The four stages of the product life cycle

When you launch a new product on the market, you are sending it on a journey. In most cases, its per­for­mance is neither constant nor linear. So, how does it evolve? Sci­en­tists have observed the evolution of how products perform on the market and in doing so have iden­ti­fied different stages which virtually every product will go through. If you want to be able to predict how a product will evolve, how it will perform on the market and how its profits will change over time, you should be familiar with the product life cycle model.

Being able to predict a product’s life cycle and its different stages enables companies to plan more reliably and even sometimes avoid un­pleas­ant surprises.

The product life cycle is a business ad­min­is­tra­tion term which is applied more generally rather than to in­di­vid­ual products. It is not about the longevity of a single item but rather about how a product group or service will evolve on the market over a long period of time. Products go through four stages from their in­tro­duc­tion onto the market to their decline.

The product life cycle has a strong effect on revenue and thus also on a company's profits. Therefore, it is important to address this before launching a product on the market. In addition to man­age­ment and con­trol­ling, the product life cycle also affects the company’s marketing. When you are familiar with the different stages and know which stage your product is in, you will be able to allocate your resources more ef­fec­tive­ly. The product life cycle should thus also influence which marketing tools a company chooses to use during the different stages.

A new product’s in­tro­duc­tion on the market begins on the date when customers can purchase it. This means that only a few, if any, potential customers have heard of the new product. Therefore, the focus of this stage is in­creas­ing awareness. This also means that the company must allocate the necessary resources (i.e. budget and personnel) to make the launch as suc­cess­ful as possible.

As a result, launching a product on the market is quite costly. In addition to spending a lot of money on marketing, the new product usually won’t generate much revenue during the in­tro­duc­tion stage meaning little to no profits. So it’s important to obtain pre-financing. Typically, the price of the product is kept rel­a­tive­ly low during this stage to appeal to more customers.

The end of the first stage can be iden­ti­fied by the

break-even point

. When the revenue from the product’s sales exceeds its costs of pro­duc­tion, the product has reached the growth stage. If this point is never reached, the product launch is con­sid­ered a failure, and it will disappear from the market, sometimes along with the company.

After the product’s in­tro­duc­tion on the market, it enters the growth stage. During this stage, there is a steady increase in the quantity sold and therefore in revenue. As a result of the marketing done in the first stage, a growing number of people have learned about the product and are now buying it. However, you must not rely too much on the impact made by the initial marketing. Even in this stage, the product needs to continue to be strongly promoted so that its growth does not slow down too soon and so that the rise in its per­for­mance curve is not too flat.

Meanwhile, com­peti­tors are usually becoming aware of the product during this stage. This leads to two different problems:

• Price wars: Com­peti­tors with similar products on the market lower their prices to minimize their loss of market.
• Im­i­ta­tions: The new product is imitated, and the im­i­ta­tions compete with the original product by offering lower prices or better/ad­di­tion­al functions.

The product has already es­tab­lished itself in the maturity stage. There is very little growth in revenue, and it reaches its peak. Typically, this stage lasts the longest and generates the greatest profits. This is also when the product will have to face its toughest com­pe­ti­tion. To prevent this stage from ending too soon, companies can take a variety of measures:

• New versions of the same product can help maintain interest and give it a com­pet­i­tive edge.
• Marketing during this stage focuses more on product dif­fer­en­ti­a­tion and less on actual in­no­va­tion.
• They are now able to wage price wars them­selves.
• Since they are already es­tab­lished on the market, they can use many dis­tri­b­u­tion channels and win over more customers by being widely available.

Even­tu­al­ly, a time comes when the company is no longer making a profit from the product. This stage can often be iden­ti­fied by the fact that not only are their products selling less but their entire market has shrunk. At this stage, marketing is no longer effective. Al­ter­na­tive­ly, companies have two options:

• Product elim­i­na­tion: The obvious solution is to take the product com­plete­ly off the market and focus on a new product line. Removing a product from the market is not admitting defeat. It is a cal­cu­lat­ed and necessary step. This ends the product life cycle.
• Further de­vel­op­ment: Some companies are able to introduce a com­plete­ly new version of the product with other functions on the market. This might allow them to reach a new market and target group. It is possible for the new version to go through the product life cycle again.

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