The Product Life-cycle (PLC) is a model that describes the phases through which a product goes based on the sales of a product over the years. This model helps assess the marketing mix needed to allow a product to gain traction over time or avoid market saturation.
Component
Description
Definition
The Product Life Cycle (PLC) is a concept that illustrates the typical stages a product goes through from its introduction to its decline in the market. It helps businesses strategize and make informed decisions about marketing, pricing, and product development based on the product’s current stage.
Stages
The PLC typically includes the following stages: – Introduction: The product is launched in the market. Sales are low as awareness is built. – Growth: Sales and market share grow rapidly as the product gains acceptance. – Maturity: Sales stabilize as the product reaches its peak market penetration. – Decline: Sales decline as the product faces competition or becomes obsolete.
Characteristics
– Introduction: High marketing and R&D expenses, limited competition, low sales, and potential losses. – Growth: Rapid sales growth, increased market share, strong profitability, and intensified competition. – Maturity: Stable sales, saturated market, price competition, focus on cost control, and product diversification. – Decline: Declining sales, decreased profitability, market exit decisions, and potential product discontinuation.
Strategies
– Introduction: Focus on product awareness, pricing strategies, and building distribution channels. – Growth: Expand market reach, improve product quality, and consider pricing adjustments. – Maturity: Innovate, diversify, reduce costs, and target niche markets. – Decline: Manage costs, consider product phase-out, and focus on profitable segments.
Marketing Activities
– Introduction: Heavy advertising, product promotion, and limited distribution. – Growth: Wider distribution, brand building, and competitive pricing. – Maturity: Product differentiation, cost-cutting, and marketing to loyal customers. – Decline: Selective marketing, inventory reduction, and evaluating discontinuation.
Metrics
Key performance indicators (KPIs) for each stage may include sales growth rate, market share, customer acquisition cost, customer retention, and profit margins. These metrics help evaluate the product’s performance and inform decision-making.
Benefits
– Strategic Planning: Helps in long-term strategic planning and resource allocation. – Informed Decisions: Guides decisions related to pricing, marketing, and product development. – Competitive Advantage: Enables businesses to stay competitive and adapt to market changes.
Drawbacks
– Assumption of Linearity: Assumes a linear progression through stages, which may not always apply. – Overlooking Innovations: Can lead to overlooking opportunities for innovation and product improvement. – External Factors: External factors like technological advancements can disrupt the traditional PLC.
Examples
– Introduction: The launch of a new smartphone model. – Growth: The rapid adoption of electric vehicles. – Maturity: The market for personal computers. – Decline: Sales of traditional film cameras.
Applications
The PLC concept is applied in various industries, including consumer electronics, automotive, fashion, and packaged goods, to make informed decisions about product strategies, marketing, and resource allocation. It helps businesses adapt to changing market dynamics.
Continuous Assessment
Continuously monitoring a product’s performance and reassessing its stage in the PLC allows businesses to adapt and implement strategies that align with the evolving market conditions.
Understanding which stages your product might be in is critical to understand the marketing mix to utilize to gain traction and get to the growth stage as quickly as possible.
Or if a product is already in the maturity stage, it helps marketers or managers to assess how to prolong the maturity phase and avoid market saturation.
Thus, PLC managers and marketing strategists can make informed business decisions by understanding the stage a product goes through.
The primary phases of a product life cycle can be broken down in:
In this stage, a company will go through a period of high costs that will be needed to sustain the development and introduction of the product in the marketplace.
At this stage, the sales volume is low, the investment costs are high, there is little or no competition, and demand has to be created by prompting customers to get the product.
Growth Stage
A growth stage is characterized by strong sales, reduced costs, and growing competition.
As the public becomes more aware of those existing solutions, more players enter the market.
Usually, to compete in this phase, companies lower the product price or undertake aggressive growth strategies to gain as much market share as possible.
Maturity Stage
In the maturity stage, costs due to investment in the product are generally lower due to high production and sales volumes.
In this stage, though, sales volumes also peaked at the point of market saturation.
When that happens, a price drop might occur due to competing products. Thus, also profits will be squeezed.
At this stage, branding and differentiation will allow a company to keep generating substantial revenue and retain market shares.
Decline Stage
In the decline stage, due to market saturation, sales volume will decline, and profitability will keep diminishing.
A company must gain back its market share.
Tesla Case Study
To understand the application of the product life-cycle framework in the real business world, let’s take the case of Tesla.
When Tesla entered the market, it did so through a high-performing sports car, which was intended to tackle a tiny segment of the automotive market made of innovators.
This entry strategy enabled Tesla to showcase the EV technology while grounding it in an initial commercial use case.
Only after the release of the Tesla Roadster the company planned the Model S, which was used to tackle a more significant segment of the tech market, made of early adopters.
The Model S was also used by Tesla to enter the early majority market.
