Assess the maturity of a product and its financial implications through the Product Life Cycle

The product life cycle is a way to map the common stages a product undergoes throughout its lifespan. The product life cycle is typically divided into 4 different stages, each having specific strategic decisions affecting profits and revenues:

(1) Introduction: In the first phase, the product is introduced. Normally at this stage there are a few competitors and customers. Therefore, sales and profit are low and the risk that the product will not succeed is high. In order to boost sales the focus lies heavily on promotion activities

(2) Growth: Products that succeed in addressing customer’s needs will lead to an increase in sales. Advertisement is still a key component to promote further growth

(3) Maturity: At this stage the product can be seen as well established and widely accepted within the targeted customer group. Profits are high and risks are low. Typically in this phase, competition increases. To keep the market position and expand this phase, companies often employ strategies such as introduction of complementary or updated products or simply invest in marketing activities

(4) Decline: At this point, the product may not fulfill the current needs of the customers and sales start to decline. The important decision at this stage is deciding when to take the product off market such that the client optimizes financial gains and minimizes losses due to time and investment.

The Product Life Cycle

Implication of the Product Life-Cycle on Profit, Revenue, Competition and Risk

Introduction

Growth

Maturity

Decline

Profit

Low

High

High

Low

Revenue

Low

High

High

Low

Competition

Low

Increasing

High

Decreasing

Risk

High

High

Low

Low

Key Takeaways:

  • The product life cycle describes the 4 phases a product
  • These phases can be divided into Introduction, Growth, Maturity and Decline
  • Each phase has an impact on profit, sales and company’s strategic decisions

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2 Comment(s)
November 09, 2014 12:50 -
Marcus

Instead of subdividing Profits and Revenues I'd rather suggest to substitute Revenues with Costs, since Profits and Revenues are pretty much the same in that respect. Following up on this idea, from my point of view it also makes sense to add a fifth stage to this life cycle - the so calles R&D-Phase. Before your product is ready for the market launch ("introduction") your company usually faces high costs due to necessary investments in staff, equipment and so on. Maybe it's worthwile to depict all this and thereby further develope the given Life-Cycle-Framework.

September 06, 2014 09:28 -
Vivek

It would be good if we could have some sort of a quantitative estimate for the market penetration rate in each of the above stages e.g. 5% of the market share can be achieved in the introduction stage