Product Life Cycle Stages

Enlarge Image The product life cycle theory was propounded by economist Raymond Vernon in 1966. With the help of this theory, Raymond Vernon sought to explain the various stages that a product goes through after it enters the market. It explains the reasons that determine the growth, maturity and the decline of a product and how the life cycle stages determine foreign trade.

Product Life Cycle Theory

Raymond Vernon explained that from the invention of a product to its demise due to a lack of demand, a product goes through four stages: introduction, growth, maturity and decline. The duration of these stages is not fixed. The duration of the product phases depend largely on the demand for the product in the market and, to some extent, the costs of production and the revenues that the product generates. If the product remains in demand for a long period of time and the costs of production steadily decline, the life of the product will be longer. On the other hand, if the costs of production are too high and the demand is largely limited, then the product will die sooner. Hence, it is not possible to predict the cycle's duration.

Product Life Cycle

Introduction Stage
For the sake of the theory, Vernon makes the assumption that a product is first invented and developed in the developed countries like the United States. In the introduction stage, people are unaware of the product and its utility and hence the demand for it is very low. The costs of production are very high as the product is still under development and standardized production and economies of scale cannot be achieved yet. Hence only people from the developed countries will purchase the product as they have the resources to buy something so expensive.

For example, let us assume that a new fabric has been invented in the United States for making clothes. Now people are unaware of this fabric and are unwilling to replace cotton and nylon. As the demand is very low, the product doesn't yet enjoy the economies of scale and hence the cost of production is still high.

Growth Stage
The next stage in the analysis is the growth stage for a product. The growth stage is what will make or break the product. As the producers find a way to reduce the costs of production, they will offer the new product at low introductory prices to boost the demand of that product. This is pretty much the make-or-break period for the product and this stage is characterized by heavy and aggressive marketing, advertising and promotion. If the customers feel that the product is worth the money and has good enough utility, the demand will catch up with the expected demand and the product will move into maturity stage. If the demand does not catch up and the people dislike the product, it will quickly decline.

Continuing the above example, during the growth stage, the fabric making company will come up with attractive designs and prices. They will invest in marketing and promoting the product so that awareness is created in the minds of the prospective customers about the qualities and advantages of using this new fabric. If the fabric catches on, it will move to the next stage or it will go straight to the decline stage.

Maturity Stage
The third stage is the maturity stage. In this stage, the costs of the production fall dramatically due to standardized production. This ensures mass production of the goods and hence the company receives the benefits of economies of scale. In the maturity stage, the production and the technology may also be exported to developing and underdeveloped countries, where the costs of production will be lower. This move will benefit both the developed and developing countries as the developed countries can focus on innovation, while the developing countries are employed in the production activity. In the maturity stage, the product is no longer a novelty, but pretty much a widely used necessity.

In the above example, the maturity stage of the fabric will come when it becomes the mainstream fabric which is used all over the world. The producing company will, to reduce the costs of production, export (outsource) the standardized production process and technology to the developing countries.

Decline Stage
The decline stage is marked by a gradual reduction in the demand for the product and hence a gradual reduction in the production as well as the sales. Newly created variants or alternatives will enter the mainstream and drive the old, outdated product out of the market. The market slowly diminishes first in the developed countries and slowly later in the developing countries.

In the above example, if a new fabric is created which masks the problems or the shortcomings of the product, it will slowly be phased out and that will be the end of its product life cycle. Refer to the graph given above for a generalized trend in the sales of a product.

Product life cycle theory is popular among marketers as different stages of the product require a different marketing strategy.