If you’re an entrepreneur or small business owner, you may not realize how unlikely a new product is to succeed. Clayton Christensen, a professor at Harvard Business School, says that of the roughly 30,000 new consumer products launched in a given year, 95% of them fail.
In a Harvard Business Review article, authors Joan Schneider and Julie Hall state that the primary reason for failure is a lack of preparation. They say,
“Companies are so focused on designing and manufacturing new products that they postpone the hard work of getting ready to market them until too late in the game.”
In business, it’s not enough to create an 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. Having knowledge of the various changes that a product goes through during its lifespan will help business owners become more successful.
What is the product life cycle?
“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. The timeline of the product life cycle may vary, but every new product ends up going through the sequence in one way or another.
When moving through the product life cycle, you’ll find that sales and profit margins will fluctuate. You have to adjust your marketing mix accordingly. To do so, you’ll want to consider four primary factors:
- Product demand
- Market competition
- Marketing strategy
- Manufacturing process
Your marketing needs will vary as you move through various stages of the product life cycle. Knowing when to alter your marketing mix will increase longevity and prevent your product from having a limited life.
Stages of the product life cycle
There are four different stages of the product life cycle. These stages represent the product’s introduction into the market, its ability to grow in the market, how it reaches maturity, and finally, its decline.
Each one of these life cycle stages poses a unique challenge to business owners. Understanding the product life cycle stages will put you at a competitive advantage.
The introduction stage is the first in the product life cycle. You’ll likely find that the introduction phase requires the most up-front costs. At this point, you’ve already spent a lot of money on product development and market research.
However, customers don’t know about your new product, which means your sales volume is low. So in addition to the R&D expenses that you’ve already invested, you’re going to need to sink considerable funds into accessing new markets.
When it comes to your marketing mix, you’re going to need to focus on things like your price point — the price where you need to sell your product to break even or penetrate the market — as well as building brand awareness. You can also work to distinguish yourself from other competitors in your field.
The growth stage is the point in the lifecycle when sales will begin to accelerate. As a result, you’ll start making profits on the product during this stage.
You may see your production costs diminish at this point — maybe as a result of you becoming more efficient in the manufacturing process. During this period, you may make adjustments to the product, perhaps adding 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. A few of the things you’ll consider during this stage include:
- Ensuring your pricing remains the same
- Reaching a wider audience
- Adding distribution channels to your marketing mix
Because of your new-found success and high demand for the product during this stage, you may be tempted to raise your prices. However, remember that your overarching goal is to continue to grow the brand while also improving overall market share in the long-term. If you’re going to raise your prices, you should not do so drastically.
If you raise your prices too high, you’ll alienate your customer base. A small price bump is an excellent way to accommodate higher marketing costs while showing consumers that your product is superior to the ones offered by your competition. If you’ve established a reliable customer base, consumers should have no problem paying a marginal increase for your superior product.
The maturity phase is when your profits will be highest. That’s because, during this time, your rates have stabilized. You don’t have many expenses in terms of development and promotion. And your brand awareness is at an all-time high.
However, success breeds competition. During this time, you’ll see other companies gunning for your top spot. You may see a rise in things such as sales promotions and price wars. Your marketing campaigns are critical during the maturity phase to ensure your product remains on top. Marketing components to consider during this stage include:
- Adding new product features to help beat the competition
- Lowering your price
- Running promotions to highlight your product’s differences
- Broadening your distribution channels to increase market share
All good things must come to an end. This rings true for your product during the decline phase. During the decline stage, your sales will begin to drop. This could happen for a few reasons, including:
- Changes in consumer tastes
- Technological innovations that render your product obsolete
- Market saturation
During this time, you’re going to need to focus significantly on production cost control. Not only do sales drop off at this time, but production costs may also rise due to declining volumes. You must adjust your strategies to ensure profitability, perhaps considering things like a switch into a cheaper marketplace. From a marketing standpoint, some of the things you’ll need to consider include:
- Coming up with new uses for your existing product
- Reducing production costs
- Discontinuing the product to avoid sunk costs
- Selling the product line to another company
Where is your product in the life cycle?
It’s not enough to understand that every product has a life cycle. 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 inevitable decline.
If you have an existing product, you should take the time to consider where in the life cycle you are. Unfortunately, this is not quite as easy as it sounds. The product life cycle model has some limitations, the most significant being that it’s difficult to pinpoint where in the cycle a product exists.
One of the best ways to determine where you are in the product life cycle is by monitoring sales trends. In the introduction and growth phases, sales should steadily trend upward. Sales should then peak during the maturity stage before beginning to decline.
However, even this has its limitations. For one, sales figures can vary from product to product. For instance, you can expect to see a more drastic increase in the sales figures for trendy fashion products than you would for a pair of blue jeans.
Secondly, you can often only view sales retroactively. It could take some time for you to gather the information needed to conduct a thorough marketing analysis.
The product life cycle model could be a useful tool for business owners, so long as they recognize that it’s a planning framework. There’s no exact science behind determining where a product is in its life cycle. Owners can use the product life cycle model to project future growth while also determining when they must do things such like:
- Add new features
- Focus on product differentiation
- Turn toward new product development
No matter where you are in the product life cycle, it’s never too late to consider your current position. In an ideal world, you would do this before developing and launching a product. However, this is not always feasible. Taking the time to identify the product life cycle for an existing product still gives you time to alter your marketing mix and change your competitive strategy.
Streamlining the product life cycle
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 maximize profits.
However, the product life cycle is not something that business owners should take lightly. With such a high rate of failure, owners need to make sure that they are efficient when it comes to product life cycle management. To ensure that they can dedicate their efforts toward increasing their market shares, American business owners will want to use reliable accounting software like QuickBooks.
QuickBooks makes it easy for owners to focus on the product life cycle. The accounting software allows owners to track business expenses and sales revenue effortlessly.