If you have ever studied business, you’ve probably heard of this concept called Product Life Cycle(and if not, you’ll definitely hear about it again soon). It represents the phases that a product goes through from its birth to its death.
Basically, there are four phases:
Phase 1 : Introduction – The product is launched in the market. No one knows about it, the product might not be technically perfect, there are no competitors, and sales are low.
Phase 2 : Growth – Sales are increasing as more people are discovering the product. The first competitors are entering the market.
Phase 3 : Maturity – Sales stabilize, the product is at its peak. Competition is intense, as many companies are competing on price, features, and marketing.
Phase 4 : Decline – The product becomes less attractive to customers, and sales begin to plummet.
If you know about this, congratulations; it is enough to earn you an A in your freshman marketing class. You know about the four phases in a product life cycle! So what?
Unfortunately, many articles and beginner courses will stop here, and only briefly explain the four phases. What a shame, because this model is a solid base to understand what might happen during a product lifetime, and what options companies have to maximize their chances to succeed as well as grow their profits over time. Let’s go over these four phases one more time, paying more attention to details.
PHASE 1 – INTRODUCTION
What if I told you that the life cycle curve on the chart above only concerns a minority of products? In reality, most new products have a very different life cycle:
Of course, that this is an extreme example, but most products fail and there is no real growth or maturity, only a failed introduction and decline. The introduction stage is when entrepreneurs take the risk to introduce a new product to the market, without knowing for sure if there will be customer demand for it. Not only do they need to find the right idea and target the right customer, but the execution of their strategy should be good enough to gain traction and generate sales; yet unfortunately, most products fail due to a bad idea, poor execution, or both.
Unless you bring crazy amounts of value to the marketplace, such as a cure for cancer, it is difficult to predict exactly how the market will react to your product. There is no data available on this type of product (since it is a new concept), you can’t really know for sure what the best pricing is, the distribution strategy, what features customers will like the best, or even who is going to use it. Manufacturers have no experience in working on this type of product, and even designing it in the first place takes a great deal of effort. That is why this phase is the most risky for businesses and requires the most work. The product is most likely not profitable, because of high manufacturing costs, as well as the high marketing and sales efforts required to take the product off the ground.
In this stage, the biggest challenge for businesses will be creating product awareness, explaining how the product can have a positive impact on customers, but also convincing distributors to carry it.
PHASE 2 – GROWTH
At some point, for the lucky successful products, sales will increase faster and faster; the product is entering the growth phase. Word of mouth is spreading, more and more people know about the product, and the product starts to become profitable (due to lower production costs and the economies of scale). Sounds great, right? Not so fast; this is too early to finance a new sports car.
There is one problem here: competitors start to notice the product’s success and are now launching their own version. Depending on your product and industry, it is quite difficult for your competitors to launch their own version of your product. Patents, unique expertise, limited resources, or manufacturing capabilities can slow down the competitors, but they will eventually come if there is an opportunity. Will you still enjoy a first-mover advantage (the ability to be better off than your competitors as a result of being first to market)? Maybe. Maybe not. It depends on your industry and other factors; either way, you must be prepared for the market to become more competitive; especially if new entrants have more resources (cash, technical expertise, brand recognition, marketing skills, etc) than you. Your competitors never had to do as much research as you or find the right demographic target through trial and error, which saved them time and made its decision to enter the market a lot less risky. The arrival of competitors on the market makes it more difficult to experiment with marketing or pricing strategies, as any mistake can cost you precious market share.
As the market becomes saturated with offers and the customer demand starts to level off, the product is now entering the maturity phase.
PHASE 3 – MATURITY
At this point, things are getting more complicated. Competitors will compete on price and/or spend large amounts of money on flashy marketing campaigns, which makes their profit margins crash. It is now interesting to look at our textbook chart again, with the units sold (in black), and add a curve that represents the profit margin per unit (in orange).