After the Model S, Tesla launched the Model 3, which was instead intended to tackle most parts of the early majority and start entering the early majority market.
Which is where Tesla is currently.
The Tesla Model 3 will be critical to reaching most of the late majority market while achieving mass market production, and potentially moving toward the late majority!
Product development, known as the new product development process comprises a set of steps that go from idea generation to post-launch review, which helps companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization and post-launch review.
In his book, Crossing the Chasm, Geoffrey A. Moore shows a model that dissects and represents the stages of adoption of high-tech products. The model goes through five stages based on the psychographic features of customers at each stage: innovators, early adopters, early majority, late majority, and laggard.
A sales cycle is the process that your company takes to sell your services and products. In simple words, it’s a series of steps that your sales reps need to go through with prospects that lead up to a closed sale.
The sales funnel is a model used in marketing to represent an ideal, potential journey that potential customers go through before becoming actual customers. As a representation, it is also often an approximation, that helps marketing and sales teams structure their processes at scale, thus building repeatable sales and marketing tactics to convert customers.
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
A go-to-market strategy represents how companies market their new products to reach target customers in a scalable and repeatable way. It starts with how new products/services get developed to how these organizations target potential customers (via sales and marketing models) to enable their value proposition to be delivered to create a competitive advantage.
An entry strategy is a way an organization can access a market based on its structure. The entry strategy will highly depend on the definition of potential customers in that market and whether those are ready to get value from your potential offering. It alls starts by developing your smallest viable market.
Drawbacks of Using the Product Life Cycle:
While the PLC offers valuable insights, it’s important to acknowledge its limitations and potential drawbacks:
1. Oversimplification:
The PLC model presents a simplified, linear progression of stages, typically including Introduction, Growth, Maturity, and Decline. However, not all products fit neatly into these categories, and some may have more complex lifecycles. Overreliance on this model can lead to misinterpretation and poor decision-making.
2. Inaccurate Timing:
Predicting when a product will enter each stage of the life cycle can be challenging. Many factors, including market dynamics, consumer behavior, and competitive actions, can influence the timing of these stages. As a result, businesses may struggle to align their strategies with the actual stage of their products.
3. External Factors:
The PLC model tends to focus on internal factors within a product’s lifecycle while largely ignoring external forces. Market shifts, economic changes, regulatory developments, and disruptive technologies can significantly impact a product’s trajectory, often independently of its stage in the PLC.
4. Neglects Longevity:
The PLC primarily emphasizes the decline phase, suggesting that products have a finite lifecycle. However, some products, especially iconic or timeless brands, can defy this notion and thrive for extended periods. Focusing solely on the PLC model may overlook these long-term success stories.
5. Limited Applicability:
The PLC model is most applicable to physical products and may not fully address the lifecycles of service-based offerings or digital products. These types of products often experience different lifecycles driven by rapid technological advancements and evolving customer preferences.
When to Use the Product Life Cycle:
The PLC framework is particularly useful in the following scenarios:
1. New Product Launch:
When introducing a new product to the market, the PLC model guides businesses in managing the initial introduction phase. It helps determine the optimal strategies to gain market acceptance and establish a strong foothold.
2. Product Rejuvenation:
When considering updates, rebranding, or relaunching an existing product, the PLC model aids in decision-making. It assists in identifying whether a product should undergo rejuvenation to extend its lifecycle or if discontinuation is the more appropriate choice.
3. Portfolio Management:
For companies with a diverse product portfolio, the PLC can be used to assess the performance of each product. This analysis helps allocate resources effectively, identify underperforming products, and make informed decisions about whether to invest more or discontinue certain offerings.
4. Competitive Analysis:
Understanding where a product stands in its lifecycle compared to competitors’ products provides valuable insights into competitive strategies. It enables businesses to anticipate and respond effectively to their competitors’ moves in the market.
How to Use the Product Life Cycle:
Implementing the PLC effectively involves several key steps:
1. Market Research:
Gather comprehensive data on customer preferences, needs, and behaviors.
Analyze industry trends, competitive landscape, and market dynamics.
Identify potential opportunities and threats in the market.
2. Product Development:
Create a product that aligns with the identified market needs and trends.
Conduct rigorous testing and quality assurance to ensure the product meets or exceeds customer expectations.
Monitor customer feedback and make necessary product improvements.
5. Maturity Phase:
Continue marketing efforts but focus on retention and customer loyalty.
Consider product variations, upgrades, or improvements to maintain competitiveness.
Explore cost optimization strategies as competition intensifies.
6. Decline Phase:
Assess whether the product should be discontinued or rejuvenated.
If discontinuation is chosen, plan an orderly phase-out to minimize losses.
If rejuvenation is considered, evaluate the feasibility and potential for product enhancements or rebranding.
7. Continuous Monitoring:
Regularly track key performance indicators (KPIs) related to sales, market share, and customer feedback.
