Introduction
The product lifecycle theory is not a new concept; it has been implemented in the product market for a long time. The significance of the product lifecycle theory is manifested through the number of studies, which have been conducted to understand its concepts. For instance, Mullor-Sebastian conducted a study, which intended to test the product lifecycle theory using three empirical tests. In his study, Mullor-Sebastian (95) states that developed countries are internationally competitive when it comes to growth products while less developed countries are competitive in mature products.
Mullor-Sebastian’s tests for the product lifecycle theory are based on world production data series, which are relatively new but long enough to classify products as being in the growth and maturity stages. Puzzled with the characteristics of product lifecycle, Holland published a report of several characteristics of product lifecycle theory. In his report, Holland (par 1) provides that, as leaders in the business world, part of human job is to develop strategies, which will put organizations in positions where they are going to succeed. However, for one to accomplish this task, he will be required to grasp the knowledge on how things operated in the product market and how these things are going to operate in the future.
Although they come from different perspectives, Mullor-Sebastian and Holland have established the importance of product lifecycle theory. The significance of the product lifecycle theory is embedded in the fact that it helps market leaders to gauge the stages of a product maturity and its corresponding industry. Although it is mostly mentioned in academic fields more than the actual product market, the product lifecycle theory helps to understand the course of product innovation as well as diffusion, which can easily be traced to an international value of the product. This paper provides a general discussion of product lifecycle, its characteristics and how it is implemented in the market. The paper will also provide some limitations of product lifecycle theory.
What is Product Lifecycle Theory?
Product lifecycle theory was first introduced in 1965 by Theodore Levitt in one of his Harvard business review articles (Yoo 650). In his article “Exploit the Product Lifecycle”, Levitt tried to put forward the true meaning of product lifecycle. In his own words, Levitt described product lifecycle theory as the “time line that exists between a product launch and the instant in time the product is taken out of the market” (Yoo 650). This theory is applicable to new products in the market until the time the products are abandon as dated products. The product life cycle theory provides that, a product lifecycle, or what many people will term as PLC, is segmented into four states, which are used to mark the entry and exit of a product in a particular market (Yoo 650).
According to Holland (par 2), when a company is developing a marketing mix plan for its product, it is essential for the company to understand the four stages, which are spelled out in the product lifecycle theory. This will allow the company to have a much better chance of capturing market share efficiently. Other than grasping the ideas contained within the four stages of product lifecycle, Holland (par 2) states that, companies need to solidly understand different characteristics of the product lifecycle and how they might influence the company’s products in the market.
The Four Stages of Product Lifecycle
Markgraf (par 1) acknowledges the fact that product lifecycle theory segments the market of a product into four stages, which are the introduction stage, the growth stage, the maturity stage and finally the decline stage. However, when a company bases its product lifecycle on sales volume, then introduction and growth stages are combined to create one stage (Markgraf, par 1). This concept is mostly applied to products that are available in the international arena, whereby the remaining stages includes the effects of foreign product and outsourcing.
A product that tends to grow rapidly within its home market is likely to experience saturation as low wage countries are likely to imitate it and floor the international market. This concept causes the product to decline while still new. However, for products that are better or possess new features, repeating the cycle is an easy task. The four stages of product lifecycle are discussed below.
Introduction Stage
After completing the market survey, a company will begin a raid application of the product lifecycle theory by examining the demands of the product in that particular market. This stage includes a texting phase, which allows an iteration of the product as well as product perfection with the use of a number of promotional strategies (Yoo 650). This helps the first stage of product lifecycle theory to gain its shape. According to research and information obtained from the product lifecycle concepts, the introduction stage is not a profit making stage, but a stage that helps the product producer to find faults and make amendments. If the product company find faults with the product, it is possible that the product will be withdrawn from the market to minimize losses (Yoo 650).
Growth stage
According to the product lifecycle theory, nurturing of the product to ensure its growth in the market follows the introduction stage. However, this stage comes after the producer has gained a steady clientele and has his product has started generating stable revenue. In this stage, the company is required to start building its brand and ensuring that its customers remain loyal to the product by strongly printing its brand in the mind of the customer (Markgraf, par 3). This stage of product lifecycle is mostly about generating revenues, which will only come from speedy sales.
