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We have witnessed a significant shift after millennium (2000) in the supply & demand of technological products & services. Product lifecycles have been subjected to multi-dimensional factors, ranging from ease of use, accessibility, & efficiency (Android/Apple Apps).
Product lifecycle theory is mainly used to evaluate the progress of products/services from their inception to decline. C-Suite executive’s plans to ensure that the underlying margins are not compromised & any unprofitable products/services are stopped to save working capital of the company.
Product life cycle has the following 4 key stages:-
This is when the product /service is planned (R&D) by the business & authorized by the senior executives for launch. Marketing & advertising strategy is made accordingly to maximize market share (CRM). Pricing strategy is implemented to gain maximum sales (Price skimming, Market penetration).
This is when the product/service has been accepted by the consumers & now in great demand. New entrants will be entering the market & trying to gain market share. At this stage the margins are still high.
This is when the product/service has reached its optimal level in terms of its margins/sales. Consumer taste has changed or there is likely to be a new alternative available soon (IPhone v Nokia). New entrants are likely to offer better products/services. Cost reduction initiatives are likely to begin to ensure that company is still able to maintain high profit margins that it did during the growth phase.
This is when the product/service has lost its mark. New alternative products/services have been provided by competitors. At this stage the Company will have to assess whether they want to keep their product/service in the market or its time to stop & produce something different.
Apple v Nokia
Late 90’s Nokia was considered to be the market leader of Mobile Phones (3310, 3410, and 8210). Then came the I-phone & dramatically changed the mobile market. Consumers were inclined to revert to i-phone as it offered more functionality & value for money then Nokia did.
UBER v Conventional Cab Office
Unlike conventional Cab-offices operating from physical locations; San Francisco based, UBER introduced a business model where anyone could start their business as a Cab Driver without having to go through via another intermediary. Equally, Consumers can book a ride by downloading an app on their smart phone & pay digitally. Uber rapidly developed into a market leader. It’s now operating in many parts of the world.
In Summary, product lifecycle analysis enable companies to predict the future growth rate for a particular product/service; given the current macro-economic factors in terms of supply & demand.
There is a school of thought, who criticizes product lifecycle theory as it appears to be hypothetical to assume the timeframe of a particular phase. They argue that it’s almost impossible to quantify a particular product lifecycle timeframe e.g. how long a product will stay in maturity phase or in growth phase.
Practically speaking, consumer taste does change with the passage of time. Nokia once considered being the market leader lost business once I-phone arrived.