PRODUCT LIFE CYCLE

The product life cycle is a theory which suggests that all products, just like people go through set stages during their lifetime. This video explains the various stages that a typical product will go through and what a business can do to increase demand during each stage using Apple’s iPhone as a real life example.

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WHAT IS THE PRODUCT LIFE CYCLE?

The product life cycle is an important concept in marketing. It describes the stages a product goes through, right from the point that the product is just an initial design idea in the research and development stage until the point that the product is finally removed from the market at the end of its life.

 

However, it’s important to note that not all products reach this final stage. Some continue to grow, whilst others rise and fall very quickly. Ultimately, it is critical that marketers understand the life cycle of their product, and business executives should have a plan for dealing with products at every stage of their life cycle.

 

So, first of all, the product life cycle starts at the research and development stage. This tends to be very time consuming and costly as the product is being designed and isn’t produced yet. Therefore, there are no sales, so cash flow is negative at this stage.

The next stage is Introduction, which is when the product is launched to the market typically the business would invest heavily in marketing and promotion of the product and cash flow would usually be negative at this stage.

Pricing strategies are important at this stage and both penetration pricing and price skimming are common strategies used to attract those early adopters or loyal fans to purchase the product and get the ball rolling

 

Following the introduction of the product, sales would typically start to grow. Therefore, the growth stage comes next and is where sales start to increase rapidly alongside demand for the product. Also, competitors may appear with similar products as they try to replicate the businesses success.

This is typically the stage in which cash flow starts to turn positive and the business starts to see a profit from the product.

 

The next stage is Maturity, which is when demand for the product starts to stagnate. Although the product is typically well established and well known at this stage, it tends to stagnate as there will also be high competition in the market.

However, a key positive for the business is that the product is well established, so costs of production and investment in marketing is typically much lower. Therefore, cash flow tends to still be positive during this stage. Common strategies during the maturity stage include managing production levels to ensure the business doesn’t over produce.

Whilst distributing the product to more businesses and retailers to reach a wider audience, commonly with a lower price tag. Following the maturity of the product, it enters the decline stage. Within which, sales start to decrease and the market is over saturated with both competition and availability of products. This leads to supply being higher than demand which is commonly influenced by advancements in technology and changes in consumer buying behavior.

 

Therefore, it is typical for businesses to experience negative cash flow within this stage, which eventually leads to the production and marketing of the product being stopped to minimise costs whilst the price is cut to clearance to sell off the final batch of units.

 

Now, it’s very important to understand that a business can actually prolong the life cycle before it enters the decline stage through product extension strategies. If you consider the life cycle of coca cola, when they hit maturity stage they have had many strategies over the years to extend their brand and core product.

This is typically through something called a line extension. Examples of this include: Diet Coke, which is one of the most famous line extensions for the company mainly targeting females to purchase the famous soft drink then as the trend grew and health concerns around sugar became more serious, they tried to attract males to a sugar free alternative by introducing coca-cola zero.

Other line extensions include cherry coke and more recently in 2014 coca cola life, which had a very short life cycle and was taken off sale in 2017 just 3 years after its release in the UK so coca cola could simplify the choice between sugar and sugar free options.

 

Examples of extension strategies are:

 

  • Advertising – try to gain a new audience or remind the current audience

  • Price reduction – more attractive to customers

  • Adding value – add new features to the current product, e.g. improving the specifications on a smartphone

  • Explore new markets – selling the product into new geographical areas or creating a version targeted at different segments

  • New packaging – brightening up old packaging or subtle changes

  • So Apple’s iPhones were introduced to the market in 2007, reporting 1.39 million sales.

 

They hit the growth stage fairly quickly, increasing from 1.39 sales in their first year to 11.63 million sales in 2008. An increase of 836%.

Apples iPhones continued to growth for 8 years, from 2008 to 2015. Surprising having their biggest growth in their final year of this stage in the product life cycle. A staggering increase of 62 million sales on top of 2014’s 169.22 million sales.

However, what you can clearly see from 2016 onwards is the iPhone hitting the maturity stage, within which sales actually decreased for the first time ever, a 19.34 decrease in unit sales in comparison to the previous year.

 

As you can see, sales in 2016 to 2018 have plateaued, a clear indicator that the iPhone is currently in the maturity stage. So the question is, after a very strong first decade, what's left for the Apple iPhone, will the product remain in maturity for the next decade, with sales continuing due to product extension such as new models, could it possibly grow again or will Apple actually innovate a brand new concept which will cause the iPhone to enter the decline stage just like the iPhone did to the iPod.

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