The product life cycle (PLC) is an important concept for successfully launching products and services to market. The PLC consists of different phases that allow managers to visualize the projected sales and profit growth of their product portfolio.
This helps them plan the marketing strategies needed to extend the life cycle in the phases where profits and market share are highest.
Index
What is the product life cycle?
The product life cycle consists of the stages a product goes through from its launch to the market until its withdrawal or replacement.
The basic PLC model comprises five phases:
- Introduction
- Growth
- Maturity
- Saturation
- Slope
Phase 1: Introduction
The first phase is the product's entry into the market . From this point on, customers can purchase the product.
At this stage, promotion is essential to make consumers aware of the new offering. Therefore, an effective marketing strategy must be developed.
Depending on the sector, product type, and marketing strategy, products are often advertised before the actual sales launch and are sometimes even offered for pre-order.
The launch or market introduction phase is costly and therefore negatively impacts the company's profit curve. The reason? The company must initially invest more money in marketing activities than it can earn from the new product. However, as soon as the company begins generating more sales, profits also begin to increase, resulting in a positive profit ratio.
This first stage ends when the break-even point is reached, that is, when sales revenue covers the cost of selling the product.
Phase 2: Growth
This phase is characterized by a continuous increase in sales as the product gains acceptance and more customers buy it .
Upon reaching this stage, the company's focus changes, shifting from solely marketing to meeting demand forecasts to ensure product availability.
But competitors also emerge, and if they see an attractive opportunity to enter the market, they will launch their own versions of the product. Often, this leads to price wars and imitations, which can jeopardize the product's long-term success.
Phase 3: Maturity
Most products reach their most profitable state at this stage, since they have managed to establish themselves in the market and, therefore, no longer need to be promoted with so much effort.
In the maturity phase, growth is achieved almost exclusively by drawing customers away from competing products. Brands need to continually build and focus on their own brand and marketing messages to avoid becoming victims of these approaches.
Phase 4: Saturation
When a market reaches saturation, revenue and profits decline, and market growth ceases entirely . At this point, the goal is to offer products cheaper than competitors to increase profits while sales stagnate.
cost leadership is successfully achieved and maintained , the saturation phase allows companies to secure their market share and resist competitors' attempts to start price wars in their industry.
Phase 5: Decline
Finally, the product life cycle ends with the decline phase. This phase is characterized by a growing loss of profits, revenue, and market share , which can no longer be offset by marketing efforts.
The focus at this stage is on launching innovations to meet current customer needs. In other words, if the product isn't withdrawn from the market, it can be evolved and repositioned.
When the decline phase is reached, the basic product life cycle model ends. The result? The product "dies.".
The BCG matrix
The BCG (Boston Consulting Group) Matrix is a tool that allows companies to analyze and manage their product portfolio . It is based on two main dimensions: relative market share and market growth. From these dimensions, four product categories emerge:
Stars: Products with high market share and high growth. They represent opportunities for growth and expansion, so investment should be made in them to maximize their potential.
Question Marks: Products with low market share, but in high-growth markets. They are usually in the initial stage of their life cycle and require marketing investments to increase their market share.
Cash Cows : Products with high market share, but in low-growth markets. They generate consistent revenue and high profits due to their relatively low operating costs. The strategy is to maintain and exploit these products to finance other areas of the business.
Poor Dogs: Products with low market share and slow growth. They often generate losses and represent a burden for the company. The best course of action is to discontinue them or relaunch them with new features to try to revitalize them.
Factors that influence the product life cycle
The factors that influence the product life cycle are internal and external. Let's see what they are:
Internal factors
- Pricing strategy: Strategically adjusting prices can either extend or shorten a product's lifespan. Competitive prices increase demand, while high prices limit it.
- Branding campaigns: Investing in marketing and building a strong brand can increase awareness and loyalty to the product, positively impacting its life cycle.
- After-sales activities: Offering good after-sales service can improve customer satisfaction and prolong the product's maturity phase.
External factors
- Political and legal context: Changes in regulations and government policies can influence the product life cycle. For example, new environmental laws may require products to be recalled.
- Economic conditions: The state of the economy can affect consumers' purchasing power and, therefore, product demand. Economic recessions shorten the lifespan of many products.
- Entry of competitors: The appearance of new competitors or substitute products can accelerate the decline phase of a product by reducing its market share.
- Technological innovation: Technological advances can cause existing products to become obsolete more quickly, shortening their life cycle.
Conclusion
The product life cycle (PLC) is a fundamental concept in product management and marketing. It describes the different stages a product goes through from its launch to its withdrawal from the market. Understanding this cycle is important for companies to make strategic decisions and optimize the profitability of their products.
Each phase of the PLC involves specific challenges and opportunities in terms of sales, competition, costs, and profits. The company must constantly adapt its product, pricing, promotion, and distribution strategies to successfully navigate the entire cycle.
