Chapter 9
Product life cycle
Every product goes through a ‘life cycle’, from introduction to growth to maturity and then decline. By understanding this life cycle, and where a particular product lies on it, you can make better decisions about how to market it.
When to use it
- To decide how to position a specific product, and how much money to invest in it.
- To manage a portfolio of products.
- To decide how to launch a new product.
Origins
Like so many management concepts, the product life cycle had been recognised informally before it was discussed in an explicit way. One of the first articles written on the subject was ‘Exploit the product life cycle’ by marketing professor Ted Levitt in 1965. The purpose of this article was to argue that your marketing strategy should vary depending on the stage in the life cycle of your product. Many subsequent studies picked up and extended Levitt’s ideas.
There have also been many variants on the product life cycle theme. For example, in the sphere of international business, Raymond Vernon argued that multinational firms would often create a new product in a developed region, such as the USA or Europe, and then as it matured in that region it would gradually be rolled out in less-developed countries. Researchers have also studied the industry life cycle (that is, the pattern of growth and decline for the entire set of providers of a product category, such as personal computers), and they have studied the life cycle of diffusion (focusing on the speed of uptake of a population when faced with a new technology).
What it is
Every product has a life cycle, meaning that it goes through predictable phases of growth, maturity and decline. Older products eventually become less popular and are replaced by newer, more modern products. There are many factors at work in this process – some are related to the features of the product itself, some are more to do with changing social expectations and values. Some products have very long life cycles (such as refrigerators), others have very short life cycles (for example, specific models of mobile phones).
The product life cycle model describes the four specific life-style stages of introduction, growth, maturity and decline, and it suggests that a different marketing mix is suitable for products at each stage. For example, in the early stages of introduction and growth it is often helpful to put in a lot of investment, as it helps to secure revenue later on.
- Introduction: This stage is typically expensive and uncertain. The size of the market is likely to be small, and the costs of developing and launching a product are often very high.
- Growth: This stage involves a big ramp-up in production and sales, and often it is possible to generate significant economies of scale. The budget for marketing and promotion can be very high at this stage, as you are trying to build market share ahead of your competitors.
- Maturity: Here, the product is established, but in all likelihood there will also be a lot of competitors. The aim for the firm is to maintain its market share, and to look for ways of improving the product’s features, while also seeking to reduce costs through process improvements. Margins are typically highest at this stage of the life cycle.
- Decline: At some point, the market for a product will start to shrink. This is typically because an entirely new product category has emerged that is taking the place of this product (for example, smartphones are supplanting laptop computers), but it can also be because a market is saturated (that is, all the customers who will buy the product have already purchased it). During this stage it is still possible to make very good profits, for example by switching to lower-cost production methods, or by shifting the focus to less-developed overseas markets.
How to use it
There are many tactics that marketers can employ at each stage of the product life cycle. Some typical strategies at each stage are described as follows:
Introduction
- Invest in high promotional spending to create awareness and inform people.
- Adopt low initial pricing to stimulate demand.
- Focus efforts to capitalise on demand, initially from ‘early adopters’, and use these early adopters to promote your product/service where possible.
Growth
- Advertise to promote brand awareness.
- Go for market penetration by increasing the number of outlets for the product.
- Improve the product – new features, improved styling, more options.
Maturity
- Differentiate through product enhancements and advertising.
- Rationalise manufacturing, outsource product to a low-cost country.
- Merge with another firm to take out competition.
Decline
- Advertise – try to gain a new audience or remind the current audience.
- Reduce prices to make the product more attractive to customers.
- Add new features to the current product.
- Diversify into new markets, for example less-developed countries.
Top practical tip
The product life cycle model does a good job of describing the stages a product goes through, but it is not definitive. There are many products out there (such as milk) that have been mature for decades, and there are also other products (such as laptop computers) that moved quickly from growth to decline without spending much time in the mature stage.
So to use the product life cycle in a practical way, it is useful to think through the different trajectories a product might take. For example, is it possible to ‘reinvent’ a mature product in a way that gives it additional growth? In the mid-1990s coffee was clearly a mature product, but Howard Schulz created Starbucks as a way of revitalising coffee and turning it into a growth product.
Another way of using the product life cycle is to think in terms of the portfolio of products your firm is selling. As a general rule, products in the introduction and growth phases are cash-flow negative, while those in the maturity and decline phases are cash-flow positive. So, having different products at multiple stages provides some useful balance.
Top pitfalls
One of the pitfalls of the product life cycle is that it can be self-fulfilling. If you are a marketer and you see a product approaching its decline phase, you might decide to stop actively marketing it, and this inevitably will lead to the decline of that product. Alternatively, you might believe the product should receive additional investment, but then struggle to persuade your boss, who is in charge of the entire portfolio of products.
Good marketers therefore draw on a variety of data to help them decide which stage a product is in, and whether that phase might be prolonged – perhaps through a fresh marketing campaign or by enhancements to the product.
Further reading
Day, G. (1981) ‘The product life cycle: Analysis and applications issues’, Journal of Marketing, 45(4): 60–67.
Levitt, T. (1965) ‘Exploit the product life cycle’, Harvard Business Review, November–December: 81–94.
Vernon, R. (1966) ‘International investment and international trade in the product cycle’, Quarterly Journal of Economics, 80(2): 190–207.