Stay vigilant for signs of market saturation or declining demand.
8. Adjust Strategies:
Adapt marketing, pricing, and distribution strategies based on the product’s current lifecycle stage and market conditions.
Be agile and willing to pivot if necessary to stay competitive.
What to Expect from Implementing the Product Life Cycle:
Implementing the PLC model can yield several benefits, including:
1. Better Decision-Making:
By understanding the stage of a product’s lifecycle, businesses can make more informed decisions regarding marketing strategies, product development, and resource allocation. This leads to more effective and efficient use of resources.
2. Enhanced Competitive Positioning:
Using the PLC allows businesses to position their products strategically in the market. They can adjust pricing, distribution, and marketing tactics to gain a competitive advantage and respond to competitors’ moves effectively.
3. Improved Product Performance:
Regularly monitoring a product’s lifecycle stages enables timely product improvements and adaptations. This can lead to higher customer satisfaction and loyalty, resulting in sustained or increased sales.
4. Resource Optimization:
The PLC assists in allocating resources effectively by identifying underperforming products that may need less investment or even discontinuation. This optimization can improve overall profitability.
5. Long-Term Planning:
While the PLC primarily focuses on shorter-term product lifecycles, it also encourages businesses to consider long-term strategies for product rejuvenation or extension, ensuring a more sustainable market presence.
6. Market Adaptability:
Understanding the PLC helps businesses adapt to changing market conditions, such as shifts in consumer preferences or technological advancements. This adaptability enhances a company’s resilience and competitiveness.
In conclusion, the Product Life Cycle (PLC) is a valuable framework for understanding and managing the lifecycle of products or services. While it has its drawbacks and limitations, when used appropriately, it can provide critical insights and guidance for decision-making in marketing and product management. By following the steps outlined in this framework and understanding what to expect from its implementation, businesses can optimize their product strategies and navigate the challenges and opportunities presented by the ever-evolving marketplace.
Case Studies
Introduction Stage:
Smartphones: When a new model of a smartphone is launched with innovative features, it enters the introduction stage.
Electric Cars: Electric cars like Tesla’s early models entered this stage when they were first introduced to the market.
Virtual Reality Headsets: VR headsets like the Oculus Rift when they were initially launched.
Growth Stage:
Streaming Services: Streaming platforms like Netflix during the period when they rapidly gained subscribers.
Fitness Trackers: Devices like Fitbit when they became popular among health-conscious consumers.
Organic Food Products: As health-consciousness grew, organic food products entered a growth stage.
Maturity Stage:
Laptop Computers: Traditional laptops have reached maturity as they have become widely adopted, and innovations have slowed.
Soft Drinks: Iconic soft drinks like Coca-Cola and Pepsi have long entered the maturity stage.
Fast Food Chains: Popular fast-food chains have matured and maintain a stable customer base.
Saturation Stage:
Cereal Brands: Most breakfast cereal brands have saturated the market, with little room for growth.
Bottled Water: The bottled water industry has reached saturation in many regions.
Toothpaste Brands: Numerous toothpaste brands have reached a saturation point in terms of market share.
Decline Stage:
VHS Tapes: VHS tapes have declined significantly with the advent of digital media.
Printed Encyclopedias: Printed encyclopedias have become nearly obsolete in the digital age.
Disposable Cameras: Disposable film cameras have largely disappeared due to digital photography.
Renewal or Extension Stage:
Classic Video Games: Classic video games from the 1980s and 1990s often see a renewal when re-released on modern platforms.
Vinyl Records: Vinyl records have experienced a resurgence among audiophiles and collectors.
Vintage Clothing: Vintage clothing styles from past decades are often renewed and popularized by fashion enthusiasts.
Niche Market Stage:
3D Printers: While not in mainstream growth, 3D printers have found a niche market among hobbyists, designers, and engineers.
High-End Audio Equipment: Premium audio equipment caters to a niche market of audiophiles.
Luxury Watches: Luxury watch brands like Rolex serve a niche market of collectors and enthusiasts.
Obsolete Stage:
Typewriters: Typewriters are considered obsolete with the widespread use of computers.
Cassette Tapes: Cassette tapes are obsolete with the dominance of digital music.
Pagers: Pagers are obsolete with the prevalence of smartphones.
Product Life Cycle (PLC) Model Highlights:
Definition and Purpose:
The Product Life Cycle (PLC) model tracks the stages a product undergoes based on its sales over time.
The model guides marketers in adapting their strategies to different phases of the product’s life.
Importance of Understanding PLC:
Understanding the product’s life stage is crucial for determining the appropriate marketing mix.
It helps accelerate growth or extend maturity and avoid market saturation.
Phases of Product Life Cycle:
Introduction and Development Stage:
High costs are incurred for product development and introduction.
Low sales volume, high investment costs, minimal competition.
Efforts focus on creating demand and prompting customers to adopt the product.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
