Product-Life-Cycle (PLC)

The Product Life Cycle (PLC) is a marketing framework that helps visualizing and understanding the sales evolution of a product category over time. Because just like humans, products have a life cycle in which they get ‘born’ and ‘die out’ eventually. That life cycle can be illustrated using a graph representing the sales from the moment a product category enters the market up until its exit. The curve is normally S-shaped and breaks down product sales over time into four discrete segments or phases: Introduction, Growth, Maturity, and Decline. This framework should not be confused with the Technology Adoption Life Cycle which is related to the Product Life Cycle, but focuses on analyzing consumer behavior instead. In this article, we will go through each phase one by one:

Figure 1: Product Life Cycle

Introduction

In the Introductory phase, the growth rate and the size of the market are low, since the product category is new and often still unknown to the mainstream market. Sales volume increases slowly, because of the lack of marketing efforts and the reluctance of customers to buy the products. In this phase of the Product Life Cycle, there is usually just one company that offers the product in the market: the pioneer of the category. The pioneer often has two choices in terms of its pricing strategy during the Introduction phase: entering with a high price and creating a narrow market (Skimming) or entering with a low price and build market share through a broader market (Penetration Pricing). If the pioneer is successful in building demand or the product category appears attractive to other companies, the sales in that specific category will increase. Thereby entering the growth phase.

Sales: Low

Investments needed: Very High

Competition: None to Little

Profits: Low

Growth

During the Growth phase, the market grows rapidly at first and then begins to slow down. The Growth phase is therefore typically characterized by two different market behaviors: Early Growth is the phase directly following the Introduction phase in which sales growth is steepest. From this ‘Take-Off’-point, sales may even grow exponentially. However, because of the increased demand for the product category, competition at this point also intensifies heavily as new competitors introduce similar products with distinctive features for competitive prices. Finally, the product enters the Late Growth phase in which sales begins to flatten out as the market begins to saturate. When the market growth becomes flat, the Maturity phase has been reached.

Sales: High (Growing)

Investments needed: High

Competition: High

Profits: Moderate

Maturity

In the Maturity phase, the sales curve has flattened out and few new buyers are in the market. Finding new market segments that are still untapped is difficult. During this phase, competition is usually most intense. Some of the earlier entrants have dropped out because of the increased competitive landscape: the ‘Shake-Out’. The ones still standing however, normally have substantial resources and are attempting to steal market share from each other. The remaining companies’ goal during this phase is therefore to maintain market share rather than gaining market share. The Maturity phase is also the most profitable phase for the companies that have outlived earlier competition, since the need for investments have declined and economies of scale have reduced variable production costs significantly.

Sales: High (Stagnating)

Investments needed: Low

Competition: High

Profits: High

Decline

At some point, the market begins to decline as customer needs are better served by new more innovative substitute products or simply because everybody in the market has the product already in its possession. For companies this means that product sales fall and profitability decreases. As the market shrinks, more and more companies have trouble surviving. Companies need to decide whether to continue investing in the product category or to withdraw.

Sales: Low (Declining)

Investments needed: Low

Competition: Moderate

Profits: Low to Moderate

Figure 2: Product Life Cycle x BCG Matrix

Product Life Cycle and the BCG Growth-Share Matrix

While reading the aforementioned, you might notice some parallels with the stages that strategic business units (SBU’s) go through in the BCG Matrix. This is no coincidence since the creator of the BCG Matrix, Bruce Henderson, has used the Product Life Cycle stages as a source of inspiration for his portfolio framework. Question Marks are SBU’s with product categories in the Introduction phase, Stars are SBU’s in the Growth phase, Cash Cows are SBU’s in the Maturity phase and finally Dogs are SBU’s in the Decline phase of the Product Life Cycle.

Figure 3: Product Life Cycle with Product Extension

Product Extension: Extending the Product Life Cycle

Part of good strategy and business growth is to overcome the decline of a product category. A product can be given a new ‘boost’ by introducing product extensions and new features that enthuse customers to keep buying the product. This way companies can extend a product category’s lifetime and increase sales once again. Apple and Samsung are constantly doing this by introducing new versions of their flagship smartphone products every year. Other ways to extend the Product Life Cycle of a certain product category are: increased advertising, expanding to untapped markets, price reductions and promotions. If all options are taken without satisfactory results, it is sometimes best to conclude that the product has become obsolete and that the company should look for new products to develop and new markets to explore.