There are several different stages of Product Life Cycle (PLC).
For most products on the market, their life cycle is generally divided into six main stages including:
- Research and Development (R&D)
- Launch (Introduction)
- Growth
- Maturity
- Saturation
- Decline
One more final stage can be added which is the elimination stage.
Each stage of Product Life Cycle (PLC) is likely to have a very different amount of investment, Marketing Mix, sales revenue, profit and cash flows.
Stages in Product Life Cycle (PLC)
Here are the most important points to emphasize for each stage:
1. Research and Development (R&D)
The Research and Development (R&D) stage of Product Life Cycle (PLC) is about coming up with the idea for the product as well as designing, developing and testing the product.
a. Develop product ideas: Large number of initial ideas for possible new inventions will be produced at this stage. They may come from any of the following sources: identifying gaps in the market through market research, monitoring competitors or planned research and development (R&D). Also, intuition, stumbling across interesting ideas by luck, creative thinking, previous inventions, future thinking of what will people be using or wanting or needing in the future.
b. Analyze the market: Marketing managers also need to produce an initial market analysis to determine whether the new product is wanted or needed, can it be produced at a profit and who is it likely to be aimed at. The detailed market research report is often produced to assess the potential success of the new product.
c. Build a prototype: Building a trial product is a time-consuming process yet very important task. Having a tangible prototype will allow for further product refinement as test markets are used to pre-test the new product with consumers.
d. Test the market: Testing the product prototype with real people is perhaps the most important aspect of the Research & Development (R&D) stage. Test marketing usually takes place in a limited geographical area either locally or regionally. In fact, test marketing involves trialing a newly developed product with a small sample of customers to gather valuable feedback on reactions and opinions of customers. One one hand, test marketing helps to minimize the costs and damages to the brand, if the product is unsuccessful. On another hand, test marketing is expensive and competitors might find out about the product before launching it to the market. Overall, pre-testing a product along with other aspects of Marketing Mix with consumers gives a much higher chance of success.
In this stage, the business can either make changes to the product based on the feedback of customers and launch the product, or discontinue the product.
(-) The product is unsuccessful at this stage: Most ideas do not proceed to the commercial launch stage – there is indeed a high failure rate.
(+) The product is successful at this stage: Detailed analysis of test marketing results and amendment of product and the production process.
Companies invest a lot of money developing the product before introducing it to the customers in the marketplace. That is why in order to recover the costs of researching and developing the successfully launched product (and all those products that failed), all the products that are commercialized must be priced competitively. Yet high enough to recover those costs.
! SALES REVENUE: During this stage there is no sales, no sales revenue and the firm is making a loss from the product.
* ACTIONS TO TAKE AT THE END OF THIS STAGE: Preparations for launch – publicity, marketing campaign, etc.
TASK FOR YOU: Do some internet research and see, if you can find five products that have ‘failed’, i.e. they have not made it to the market.
2. Launch (Introduction)
The Launch (Introduction) stage of Product Life Cycle (PLC) is about launching the product to the market after researching, development and testing the product. The product is introduced into the market for the first time.
The launch stage of the Product Life Cycle (PLC) requires careful marketing planning. The main aim of extensive promotion is to make customers fully aware of the products existence. The length of time that products spend in the introduction stage depends on the type of product and the effectiveness of marketing campaigns. Some products spend very little time in the introduction and growth stages while some other products take much longer.
At this stage, the product has low sales and high expenses. Costs are very high due to the marketing expenses involved in the product launch (promotion campaigns, setting up distribution network, etc.). Therefore the product might be making a loss at this stage causing the firm to face possible cash flow issues. Profits are typically negative.
In this stage, marketing managers should target promotional campaigns at specific audience and monitor initial sales. It is all about gaining product recognition and increasing customer awareness of the product to kick start sales.
$ WHO ARE THE CUSTOMERS? Consumers who buy at this stage are called ‘innovators’. They are the first customers to purchase because they wish to be the first to own a certain product due to the product itself or the prestige of the brand.
! SALES REVENUE: During this stage sales are low to begin with. Sales revenue is low too because customers are not yet aware that the product even exists. May increase quite slowly at the beginning, but there are exceptions.
* ACTIONS TO TAKE AT THE END OF THIS STAGE: Build product awareness and maximize publicity to develop a market for the product. Move to growth stage as quickly as possible and become the market leader. This might easier to achieve for some products, but harder for others.
3. Growth
The Growth stage of Product Life Cycle (PLC) is about growing sales as the product is becoming better known to customers.
A. Initial growth: When the product is effectively promoted in the launch stage, it is going to be well-received by the market. Higher brand recognition and brand awareness thanks to marketing efforts are helping to boost sales. Business growth is mainly due to increased promotion and the business using wider channels of distribution to make the product available to different customers in numerous locations. In this stage, the product usually starts to earn profit.
While the growth stage cannot last forever, all businesses wish that it would, hence they strive to prolong this stage as much as possible. It is because sales revenue is rising and the unit cost of production is decreasing economies of scale in production, therefore profit is increasing.
B. Final growth: The company is earning strong profits. While the growth stage may take days, weeks, months, years, decades or even centuries, sales growth will finally begin to slow down. When it happens, this will lead the product to enter into the next stage which is maturity.
