What is a Product Life Cycle?

//What is a Product Life Cycle?
What is a Product Life Cycle? 2017-10-09T07:22:08+00:00

Definition: The product life cycle indicates the four stages that a product goes through during its lifetime and relates to the marketing and advertising strategy.

What Does Product Life Cycle Mean?

What is the definition of product life cycle? The product life cycle includes the following four stages:

At the introduction stage, the product is relatively unknown, the sales are growing at a low rate, and the profits are limited. Although there is no intense competition, the product sells at a high price, and it also incurs high costs. At the stage, branding and advertising strategy are necessary.

At the growth stage, there is a rapid growth in sales, a high increase in the profits, and a high intensity of competition. The company achieves economies of scale, and the advertising strategy emphasizes on diversification.

At the maturity stage, the sales tend to stabilize, while the gross margin may shrink. The price of the product is usually lower, and the advertising strategy emphasizes on the brand and the improvements on the product that may differentiate it from the competition.

At the decline stage, the sales are on a declining trend, and the product is no longer profitable.

Let’s look at an example.

Example

A very common example within the consumer electronics sector is the cell phones. As the technology advances, new models appear in the stores, taking on a larger market share as a result of an aggressive marketing and promotion strategy.

At the introduction stage, Company XYZ invests heavily in advertising and promotion, seeking to grasp a growing percentage of consumers. During this stage, the price of the cell phone includes the initial production costs; hence, the product normally sells for up to 20% higher than the cost price. Also, in the anticipation that consumers will respond in a positive way to the new product, the company may hype the price.

At the growth stage, the sales and profits of the company are expected to rise. At this stage, the company is keeping the prices stable, seeking to maximize its profits from the increased sales. Also, a positive feedback from consumer research may lead to entering a new market.

At the maturity stage, there is intense competition, and competitive firms introduce similar products to gain a larger market share. Therefore, the sales of the company are declining, and products that sell at a lower price may overtake the sales of company XYZ. Hence, the company needs to differentiate its product from the competition by adding improved features.

At the decline stage, the demand for the cell phone of company XYZ will decline as newer technologies take over. At this stage, the company can either maintain its market share by lowering the price or withdraw the product and seek to launch a new one using advanced technologies.

Of course, the strategies pursued at each stage of the product lifecycle pertains to the particular industry that a company operates in.

Summary Definition

Define Product Life Cycle: A product’s life cycle means the series of events that take place from the point a product is created until it is discontinued.