Life is a series of developments and changes, resulting in peaks, decline and eventually, demise. This is the case not only for living beings, but also for consumer products. Products go through four distinct stages in the life cycle, each with its own unique marketing strategies. Managers should understand each of these stages and how strategies can be best used within each stage, to maximize company profits.
During the introduction stage, a product is new and unknown to consumers. It is necessary, therefore, to use an active strategy in an attempt to win over new customers. Although there is usually little competition during this stage, the market is not fully developed. A marketing strategy needs to not only make consumers aware of the product, but also convince them that it fulfills a need for them. Revenues are typically low or negative during this stage, so firms need to be prepared to spend money on their marketing strategy now for future gains.
During the growth stage of the product life cycle, products become better known to the public. Consequently, it is not necessary to expend as much effort and resources on developing product awareness. Firms also benefit, during this stage, from increased production levels, which results in economies of scale. During this stage, however, competition typically increases, making price competition an important component of a marketing strategy. At this stage, most firms will use the strategy of reducing prices to remain competitive, while retaining their profit margins by reducing advertising spending and benefiting from more efficient production.
The maturity stage of the product life cycle occurs when the market becomes saturated. At this point, production costs are further reduced through economies of scale and experience, but competition leads to a significant reduction in profits throughout the industry. There are two strategies typically employed in order to maintain profitability during the maturity stage; firms can either differentiate their brand through marketing or introduce new features to the existing product.
At the decline stage, sales either decrease or stabilize. If demand decreases, this will, typically, result in significantly lower price margins, often making it impossible to make profits from the product. At this point, firms that cannot make profits will usually discontinue their product and focus their efforts on other offerings. Firms that can produce the product at a profit will normally market them as a commodity, spending little on marketing and pulling in small profits on slight margins.