In business, it’s not enough to create a truly exceptional product. Companies that produce physical goods need to develop a keen understanding of the product life cycle if they hope to maximize profits and outlast their competitors. “Product life cycle” refers to the life of a given product from inception to obsolescence and the process of managing a product’s exposure to the marketplace. We’ll be focusing on the latter.
Understanding a product’s life cycle requires knowing how the people, information, marketing and distribution channels behind the product integrate and interact. By optimizing performance in each of the four stages of the life cycle, business owners can keep both profits and spirits high among their workforces.
These stages are its introduction into a market, how it grows in the market, how it reaches maturity and finally its decline. Here’s how each one works.
The first phase in the product life cycle, the introduction stage is also known as the product launch period. During this stage, companies aim to build awareness for their products while distinguishing themselves from competitors in the field. Additionally, businesses need to select the ideal price points for their target audiences.
Because businesses don’t yet have a recognizable brand name during the introduction stage, they often end up investing a significant sum back into marketing and consumer testing. Furthermore, since prices are typically low and profit margins small at this juncture, the introduction stage ends up being one of the least lucrative in the life cycle. To optimize processes during the introduction stage, companies need to focus their efforts on attracting innovators and early adopters. Additionally, businesses need to decide whether they can benefit from price skimming or if it’s best to keep prices low for a time.
The second stage in the life cycle, growth occurs when the company starts to make profits on its products. During this period, companies may make product adjustments and add features based on customer feedback. The increase in brand awareness coincides with economies of scale in production, which in turn helps boost overall profits for the business.
While the increase in income during the growth stage is exciting, entrepreneurs need to be savvy about how they spend their profits. To maximize potential growth during this phase, companies should aim to reinvest into the business by expanding distribution channels and targeting a wider audience.
The goal is to continue growing the brand while improving overall market share in the long-term. While a business may want to increase prices over introductory levels, it’s important not to raise them so high that you alienate the base you worked hard to build. A small price bump is a good way to accommodate higher marketing costs while showing consumers that your product is superior to the competition’s.
Typically the most profitable stage in the product life cycle, maturity occurs when brand awareness is high enough to keep marketing costs to a minimum. Because customers are already familiar with your company and products, you don’t need to devote such a high percentage of profits to marketing. This part of the cycle may be the best for enjoying the fruits of your labors.
While the increase in income during this phase is exciting, companies need to find ways of differentiating themselves from competitors if they hope to maintain a strong market share. Achieving this goal may mean adding or enhancing features, or offering incentives that motivate clients to buy from you instead of competitors. While no one wants to start a price war, companies may also need to lower prices to fight off competitors in the maturity phase.
Even the most exciting products will eventually start to decline in popularity, whether it’s due to changing tastes or technological innovation. When market saturation occurs and demand drops, products enter the decline stage of the life cycle. Not only do sales drop off at this time, but production costs may also rise due to declining volumes. During this phase, businesses must adjust their strategies in order to stay profitable.
Although products almost inevitably enter the decline stage, companies have different options for coping. While some businesses opt to cut prices in an attempt to outlive competitors, others choose to ride out their success for as long as possible while reducing marketing costs. Still other companies endeavor to rehab a product to make it more attractive or create a successor item and stop producing the original.
It’s not enough to understand that every product has a lifecycle. Successful business owners pay careful attention to what stages their products are in so that they can make necessary changes to their sales and marketing strategies. These adjustments can help prolong the profitable periods of a product’s life cycle while staving off eventual decline.
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