Like human beings, products also have a distinct life cycle. A product generally passes through four stages during its entire life from birth to death.
These stages are:
1) Introduction
2) Growth
3) Maturity
4) Decline or Obsolescence.
Thus, product life cycle refers to the stages a product goes through from its introduction, through its growth and maturity, to its eventual decline and death (withdrawal from the market).
Introduction
A company which introduces a new product naturally hopes that the product will contribute to the profits and provide consumer satisfaction for a long period of time. This however, does not always happen in practice. So, business organisations try to remain aware of what is happening throughout the life of the product in terms of the sales and the resultant profits. The sales volume and profit curves may be different with each product. However, basic shape and relationship between the two factors usually remain identical. As stated earlier, new products are essential for sustaining the organisations and for each new products we have to take stock of the relation between sales volume and profit margin. The relationship of the two curves (sales volume curve and profit margin curve) must be clearly understood before formulating marketing policy. A company must understand and manage the various stages of life cycle of a product to ensure marketing success.
The total length of the life cycle varies from product to product. It ranges from a few weeks (as in the case of a fashion or a fad) to several years (as in the case of motor cycles or refrigerators).
You should note that among various products the duration of each stage is not the same. As a matter of fact, it is different with each product. There are products which remain in the introductory stage for a number of years, while some others may find market acceptance in a few weeks and thus move on to the next stage of the life cycle.
Similarly, all products may not pass throguh all stages of life cycle. A product may fail right at the stage of introduction. There may be situations where a company may not enter a market till the product of another company gains acceptance and reaches the growth or maturity stage.
However, all products enter the decline and possible abandonment phase. This could be because of any of the following three reasons. Firstly, the need for the product is not there. Secondly, a better or less expensive product came into the market. Thirdly, a competitor, with a better marketing effort, forces the company product out of the market arena.
The company has to communicate with target market and inform potential customers of the new arrival in a big way, thus incurring high promotional expenditure. The promotional effort is also aimed at inducing the potential buyers to buy and test the product. It also aims at securing distribution at retail outlets in the process. More money is spent in attracting distributors for the new product. Because of this high promotional costs and low sales volume during this introduction stage, the profits of the company are low and sometimes even negative.
There are, if at all, only a few competitors and they all offer the basic version of the new product without any refinements. Selling efforts at this stage is, therefore, aimed at those prospective buyers who can be motivated to buy. Product at this stage, is usually priced high because of low level of production and high cost of promotion and distribution.
Growth Stage
After the product gains acceptance in the market i.e., accepted by the consumers as well as trade, it enters into the growth stage. Now the demand of the product grows rapidly, generally outpacing supply. In the light of increased sales volume, the company profits also increase. Effective distribution and promotional efforts are considered key factors during this stage, so as to cash on the rising trend of demand. The company considers increased sales volume as a top priority.
In the wake of rising demand, a large number of competitors begin to enter the market. The competitors start adding new features to the product. With the rise in competition, distribution outlets also increase in number resulting in increased demand to "fill the pipeline".
Prices normally remain at the same level or may fall marginally. Promotional tempo is maintained or even raised to meet the challenge of competition.
Maturity Stage
It is too optimistic to think that sales will keep on shooting up. At this stage, it is more likely that the competitors become more active. In case your product is a novel one, by now competition would have come out with a similar product in the market to compete with yours. Therefore, the sales are likely to be pushed downwards by the competitors while your promotional efforts would have to be increased to try and sustain the sales. Thus, the sales reach a plateau. This is called the 'maturity stage' or 'saturation'. At this point, it is difficult to push sales up. With regard to the profit picture, the profits are likely to stabilise or start declining as more promotional effort has to be made now in order to meet competition. Unless of course, you have the larrgest market share with your product and it needs no extra push in the market.
Decline or Obsolescence Stage
Thereafter the sales are likely to decline and the product could reach the 'obsolescence' stage. Steps should be taken to prevent this obsolescence and avoid the decline. This decline that generally follows could be due to several reasons such as changes in consumer tastes, improvement in technology and introduction of better substitutes. This is the stage where the profits drop rapidly and ultimately the last stage emerges. Retaining such a product after this stage may be risky, and certainly not profitable to the organisation. Thus, a firm has to finally choose between a total abandonment of the product or continue it in a specialised limited market. The decision will be based on the level of remaining opportunity and ability of the management.
