Product Life Cycle

A very simple topic is the product life cycle. It's easy to draw for a business and is easy to get your head around. Firstly the product life cycle is displayed as a graph as pictured below:

After a great deal of research, design and development, a product is ready to be launched into its market. Let's use the example of the "Cadbury's Twisted" chocolate bar. At the introduction stage we can see that sales are low. This is because people are unaware of the latest chocolate bar on the market and it takes time to use marketing in order to persuade consumers to switch from the more established bars. But sales will gradually pick up. That is, unless the product becomes a "flop" where it never really catches on in the market and so dies before it has time to flourish. Sales are low and R&D costs are high.

Next, at the growth stage sales are really starting to improve as popularity and awareness of Cadbury's Twisted increases. The marketing has successfully prized consumers away from the Mars Bar (and others) to buy this new product. Somewhere in this section the product will break even (The point at which total sales revenue = total costs) and into profit to maybe start funding the development of newer products.

At maturity sales are at their peak as the Cadbury's Twisted becomes well established and a household name. There is probably going to be a lot of profit for Cadbury's at this point and ideally a firm wants to hold it at the maturity for as long as possible. They may use extension strategies for this. This sustains the consumers' interest and ensures that they continue to buy the brand. For example Cadbury's may run a special offer, increase its marketing for the Twisted or find new uses for the chocolate bar (like including it in a box of Cadbury's Heroes) to extend its life.

However some products may become out-dated as tastes and technology changes. Therefore the sales will start to fall in the Decline stage of the life cycle. However to contradict the graph, sales may not fall all of the way down to the bottom again because I am sure that as soon as sales fall below the point at which they are covering their costs, Cadbury's will discontinue the line because it is making a loss. Then it will become a piece of history. That aside, the famous Cadbury's Dairy Milk may never hit decline due to its global popularity.

The purpose of the Product life cycle is for a business to see where all of its products in their product portfolio are in terms of sales over a period of time (As seen on the axes.) and is particularly useful in that it allows firms to see which products to concentrate the majority of time their time and capital on. This is because ideally there should be products in the each of the first three stages. This is because products take time to reach the stage where sales revenue outweighs its costs and therefore there needs to be a product that is currently profitable (Where revenue is greater than costs) in order to ensure that the business has income in order to survive and also to finance the research, development and marketing of a product in its early life.

I am not suggesting that the curve is smooth as sales may fluctuate (as shares also do) all of the time. In addition, every product life cycle will be different. The line may have a different gradient or a longer peak. This is because every product is unique and demand changes over time.

Sam Wareham

The  Boston Matrix  article follows on nicely from this article.