What Is Product Life Cycle

Product life cycle considers the profitability of the product of its life cycle, while traditionally products are evaluated on yearly basis which while to dysfunctional decision making. Product life cycle recognizes the behavior the products at various stages of its life cycle. Each product has it own life cycles. Ex, binoculars have very long product life cycle while Toys have very short product life cycle. The product life cycle can be describe into FIVE stages. These are development, introduction, growth, maturity, decline.

• Development.

Development stage is the stage at which products are designed, tested and improved. In today's business environment most of the cost are incurred at development stage. So it is necessary to control cost at this stage. This stage come just before the introduction stage. It excludes the research cost and time. Research is different from development as at that stage there is uncertainty about whether the cost and time will result in some product. At this stage product is generating negative cash flows.

Innovative products like mobile phones, medicines and fashion products incur most of its cost and time over the life cycle of the product at development stage. While some products like cutlery, sanitary and Suite cases incurs lesser cost and time.

 

• Introduction.

Introduction is the stage when product first launched into the market. Duration of this stage depends on the business marketing and pricing strategies. At this stage advertisement expenditure is significant cost because people need to get aware of the product offered. Staff need to be recruited and trained to turn customer enquires into business. Workers are learning and gaining experience so wastage and idle time cost will be high. At this stage product may still generating negative cash flows.

Pricing strategy is decided whether business want to generated cash flows to recover it development cost soon by charging high prices (price skimming) or want to create market share and low cost producer in long term through economies of scale to discourage competition by charging low prices (price skimming).

 

• Growth.

At this stage people are already aware of the product. Competitors may trying to develop similar like yours. Revenue are increasing day by day. Marketing expenditure is necessary to increase growth but not to the extent in introduction stage. Worker are now have greater experience than before so wastage and idle time cost are decreasing. At this stage product should generate sufficient cash flows. Business should try to gain as much market share as can because at later stages this may not be possible.

 

• Maturity.

At this stage product is well-known among people. So marketing expenditure should only be done to sustain profitability. Product should be developed brand loyalty and market share and business should have an advantage of first entering the market. Competitors may have entered the market and trying to gaining market share.Business should try to change the product specification to increase length of this stage or devise new products to cope with decline. Revenues are at their peak. Effective business should have gain cost efficiencies. Cash flows are still positive are this stage. The way to increase profitability is by reducing prices, cost savings and gaining market share because market is not growing itself.

 

• Decline.

At this stage product popularity is decreasing. People are moving towards new introduced products. The profit earning potential of the market is over. If business has to continue successfully it should have new products available to sell. Decline stage does not mean that product is no longer profitable. It is still possible to generate positive cash flows because competitors may be discontinuing their products, development expenditure is fully recovered and minimal or no marketing expenditure is needed. Products can still be marketed to other market segments where market is not fully exploited.