The product lifecycle is a model with which you can determine the (marketing) strategy for a product. The product lifecycle consists of four phases. In the product lifecycle you offset the turnover of a product by the time the product is on the market. Depending on which phase of the product lifecycle a product is, you determine whether you are going to invest in a product or not.
What are the different phases of the product lifecycle?
- Product introduction
- Growth phase
You determine the phase that a product is in by looking at how long a product has been on the market, but mainly by looking at the growth in the turnover of the product. Below we provide an explanation and a number of examples for each phase in the product lifecycle.
Product introduction phase - product lifecycle
The product is introduced in the product introduction phase in the product lifecycle. Of course, when introducing a product, you have to invest in marketing, so that consumers or (in the case of a B2B product) companies get to know the product and demand arises. The turnover that the product generates is still low. Of course the expectations of a company for the product are high, otherwise they would not introduce the product. An example of a product in the product introduction phase might be a new innovative product from a company, but it could also be that the product already exists at competitors and that the product is new to your company. Then you will also have to invest in marketing. Usually the competition will be low, otherwise it is not wise to launch a product. It is of course possible. An example of this is Microsoft, which entered the gaming console market very late with its Xbox.
In the product introduction phase, a product is new, competition is usually low (except for the Xbox example above). The development costs must also be recovered. A product in the introduction phase will therefore often be priced highly (this is also called premium pricing). Because the product is still very expensive, not everyone will buy it. The so-called early adapters in particular - people who like to be at the forefront of a trend - will buy the product.
In the BCG matrix, the product launch phase of the product lifecycle would be classified as a Question mark - also called a problem child - because it is not yet certain whether the product will catch on or can compete.
The strategy pursued in this phase of the product lifecycle is primarily aimed at raising awareness and creating a market.
Growth phase - product lifecycle
In the growth phase in the product lifecycle the product has survived the introduction phase. The turnover is growing fast. In the growth phase it is wise as a company to invest fully in the product, for example in marketing, so that the growth becomes even greater. An example of a product that is currently in the growth phase is, for example, LED lamps. The product has been on the market for a few years. The first competitors have presented themselves that can produce the LED lamp much cheaper so that the price falls. This makes the product more interesting for a larger group of consumers (or companies) to buy. The product is also becoming increasingly well-known. All these factors ensure that total revenue growth makes a sprint. A product that is in the growth phase of the product lifecycle therefore often undergoes exponential growth.
In the BCG matrix, a product in the growth phase of the product lifecycle is designated as a Star. Despite the high investments in marketing, the company will earn a lot of money from this type of product.
The main objective of the strategy in this phase of the product lifecycle is to capture as much market share as possible.
Maturity stage - product lifecycle
During the maturity stage, sales growth is slowing down, so total sales are at their peak. Prices will fall even more in the maturity stage, and companies will focus on efficiency and cost savings. In the BCG matrix, a product that is in the maturity stage in the product lifecycle is called a Cash cow. An example of products that are currently in the maturity stage are, for example, many fast-moving consumer goods such as food. The turnover from this is high, there is a lot of competition, which means that margins are limited and so are the marketing expenses. The strategy pursued in this phase of the product lifecycle is primarily aimed at maintaining the market position.
Explanation why prices fall in the maturity stage
There are a number of examples and explanations to imagine on why prices fall in the maturity stage of the product lifecycle. Examples:
- Competition is also at its peak (examples that could cause this are expiring patents or foreign parties entering the market, for example)
- Investments have been written off so that the price can go down
- The bargaining power (see: Five-force model) of the suppliers or buyers decreases because the novelty of the product is completed
Decline phase - product lifecycle
As the word implies, the decline phase in the product lifecycle is a phase in which the total turnover of the product begins to decline. The fall is mainly due to the drop in prices. To keep the profit on track, investment in marketing will be kept to a minimum and the company will focus more on cost savings and efficiency. There will be players who withdraw from the market. The demand for the product has reached its peak because every consumer or company within the target group has purchased the product. The market for the product is saturated. The purchases that are made will mainly be replacement purchases. Perhaps substitutes have also come onto the market that are better or have more functions, for example.
Plasma TVs are an example of a product that is in the decline phase of the product lifecycle. Everyone in The Netherlands now has a flat screen TV. There are also substitutes on the market that are more energy efficient and have better image quality.
In the BCG matrix, products that are in this phase of the product lifecycle are called Dogs.