The Product Life Cycle

The Product Life Cycle

Products do not sell indefinitely in the market.  Products pass through four stages in the market known as a product life cycle.  The stages include:

1. Introduction during which costs are high and sales volume is low
2. Growth during which sales volumes increase significantly and profitability begins
3. Maturation during which sales volumes reach their peak and profits flatten
4. Decline during which sales volumes decline and profitability diminishes

Product life cycles vary in length.  Some products thrive in the market for 10 years while others last only a few months.  Innovative organizations continually develop new products to introduce when other products enter the maturation phase and before their sales decline.   This strategy of continual product development and introduction insures overall sales volume is maintained even when one product line begins to decline. Organizations need to have products in all stages of the life cycle at all times to ensure that income is steady.

Why is Product Development Important?

Product development is a tool used to open new markets, expand sales of current product categories, reposition a company and/or improve profitability.  Product development centers its efforts on utilizing an organization's existing skills sets in a way to expand their market presence and allow for more selling opportunities.

1. Opening New Markets:  An organization can open a new market by developing a new category of products.  For example, an organization producing tabletop linens that wants to enter the holiday market would develop a Christmas collection of ornaments, stockings, gift bags and Christmas-themed table linens to attract buyers in the holiday market.

2. Expanding Sales of Existing Products:  To increase sales of an existing product or product line, an organization can develop related items in the same theme to offer more selection to their buyers.  For example, if the top selling items are carved wood candleholders they would expand the selection of candleholders by adding new heights, colors, diameters, and patterns as well as adding complementary products such as votive candle holders. By offering a larger selection of items they will generate larger orders from their existing customers who buy the original candleholder.

3. Repositioning a Business: Repositioning a business often requires new products be developed to meet the demands and tastes of the new market niche.  For example, a company situated in the local tourist market that wants to position itself as an export company will research export markets to identify popular product categories appropriate for their techniques and materials and will develop new export collections based on the opportunities identified through their market research.

4. Boosting Profitability: A successful product is one that not only sells well but also makes a profit.  Product development involves careful analysis of pricing and costing; products are designed to maximize their perceived value and keep costs down.  For example, a hand-woven cotton cushion cover that sells well but is not profitable can be used as the starting point for developing a range of home accessories. New cushion covers can be designed to use the hand-woven textiles on the front of the cushion cover where it is most visible to consumers and a less-expensive machined fabric can be used on the back of the cushion, an area that is not as important to consumers.