A product’s life cycle portrays the length of time a product is in the market; from the beginning of its
introduction to consumers until it is removed from shelves and phased out. This cycle is often divided
into four phases: introduction, growth, maturity, and decline. Depending on the relevant stage,
companies will set an according strategy to achieve their desired targets. Pricing and promotions play
a pivotal role in the design of these product life cycle strategies. Therefore, product life cycle
management, the process of strategizing ways to continuously support and maintain a product, is
seen more and more at pricing mature players and could bring real value to your company.
Introduction phase: during the introduction phase, the new product is introduced to consumers and
a substantial amount of money is invested in advertising and marketing campaigns to bring
awareness of the product to the customer. In this phase competition is low, but units sold will also
correspondingly be quite low as well still. Consumers need to be convinced of the benefits of the
product. Lots of articles never make it beyond this phase: e.g. 3D televisions.
Profits in the introduction stage tend to be low or there may even be a loss. This is because the cost
of marketing to establish product awareness plus distribution costs can be far higher than the
revenue received from sales. This can be offset to a degree by 'skimming' price in the very early
stages. Skimming a price is where a business charges the highest price that it thinks the market will
bear initially until product recognition brings in other buyers and then the price drop.
Growth phase: when it’s shown there is proven demand for the product and consumers are buying it,
the next stage will be its growth phase. This phase is punctuated by increasing demand, increas-ing
production and an increase in the competitive landscape. Availability of the product is under-
standably paramount during this phase, going out of stock is unthinkable during the growth period.
The electric car is an example of a product that is currently in the midst of the growth phase.
Maturity phase: normally the maturity phase is the phase that is characterized by declining
production and marketing costs due to synergies and economies of scale. During this phase the first
signs of market saturation occur and most consumers or households already own the product. Sales
numbers still grow, but at a slower pace. In the maturity phase, price competition becomes intense,
a broader range of distribution channels are deployed and competition is more focused on
competitive pricing, marginal product differences or the difference in services or promotions. This
period in the PLC is often said to be the ‘cash-cow period’.
That being said, the idea of ‘Maturity from the start’ also exists. This occurs when a brand decides to
launch a product extension and directly follows up the maturity phase of an earlier version of the
product. For example, the iPhoneX followed up from the ‘normal’ iPhone-series and therefore the
iPhoneX never had to undergo the introduction or growth phase, but immediately started in its
maturity phase.
Decline phase: the final phase of the PLC is entered once the product loses market share to other,
newer products and the competitive landscape becomes too hard to survive. During this stage, de-
mand declines, companies are left with overstock with prices and margins getting depressed.
Therefore retailers and brands normally start stunting with promotions during the decline of the PLC
to sell their final stock.
A well-known example of a product that has been through the decline phase were the Nokia phones;
sales results dramatically decreased after the introduction of the iPhone.
Reference:
- CIPS study guide page 90
- Adjusting your Pricing Strategy to the Product Life Cycle Stage (omniaretail.com)
- Price Skimming Definition (investopedia.com)
LO 2, AC 2.2