Maturity Stage
At this stage, the product’s survival is tested in the mean market. Also, the company’s brand and how it is going to emerge and carve its one niche in the market and among the market competitors is also tested. At this stage, demand is likely to level off while sales volumes increase at a rate that is much slower. Products that were introduced in foreign markets will be hampered by imitations, which is likely to cause their export to decline. Many companies are forced to reduce their prices in order to maintain their position in the market (Markgraf, par 4). Profit margins are likely to decrease. However, the business for this product remains high since volume of the product is high while development and promotion costs are lower (Markgraf, par 4)
Decline Stage
According to the product lifecycle theory prediction, a product decline as well as the plummeting profits of the product will result in new efforts (Markgraf, par 5). There are three outcomes, which have been suggested by the product lifecycle. These are withdrawal, conduction of product costs and tapping into new markets. According to Markgraf (par 5), many companies are forced to discontinue the product when the product is phased out. This stage is also hampered by imitations, which appear to be as good as the original product.
Characteristics of Product Lifecycle Theory
Understanding the four stages of product life cycle is not enough for one to create a product that will become a product leader. It is essential to understand some of the characteristics that are contained within the product stages. These are identified below.
Introduction stage
How a product is introduced in the market is essential, and will tell if the product will survive or suffer. Some of the characteristic that one should consider are:
- Sales volume will be low since extremely few people are aware of the product.
- Negative profits will be generated as a result of low sales volume per customer high cost.
- Lack of competition.
- This stage acts as an education stage about to the product.
Growth stage
At this stage, the sales volumes of the product are expected to increase. Some of the characteristics to consider in this stage are:
- Sales volume should increase rapidly.
- Cost per customer decreases since more people are becoming aware of the product.
- Increase in profitability due to lower customer costs.
- Competition will stage to emerge as other companies are likely to enter the market with similar products.
Maturity Phase
At this stage, most companies are likely to see their sales volume leveling out. Some of the characteristics to consider at this stage include:
- Cost per customer should be low due to large volume sales.
- Profitability of the product is required to be at its peak.
- There is stable competition from other companies.
Decline Stage
This stage sees the product sales volume declining either at a slower rate or at a faster rate. Some of the characteristics that mark this stage include the following:
- Decline in product sales volume even though per customer costs is relatively low.
- Decline in product profitability.
- Competitors are starting to leave the market.
Limitations of Product Lifecycle Theory
According to Yoo (644) the product lifecycle theory has not been able to predict accurately when and how the nature of competition in the market is going to shift. As a result, this limits the product lifecycle theory’s usefulness as a tool to be used for business strategy. The inability of this prediction according to Yoo (644) has forced people to use other means such as the adoption of regulatory policies to predict the nature of competition they should expect in the market.
Another limitation of product lifecycle is that, its concepts are centered on tangible products. Intangible products, which are mostly considered as services are not mentioned in this theory, which make the theory to be limited when it comes to introduction and provincial of services in the market.
Conclusion
Although product lifecycle theory has its limitation, which bars it from being used as effective tool for business strategy, its concepts are applied widely in the product market. Many companies that produce and sell product apply product lifecycle theory, which has helped them to create market capitalization and become leaders in their markets. However, the most essential thing to consider is that, products that sold in the international market combines the introduction stage and growth stage thus having only three stages.
Works Cited
HOLLAND, KRISTI. Characteristics of The Product Life Cycle. 2011. http://www.thebeckon.com/characteristics-of-the-product-life-cycle/. 29 12 2012.
Markgraf, Bert. The Three Stages of the International Product Life Cycle Theory. 2011. http://smallbusiness.chron.com/three-stages-international-product-life-cycle-theory-19364.html. 29 12 2012.
Mullor-Sebastian, Alicia. "The Product Life Cycle Theory: Empirical Evidence." Journal of International Business Studies, Vol. 14, No. 3 (1983): 95 - 105.
Yoo, Christopher S. "PRODUCT LIFE CYCLE THEORY AND THE MATURATION OF THE INTERNET." N O R T H W E S T E R N U N I V E R S I T Y L A W R E V I E W, Vol.104, No.2 (2010): 641 - 670.
