There are five distinct phases in .the life cycle of a product as shown.
Introduction phase – The Research and engineering skills lead to product development and when the product is put on the market and its awareness and acceptance are minimal. Promotional costs will be. high, sales revenue low and profits probably negative. The skill that is exhibited in testing and launching the product will rank high in this phase as critical factor in securing success and initial market acceptance. Sales of new products usually rise slowly at first.
Despite little competition profits, are negative or low. This is owning to high unit costs resulting from low output. rates, and heavy promotional investments incurred to stimulate growth. The introductory stage may last from a few months to a year for consumer goods and generally longer for industrial products.
Growth phase – In the growth phase product penetration into the market and sales will increase because of the cumulative effects of introductory promotion, distribution. Since costs will be lower than in the earlier phase, the product will start to make a profit contribution. Following the consumer acceptance in the launch phase it now becomes vital to secure wholesales/retailer support. But to sustain growth, consumer satisfaction must be ensured at tills stage. If the product is successful, growth usually accelerates at some point, often catching the innovator by surprise.
Profit margins peak during this stage as ‗experience curve‘ effects lower unit costs and promotion costs are spread over a larger volume.
Maturity phase – This stage begins after sales cease to rise exponentially. The causes of the declining percentage growth rate the market saturation eventually most potential customers have tried the product and sales settle at a rate governed by population growth and the replacement rate of satisfied buyers.
In addition there are no new distribution channels to fill. This is, usually the longest stage in the cycle, and most existing products are in this stage. The period over which sales are maintained depends upon the firm‘s ability to stretch the cycle by means Of market segmentation and finding new uses for it Profits decline in this stage because for the following reasons.
The increasing number of competitive products.
The innovators find. market leadership under growing pressure.
Potential cost economics are used up.
Prices begin to soften as smaller competitors struggle to obtain market share in an increasingly saturated market .
Sales growth continues but at a diminishing rate because of the diminishing number of potential customers who remain last of the unsuccessful competing brands will probably withdraw from the market For this reason sales are likely to continue to rise while the customers for the withdrawn brands are mopped up by the survivors. In this phase there will be stable prices and profits and the emergence of competitors. There is no improve-ment in the product but changes in selling effort are common. Profit margin slip despite rising sales.
Saturation phase – As the market becomes saturated, pressure is exerted for a new product and sales among with profit begin to fall Intensified marketing effort may prolong the period of
maturity, but only by increasing costs disproportionately.
Decline phase – Eventually most products and brands enter a period of declining sales. This may be caused by the following factors:
Technical advances leading to product substitution.
Fashion and changing tastes.
The average length of the product life cycle is tending to shorten as a result of economic, technological and social change.