What is a Product Life Cycle? How it Affects Your Business Explained
Everything has a shelf life. Whether it’s a car, your phone, exercise equipment, or any number of products — eventually its use and sales potential will run dry. That’s because anytime that a product enters the market it follows a specific life cycle that every product follows.
A life cycle that takes it from being introduced as the next big thing, to something that everyone has and eventually everyone has forgotten about. This process is constant, meaning that every business needs to be aware of how it works and how it can affect their products. Let’s take a look at the ins and outs of the product life cycle is and how you can leverage it to manage your business.
What is a product life cycle?
The product life cycle is the length of time from when a product is introduced to the consumer market up until it declines or is no longer being sold. This cycle can be broken up into different stages, including—development, introduction, growth, maturity, saturation, and decline. The life cycle of a product is typically used to determine when it’s appropriate to increase advertising, adjust pricing, explore new markets, redesign packaging and even adjust your messaging.
What are the stages of the product life cycle?
Each stage has its costs, opportunities, and risks, and individual products differ in how long they remain at any of the life cycle stages. While there are differing opinions regarding if there are four, five, or six stages of the product life cycle, each option includes the following steps.
1. Development
The product development stage is the research phase before a product launch. Technically, this falls outside the definition of the product life cycle, but it’s a vital step to be aware of. In short, it’s used to determine the viability of a product, confirm when it should go to market and how to approach your official launch.
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.
Existing companies often fund research and development from revenue generated by current products. For startup businesses, this stage is typically funded by the entrepreneur from their own personal resources. For those developing a new product, it may be wise to land on a minimum viable product (MVP) as early as possible.
This can be as minimal as a sketch or as complex as a sample or prototype version of the product itself. You just need enough to show how your product will work to potential investors and customers. The earlier you can validate its market potential, the more likely you’ll be to land investment and launch.
2. Introduction
The introduction stage is when your product is first launched in the marketplace. It’s where you step beyond the product itself to develop a market for the product and build product awareness. Here, you’ll work to carve out a target market, conduct a market analysis to understand the competitive landscape, and ideally land your first few sales.
Marketing costs are high at this stage, as it is necessary to reach out to potential customers. The best approach when promoting a new product is to focus on testing distribution channels and messaging. While your advertising budget may be hefty, you can strategically leverage it to identify marketing channels that lead to higher conversions.
This is also the stage where intellectual property rights protection is obtained. Depending on your market position, product pricing may be high to recover costs associated with the development stage. It also may be lower, meaning you’ll initially be running at a loss until you gain traction. This is where landing initial funding efforts and mapping out your cash runway are vital to the success of your product.
3. Growth
In the growth stage, the product has been accepted by customers, and you are now striving to increase market share. That means that demand and revenue are growing, ideally at a steady rate. How long you achieve steady growth fully depends on your product, the current market landscape, and the adoption rate of customers.
If you’re entering an already crowded market with a product, you’ll likely see competitors react fairly quickly. If you’ve entered a market with less competition or are first to market in a breakout industry, you’ll likely see a slower response by new or current entrants.
In either case, your response during this phase is to fine-tune your messaging, solidify your brand presence and expand into new distribution channels. This also may be the time to consider adding additional services to support and further differentiate your product. Things like support services, add-ons, or insurance packages are just a few options to consider. Having these additions available, or at least in progress, can better help you react to competitors and extend the return on investment (ROI) from a given customer.
4. Maturity and saturation
The mature stage is when sales will level off. This doesn’t mean you aren’t still growing, you just won’t see the same level of rapid growth as before. Typically at this point, you will begin to lower prices, offer free additions or make other adjustments to keep your products competitive.
At the same time, you’ve also become more efficient. Production costs tend to decline, costly mistakes in the manufacturing process can now be avoided. Even your marketing expenditure is likely more refined and effective at this stage. So, while you may not be growing in volume, you’re likely at your most profitable in this stage.
However, it’s worth remembering that your competitors have likely now solidified their own offerings in this stage. This means that they have taken a portion of the market, further leading to the flattened growth of your own product. Most consumers are likely already using a version of your product and have begun developing brand preferences.
This is when any adjustments to advance your product or the services that accompany it, should be made. If you’ve hit the point where any real adjustments simply aren’t possible, then your messaging, services, and add-ons should take full focus.
You may only be able to make incremental changes but can still look to market it as a refresh accompanied by new features or benefits. Video game consoles are a great example of this, where incremental updates to hardware are often touted to sell new consoles. The Nintendo Switch OLED edition is the latest example, where the only update is a new, slightly larger, and crisper screen.
5. Decline
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:
- Discontinue the product
- Sell the manufacturing rights to another business
- Find new uses for the product
- Tap into new markets
It’s at this stage, where you’ll really need to weigh the costs and benefits associated with each option. Are you really capable of revising the product? Are there other features you simply haven’t tapped into? Is there a market you haven’t looked into that could benefit from your product?
If you can, look to run different forecasting scenarios during this time to see what each decision could lead to depending on product performance. Hopefully, you have other products to help support your business when one declines. Ideally, you’ll have multiple products or iterations running at different points in the product lifecycle.
How do you know what stage your products are in?
There’s no guarantee how long a product will stay in a given stage. This can make it difficult to know what stage you’re in and when you’ve entered the next one.
