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.
Why is the product life cycle important?
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:
- Introduction and development stage
- Growth stage
- Maturity stage
- Decline stage
Introduction and Development Stage
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.
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.
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.
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!