The Product Life Cycle
The product life cycle shows the different stages that a product passes through over time and the sales that can be expected at each stage.
- During this stage the product is being researched and designed.
- During the development stage it is likely that the business will spend to develop the product and costs will be high, as there are no sales there will be no revenue coming in.
- At this stage of production, the product will be launched.
- As the product is new to the market, sales initially are often slow. Costs are incurred when the product is launched.
- As the business is likely to spend on promotion to make consumers aware of the new product it is likely that the product won’t be profitable
- As a result of this prices may be set high to try and cover these costs, they could be set low however to allow the product to break into the market.
- Once a product is established and consumers are aware of it, sales may begin to grow rapidly, new customers will begin to buy the product and there are also repeat purchases.
- Unit costs may fall as production increases.
- If it is a new product there is a rapid growth in sales, competitors may launch their own versions. This can lead to a slowdown of the rise in sales.
- Businesses may need to consider their own prices and promotion.
Maturity and saturation
- At some stage the growth in sales will level off.
- The product has been
- established with a stable market share at this point.
- Sales will have peaked and competitors will have entered the market to take advantage of profits.
- As more businesses enter the market it will become more saturated.
- During the maturity and saturation stages of the product life cycle, many businesses use extension strategies to extend the life of their product.
- For most products, sales will eventually decline.
- This is usually due to changing consumer tastes, new tech or the introduction of new products.
- The product will lose its appeal to its customers.
- At some stage it could be withdrawn or sold to another business.
- It may still be possible to make a profit if a high price can be charged and little is spent on promotion or other costs