The life cycle of a product is associated with marketing and management decisions within businesses, and all products go through five primary stages: development, introduction, growth, maturity, and decline. Each stage has its costs, opportunities, and risks, and individual products differ in how long they remain at any of the life cycle stages.
The product development stage is often referred to as “the valley of death.” At this stage, costs are accumulating with no corresponding revenue. Some products require years and large capital investment to develop and then test their effectiveness. Since risk is high, outside funding sources are limited. While existing companies often fund research and development from revenue generated by current products, in startup businesses, this stage is typically funded by the entrepreneur from their own personal resources.
The introduction stage is about developing a market for the product and building product awareness. Marketing costs are high at this stage, as it is necessary to reach out to potential customers. This is also the stage where intellectual property rights protection is obtained. Product pricing may be high to recover costs associated with the development stage of the product life cycle, and funding for this stage is typically through investors or lenders.
In the growth stage, the product has been accepted by customers, and companies are striving to increase market share. For innovative products there is limited competition at this stage, so pricing can remain at a higher level. Both product demand and profits are increasing, and marketing is aimed at a broad audience. Funding for this stage is generally still through lenders, or through increasing sales revenue.
At the mature stage, sales will level off. Competition increases, so product features may need to be enhanced to maintain market share. While unit sales are at their highest at this stage, prices tend to decline to stay competitive. Production costs also tend to decline at this stage because of more efficiency in the manufacturing process. Companies usually do not need additional funding at this stage.
The decline stage of the product life cycle is associated with decreasing revenue due to market saturation, high competition, and changing customer needs. Companies at this stage have several options: They can choose to discontinue the product, sell the manufacturing rights to another business that can better compete or maintain the product by adding new features, finding new uses for the product, or tap into new markets through exporting. This is the stage where packaging will often announce “new and improved.”
Successful manufacturing companies generally have multiple products each at different points in the product life cycle at any given time. More information about how to manage products through each stage of the product life cycle can be found at The American Marketing Association.
Have a question about your small business? You can reach Arlene at email@example.com or leave it in the comments here!
[Down to Business is a weekly small business advice column featured in The World Newspaper, originally published online by the Oregon Small Business Development Center Network, and republished here with permission.]
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