The product is not profitable in the beginning, due to high production costs and high marketing budgets required to build awareness. Some companies even sell at an abnormally low price during this phase to get more customers to try the product. As the production and marketing costs are getting lower, the profitability is increasing. However, once competitors enter the market, profit margins start to decrease due to price wars and excessive marketing campaigns to gain a competitive advantage. Profitability usually declines before sales volumes start to drop, especially when the product becomes commoditized. The total profits are at their peak when the combination of sales volumes and profitability are at their highest, which usually happens around the end of the growth phase.
Every good thing comes to an end, but fortunately, there are ways to increase revenues from that product and extend its lifetime.
1 – Better features
An obvious way to generate more sales is to improve your product so customers will buy the new version. Think of Apple releasing their new version of the iPhone. The new phone has slightly more advanced features, and upgrading from an iPhone 46 to an iPhone 47 won’t change your life, but millions of fans over the world always want to have the latest version and will gladly sleep in a tent in front of the Apple store to buy the new model on day 1. This works well for a minority of brands, like Apple, that has a strong identity and dedicated following. For others, slightly better features do not make a big difference. I personally buy a new lawnmower once every 20 years, when I really need to. A manufacturer putting chrome wheels on their latest model won’t be enough to make me replace my good old mower. Only major innovations make a difference in that case. Some people like to keep their car for as long as possible, but they might change their mind the day flying cars become widely available.
2 – Find new users
When the market reaches saturation, all the users willing to try the product have bought it. At this point, finding new target demographics is a good way to increase the sales of the product. This might require creating a slightly different version of the product and tweaking the marketing message, but it can be worth it and be profitable while gaining a competitive advantage over the competition and postponing the decline phase.
For example, the brand Dickies sold work clothes for decades. They realized skateboarders were wearing dickies pants and, because of their design and durability, the product almost became fashionable. Dickies started advertising their products to skateboarders and sold their products to a new niche, which had a positive impact on their bottom line.
3 – Find new uses for the product
The introduction and growth of a new product are often focused on one way to use it: to not spread the company marketing dollars too thin. But, once the product approaches the maturity phase, product awareness is strong enough that advertising different usage can extend the product life cycle. For example, Kleenex initially sold their tissues as a way to take off make-up. It was only when they realized most people were using their product to blow their nose that they started to advertise this usage, which made their sales skyrocket.
4 – Sell more of the existing products
Finally, the last technique could be to simply sell more of the existing product; yes, that sounds obvious, for good reasons. This can be achieved by getting the current users to believe they need more. A good example would be hard seltzer who releases new flavors all the time. Don’t like the original flavor? Buy the new one! Like the original? Why not buy both the original and the new one?
No matter what technique you use, remember to not exclude it from the beginning. If energy drinks did not already exist, it would be easy to launch a generic energy drink, then create a natural and organic version for health-conscious customers. However, starting with a natural organic drink would make it complicated to later sell it to bodybuilders or truck drivers.
PHASE 4 – DECLINE
Every product will die one day, even today’s giants like Coca-Cola or smartphones. For some products, their decline might start tomorrow, while it might start in 200 years for others. The companies that will successfully adapt will survive the decline of their main product. Those that fail will die; like when Kodak did not realize how digital cameras would change their market and refused to change their offer (even though they were the first to come up with a digital camera!).
When the customer demand starts to decline in a saturated market with low profit margins, death is inevitable for most products. You can try to weather the storm, or quit and focus your efforts on something else. While it can be difficult to abandon a product that caused your success and one that you are emotionally attached to, it is often vital to survive and grow.
We all know that if your product is successful, there will be a growth phase, a maturity phase, and, unfortunately, a decline. So why not try to plan accordingly? No one can predict the future, but the one who tries to forecast future trends and events will have an advantage over the one who does not. How long will each phase last? When will the competition arrive and what will be their strategy? How will customers react and what will be the best ways to extend your product life cycle? When is the best time to withdraw from the market? These are all questions that can help you shape a winning strategy for the introduction of a new product.