Life Cycle Model

See also Tipping Point and Product Lifecycle Management

Product life cycle management

The conditions a product is sold under will change over time. The Product Life Cycle refers to the succession of stages a product goes through. Product Life Cycle Management is the succession of strategies used by management as a product goes through its life cycle.

The stages

A Typical Product Life Cycle Products tend to go through five stages:

• New product development stage - very expensive -no sales revenue -losses
• Market introduction stage - cost high - sales volume low - losses - high prices
• Growth stage - costs reduced due to economies of scale - sales volume increases significantly - profitability - prices to maximize market share
• Mature stage - costs are very low - sales volume peaks - prices tend to drop due to the proliferation of competing products - very profitable
• Decline stage - sales decline - prices drop (lower prices may lead to lower value perception) - profits decline

Management of the cycle

The progression of a product through these stages is by no means certain. Some products seem to stay in the mature stage forever (e.g., milk). Marketers have various techniques designed to prevent the process of falling into the decline stage. In most cases however, one can estimate the life expectancy of a product category.

Marketers' marketing mix strategies change as their products goes through their life cycles. Advertising, for example, should be informative in the introduction stage, persuasive in the growth and maturity stages, and be reminder-oriented in the decline stage. Promotional budgets tend to be highest in the early stages, and gradually taper off as the product matures and declines. Pricing, distribution, and product characteristics also tend to change.

Customers respond to new products in different ways. Diffusion of innovations theory, pioneered by Everett Rogers, and other diffusion models posits that people have different levels of readiness for adopting new innovations and that the characteristics of a product affect overall adoption.

Market evolution

Market Evolution is a process that parallels the product life cycle. As a product category matures, the industry goes through stages that mirror the five stages of a product life cycle:

Market Crystalization - latent demand for a product category is awakened with the introduction of the new product Market Expansion - additional companies enter the market and more consumers become aware of the product category Market Fragmentation - the industry is subdivided into numerous well populated competitive groupings as too many firms enter Market Consolidation - firms start to leave the industry due to stiff competition, falling prices, and falling profits Market Termination - consumers no longer demand the product and companies stop producing it