The main reason for the growth slowing down is that high profits attract competitors into the industry. It means that the product is working and people are buying it. When competition enters into the market, it results in price competition and increased promotional costs. Other reasons for the growth slowing down might include technological changes or changes in taste and fashion.
$ WHO ARE THE CUSTOMERS? Consumers who buy at this stage are called ‘early adopters and late adopters’ depending whether they buy the product in the initial growth stage or later.
! SALES REVENUE: During this stage sales rise and sales revenue increases. There might even be rapid sales growth as more customers become aware of the product with additional market segments being targeted.
* ACTIONS TO TAKE AT THE END OF THIS STAGE: The goal here is to build brand preference and increase market share of a product. Marketing Mix of business may need to be reviewed. The market should be monitored for competitors’ reactions.
4. Maturity
The Maturity stage of Product Life Cycle (PLC) is about sales of the product continuing to rise. But, at a much slower rate as the firm may have obtained significant market share with sales revenue being at the peak.
As the market share is high, profits are strong and economies of scale give the firm competitive advantage, cash flow will be favorable. The business will be receiving more cash because advertising spending is reduced as brand awareness of the product is already strong. Promotional campaigns will be used mainly to remind consumers of the product.
In maturity when sales are reaching the peak and the cost of supporting the product declines, the ratio of revenue to cost is high at the highest causing the profitability of the product to be high. In fact, the product is the most profitable. That is why, there are likely to be many rivals in the market at this stage with unsuccessful competitors dropping from market.
The most important thing that the business can do now too the product is to make this stage last for as long as possible despite competition likely to be greater.
$ WHO ARE THE CUSTOMERS? Consumers who buy at this stage are called ‘early majority’.
! SALES REVENUE: During this stage sales still increase, but sales growth is likely to be low. Hence, sales revenue continues to rise, but at a much slower rate.
* ACTIONS TO TAKE AT THE END OF THIS STAGE: Focus on defending current market share of a product.
5. Saturation
The Saturation stage of Product Life Cycle (PLC) is about sales of the product failing to grow as most customers who want a certain product have already bought one. It is only when their products breaks down, or are replaced by new technology, that further sales will be made.
Saturation also occurs because there are too many competitors who have flooded the profitable market. The Marketing Mix will focus on promotional activities to emphasize loyalty to the brand and encourage customers to buy the product again.
Marketing managers will focus on launching extension strategies to extend life of the product. Possible extension strategies to prolong this stage might include: searching out new markets, linking to changing fashions, seeking new market segments or exploiting current market segments, considering Joint Ventures, developing new uses of the product, focusing on adapting the product, repackaging or format changes, improving the standard or quality of the product, developing the product range.
$ WHO ARE THE CUSTOMERS? Consumers who buy at this stage are called ‘late majority’.
! SALES REVENUE: During this stage, sales are not longer growing, but do not decline significantly either. In fact, sales have reached the peak as the market becomes saturated. Sales revenue is at the highest. At the end of this stage, sales might start to fall slowly.
* ACTIONS TO TAKE AT THE END OF THIS STAGE: Focus on designing and implementing extension strategies to prolong the life of a product. Necessity to develop new strategies becomes more pressing.
6. Decline
The Decline stage of Product Life Cycle (PLC) is about sales declining steadily and the business is considering what to do with the product. It is the result of extension strategies not working out to sustain the life of the product.
There are less and less customers interested in buying the product due to new technology, changing tastes and fashion, newer competitors’ products causing declining sales and profits. While the business needs to incur the cost of maintaining the product on the market. This causes unit costs to increase with declining production following lower demand.
Prices are reduced gradually or even plummet to generate any sales possible. Consequently, will lower sales, lower prices and higher costs, profit falls and cash flow becomes less favorable. Investment in the product must be cut at this stage and promotional spending is cut too.
Finally, the product eventually becomes unprofitable due to lower customer demand. The product outlives its usefulness and outgrows its value. Companies stop production and the product is withdrawn from the market in the end. Especially, when the cost of supporting starts to rise too far.
$ WHO ARE THE CUSTOMERS? Consumers who buy at this stage are called ‘laggards’.
! SALES REVENUE: During this stage sales start to fall and sales revenue is declining.
* ACTIONS TO TAKE AT THE END OF THIS STAGE: The business has three options what to do with products which are in the decline stage:
- Maintain the product. This requires giving hope that competitors will exit the market. Rejuvenate the product by adding new features and finding new uses. This decision will be made after extensions strategies worked out fine.
- Harvest the product. Reduce marketing support and coast along until no profit. This decision might be made when product replacements are not ready yet to enter the market.
- Discontinue the product. Shut it down and withdraw the product from the market entirely. This decision will be made after extensions strategies failed, or fashions and trends did not come around again.
The decline stage is the final stage of Product Life Cycle (PLC) before the product enters into the elimination stage – the withdrawal and death of the product. The product might be so obsolete that the only option is replacement – new replacement models are available on the market. In reality, new products are usually launched before the previous product enters into the decline stage. This helps a firm to maintain its cash flow situation.
After reading this article, you should now have sufficient knowledge of the different stages of Product Life Cycle (PLC). You should also be able to draw and interpret a Product Life Cycle (PLC) diagram as well as understand the significance of the six main stages of the life of a product.
