Just as businesses go through stages, so do products and services. The product or service life cycle is determined by how long it’s marketable. Tracking the life cycle of your product or service is key to determining performance and profits.
Product life cycle also plays a critical role in marketing strategy. Depending on the stage your product or service is in, you’ll refine your marketing accordingly to help ensure optimal performance and results in each stage.
Let’s take a closer look at each of the four product life cycle stages, then examine how the product life cycle will affect your company’s marketing strategy.
THE 4 STAGES OF THE PRODUCT LIFE CYCLE
Profits are low in this stage because things such as research and development, production and marketing costs are high. Prices are set high on the product or service to recoup some of the development and introduction costs (but may also be low as a way to more quickly build market share).
For example, microwave ovens that can now be purchased for $50 were priced between $2,000 and $3,000 when they were first introduced. In this stage, you’ll want to keep a close watch on the market’s reaction to your products and services and be ready to make changes. It sometimes helps to experiment with several different product and service configurations to see what resonates most strongly with customers, especially in the early stage.
Sales generally increase with the demand for the product. Cash flow improves and profits are at their peak.
Although competition may be minimal in this stage, it’s important to continually make refinements and stay ahead of the competitive curve. Build product and service development capabilities with the cash you get from increasing sales.
Sales may continue to increase or level off. Profits decrease since prices are continually lowered to compete. Still, a great amount of cash flow is generated through sales.
Conduct market research to determine trends. Adapt your product or service to meet the coming trends — this is the stage in which differentiation is more important than ever.
If you don’t look for new opportunities in new markets and new products, the coming decline stage will leave you with products and services that no longer sell.
Sales drop even though prices continue to fall. Profits are extremely low at this stage, but the product or service has generated sufficient cash flow during its life.
When a product or service hits this stage, many entrepreneurs reintroduce it with a new feature or create a new benefit. Simply increasing the size of a candy bar by 33 percent can re-start its life cycle.
Consider making changes to your product or service and/or the way you market it. You may decide to discontinue your product or service before losses eat into the cash flow generated by sales.
HOW YOUR PRODUCT’S LIFECYCLE AFFECTS YOUR MARKETING STRATEGY
Just as each stage of the product life cycle demands a different approach to the product itself, the stages also have specific effects on your overall marketing strategy.
In the introduction stage, for example, your marketing efforts will likely be focused on building brand and product awareness, as well as establishing and connecting with a target market.
Yet in the maturity stage, you’ll be fighting to maintain market share. Here, your marketing strategy could include incentives or promotions to further encourage adoption of your product or service over that of your competition.
In the decline phase, your marketing will depend on what’s happening with your product or service. If you opt to reintroduce it with a new feature or benefit, you’ll want to refresh your marketing strategy accordingly to share that information with current and prospective customers.
Opting to discontinue or liquidate the product, on the other hand, requires a different marketing message than a re-introduction, so you’ll want to plan and refine that message accordingly.
FLUID LIFE CYCLE, FLUID MARKETING STRATEGY
The product life cycle is fluid, and your marketing strategy should be, too. Knowing where your products or services are in their life cycle will help you determine refinements or adjustments you may need to make to align those products and services with the vision and strategy you’ve already developed.
This is where flexibility and agility are key attributes. It’s important to keep an eye on core business elements like your business plan and strategy, but you should be ready to adjust and refine elements like your marketing strategy depending on key factors like product life cycle, customer feedback and general market conditions.