Every product has a limited life span. In 1966, economist Raymond Vernon formalized the theory that all products go through a series of stages called the product life cycle. Although the product life cycle starts with the idea of a product and continues until it becomes obsolete, the established stages are as follows:
The “pre-introduction” phase for a product involves market research that is done to get an idea about the demand of the product in the market (local, national or international). During this preliminary phase the product is also designed by product designers, sample prototypes are produced and it is tested for flaws or bugs. Once it passes the prototype and testing phase, and it proves to be a viable product, higher volume production begins. In this developmental stage, the company is investing significantly in R&D and testing with limited to no sales.
- Introduction: During the introductory phase the product is formally launched in the market. Consumers get their first look at the product and product awareness is created through various advertising media and PR. There is a particular group of consumers that try the product in this initial phase known as "Innovators". This early group of consumers are more open to try new products, are technology savvy and can take risk. Sales begin in this phase but profits generally remain negative as development costs incurred still significantly outweigh revenue.
- Growth: Once the product is commercialized successfully it starts gaining popularity and gets established in the market. Profits start to rise and competitors emerge. The types of consumers who show up in this phase are called “Early Adopters” who possess technical/product knowledge and are relatively eager to try new things.
- Maturity: In this phase the product attracts new customers and also retains existing ones. Profits generally hit its peak. Sales volume is driven by consumers referred to as the “Early Majority”. These customers don't like to take risk and rely on well-established products.
- Saturation: After a certain period, the maturity phase reaches a point where growth becomes stagnant. Market demand changes and there is limited to no advertising required. New customers include the “Late Majority” which are generally skeptical and last to adopt products. The marketplace also becomes quite competitive with look alike products.
- Decline: In the decline phase the product is usually replaced by other products which fulfill the same need but in a better or more cost effective manner. The customer base is driven by "Laggards” who are not open to change and keep purchasing the product until the stock lasts. Production is declining as profitability falls.
The product life cycle phases can vary in duration according to the type of product or market conditions. Re-invention or redesign may take place in any of the phases. Some products may even go back to the rapid growth phase from maturity when improved.
The concept of the product life cycle is critical for all management teams as it shapes an overall business's strategic plan and product portfolio. Many products will continue to grow past the introductory phase if accepted by the market and invested in by the company. However no products last forever and managers should continue investing in R&D to ensure the next hit product as existing products decline.