Knowing the characteristics of each stage can help you better identify your current position. However, it’s often easier to look back at performance to determine where your business is and where it’s headed. You can leverage this actual performance to then help paint the picture of what to expect in the future. In fact, you can tie this exercise into your financial forecasts and compare them directly to your financial statements.
This process will ensure that you are always considering what comes next. It will give you a more informed perspective of the future, while also helping you avoid poor strategic decisions. This will also help you better understand the value of a given stage, making it far easier to apply the same methodology to other products.
How to use the product life cycle to manage your business
Knowing what stage you’re in can effectively help you develop a strategy for your product. As we explored above, the stage has just as much influence over your decisions as it does sales performance. Here’s how you can leverage your understanding of the product life cycle to manage and grow your business.
Establish authority
During the introduction stage, you can look to position your product as the cheaper, better, or any number of benefits over the competition. This is when you not only establish the brand for the product but your business as well.
Do you want to be known as the low-cost alternative? The eco-friendly or local solution? Or maybe you want to focus on your company mission and how your business operates.
Whatever the case, this is the stage where you solidify how you stand apart.
Set a pricing strategy
Each stage has a potential impact on your pricing. The introduction stage is all about positioning against competitors and trying to offset development costs. Growth can go any number of ways depending on availability, additional features, support, and other benefits. Maturity and saturation may be directly impacted by competitors, leading to further advancements and price decreases.
The decline stage will almost ensure a price decrease or a return to the introduction stage with a new version of the product. This will start the pricing conversation all over again, with the performance of the original product directly influencing your initial price position. The better you understand where your product sits in the cycle, the better you can prepare and adjust pricing when necessary.
Create a marketing strategy
The performance of a product can directly depend on how well you market it. Thankfully, each stage helps you test and refine your marketing strategy. During the introduction stage, you’re exploring different channels, testing different ad mediums, and working to connect with a target audience. The growth stage is when you’ve refined your channel selection, found winning copy, and streamline your spending.
The maturity and decline stages are another opportunity to test new channels and adjust your strategy. Maybe you introduce a blog, try selling the product on a channel you avoided with new messaging, or further test copy and image variations to increase your return.
In any case, each stage presents more opportunities to research and test new concepts that help solidify your marketing strategy.
Extend or vary product use
Knowing the stage your product occupies and what comes next can help you better prepare to make adjustments. For example, if you’re in the growth stage and begin to see signs of maturity or even decline, you can begin exploring ways to extend the value of your product. As we’ve said before, this could involve doing a refresh, adding on additional services, or looking to tap into adjacent markets.
What factors affect the product life cycle?
How you choose to create, position and market your product are all elements under your control in the product life cycle. However, it’s worth noting that there are external factors that can directly influence how well your product performs and how long it sits in a given stage.
Ease of entry
How competitive the market you’re entering a product into can directly influence its success or failure. It can also influence the number of competitors that attempt to enter the market. If barriers to entry (number of competitors, expenses, market size, technology) are low the product life cycle is more likely to be short. If they’re higher, making entry more difficult, you’re more likely to see an extended product life cycle.
Advancements in technology
If you’re working within an industry or country that experiences a rapid rate of technological advancement (ie. phones, computers, etc), the life cycle of your product is likely very short. On the other hand, some products, locations, and industries only experience limited advancement, meaning that a single iteration may be relevant for far longer.
The key here is to understand how quickly technology changes, what changes are relevant for consumers, and when an iteration will be necessary to stay competitive. A good example of this in action is the screen resolution of televisions.
While some, incredibly expensive models, can achieve 8K resolution, the majority of sales and support are focused on 4K resolution. Depending on your market position, it may make sense to be the market leader and focus on high-end sales. On the other hand, if you deal in mid-range televisions and monitors, it likely makes more sense to keep your products at 4K output with a few options for 8K to test if it’s relevant.
Rate of market acceptance
Continuing the tv example, the lifecycle of your product also depends on how quickly it’s accepted by consumers. 4K televisions have been available for years at this point, but are only now becoming the baseline. This is due to not only the price of earlier models, but support by streaming services, consoles, traditional cable, and other hardware manufacturers.
This has led to a somewhat lengthy product life cycle. The introduction stage took years for it to officially become accepted by the market. Additionally, the promised replacement of 8K is potentially years away, meaning that the growth and maturity stages might be even longer.
It’s often viable to explore historical life cycles to see what the acceptance rate may be. And keep in mind that the benefits of a longer or shorter life cycle fully depend on the stage. If it sits in the introduction stage for too long, you may not see an effective return to cover expenses. However, if you expect it to break into a lengthy growth stage, it may be worth it.
Economic forces
The actual state of the economy can directly impact the duration of a product life cycle. A sudden dip, brought on by a global pandemic, for example, may stretch out the introduction phase due to less or selective spending by consumers. On the other hand, the recovery of a financial crisis can also shorten an introductory and even growth phase due to a mass increase in spending.
This is a very broad example, and it fully depends on your target audience, the impact on your industry, etc. Just keep an eye on market trends and note any changes to ensure you’re prepared to adjust accordingly.
Keep your product life cycle in mind
Understanding the product life cycle is a vital part of managing and growing your business. It can help you devise a more detailed roadmap for your business, make better strategic decisions and even help you create more accurate financial forecasts. If you’ve created a business plan make sure that exploring your market position is part of your regular plan reviews. You’re likely already looking into everything involved in the product life cycle, but it’s well worth taking the time to solidify what the position of your product is on a regular basis.
