Film. In the early 1970's, sales of Cling
product idea may be in a different life-cycle stage in Film, and similar products, declined sharply when
different markets. A given firm may introduce or plastic storage bags became popular. However, sales
withdraw a specific product during any stage of the increased by the end of the decade.
industry product life cycle.
The product didn't change, but consumer needs did --
A "me-too" brand introduced during the Market as microwave ovens gained in popularity, consumers
Growth stage may never get any sales at all and suf- found that plastic wraps worked very well in micro-
fer and quick death. Or, it may reach its peak and wave cooking.
start to decline even before the industry reaches the
Market Maturity stage. If a market is defined broadly, there may be many
competitors, and the market may appear to be in mar-
M arket leaders may enjoy high profits during the ket maturity. On the other hand, if the focus is on a
market maturity stage, even though industry profits narrow sub-market, and a particular way of satisfying
and declining. Sometimes the innovator brand loses needs, then we may observe much shorter life cycles as
so much in the Introduction stage that it has to drop improved product ideas come along to replace the old
out just as others are reaping big profits in the mar- ones.
ket growth stage.

Strategy planners who naively expect sales of one Product Life Cycles Vary in Length
firm's individual brand to follow the general product
life-cycle pattern are likely to be rudely surprised. In How long a whole product life cycle takes, and the
fact, it might be more sensible to think in terms of length of each stage, varies across products. The cycle
"product-market" life cycles rather than "product" may vary from as little as 90 days, as in the case of
life cycles, even though the latter term is more com- Ghostbusters products, to as
monly accepted and more widely used. long as 100 or more years, as
for petrol-powered cars. The first entry into
How we see product life cycles depends on how a market often has
broadly we define the market. About 70% of all U.K. A new product idea will move an advantage,
households own microwave ovens, which would lead through the early stages of the because a brand
some to conclude that microwave ovens are at the product life cycle more rapidly name can be
market maturity stage. In many countries, however, when it has certain characteris- established before
they are still early in the growth stage -- in Switzer- tics. competitors enter
land, for example, microwave ovens had a household
penetration level of less than 15% in 1994. U.K. mi- The fast adoption of Nutrasweet low-calorie sweetener
crowave manufacturers can extend their product life in the U.S. market is a good example -- it offered a real
cycles by expanding their distribution to off-shore comparative advantage, namely fewer calo-
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Title PLC 2 Page 4

ries than sugar without the aftertaste of artificial cause profits don't automatically go to the innovator.
sweeteners. Plus, it was easy to communicate the
benefits -- Nutrasweet worked well in many products, Sales of some products are influenced by fashion --
such as diet soft drinks, that were already a big part of the currently accepted or popular style. Fashion-
consumers' lifestyles. However, in less-developed related products generally have short life cycles, as
countries, where malnutrition, not dieting, is the prob- what is currently popular can change rapidly. M ar-
lem, Nutrasweet does not offer a comparative advan- keting managers who work with fashions often have
tage. to make very fast product changes.

Although the life of different products varies, in gen-

eral product life cycles are getting shorter. This is Fads have even shorter life cycles -- do you remem-
partly due to rapidly changing technology -- one new ber Pet Rocks or Cabbage Patch Dolls? Such prod-
invention may make possible many new products that ucts can be very profitable while their popularity
replace old ones. lasts, but it is difficult to predict which products are
going to catch the public's fancy. Further, companies
Tiny electronic microchips led to hundreds of new can be caught short with items that really "take off,"
products, from calculators and digital watches in the and may not be able to meet demand. With fads,
early days, to today's microchip-controlled valves in these lost profits opportunities can probably never
artificial hearts be made up, and it is likely the public will be inter-
ested in something new before the company can in-
Patents for a new invention may not be much protec- crease production of the current fad item
tion in slowing down competitors, who can often find
ways to copy a product idea without violating a spe- With on-line shopping becoming more popular, what
cific patent. Worse, some firms find out than an un- will be the effect on product life cycles? Will cycles,
ethical competitor simply disregarded the patent pro- in general, be shorter or longer? Will it affect the
tection. Patent violations by foreign competitors are whole cycle, or only certain stages
very common, and sometimes a product's life can be
over before a case can get through Patent Court bottle- Notes
necks.

Shorter life cycles mean that firms must constantly de-

velop new products in order to stay in business. Fur-
ther, they must offer marketing mixes that make the
most of the M arket Growth stage, when profits are
highest.

The company with the first entry in a product market,

sometimes referred to as the "Pioneer" or "Innovator,"
usually has an advantage, because they have the op-
portunity to establish their brand name in the minds of
consumers before competitors enter the market. How-
ever, during the M arket Growth stage, competitors are
likely to introduce product improvements. Fast
changes in marketing strategy may be necessary, be-

Copyright A Level of Achievement