Understanding the Product Life Cycle
While many people would have you think that successful new products enter the market and continue growing exponentially for years on end, in many cases that isn’t true. Generally speaking, products follow a path of rise and fall, known as the product life cycle.
It’s crucial to understand this life cycle, to help you plan ahead and develop your business strategy. Identifying which stage your product is in can go a long way in helping you develop your marketing and growth strategies.
So, let’s take a look at these stages and explore how you can make them work for you.
1. Introduction Stage
The introduction stage is where it all begins. The second you even start to develop a new product to bring to market, you’re entering the introduction stage. It’s almost always the most expensive and quite often the most difficult. Whether you’re the first-mover or following a competitor into a new market as a second-mover, your sales will be relatively low and your research and development expenses will be high.
It may even be the case that before your product gets off the ground, it goes underground. Product development can be an expensive process, putting you in the negatives before you’ve even launched. And that leaves you, scrapping to make sales to get you back into the green.
The focus here is customer satisfaction, which will ultimately dictate whether you get out of the introduction stage. Positive customer experiences can not only directly drive sales through referrals, it can do wonders for building your brand reputation.
And there’s nothing more attractive as a brand than having positive customer feedback.
2. Growth Stage
You’d think that for a successful product, sales will gradually rise and rise to the point where the business becomes profitable. In reality, sales growth and decline can be much more volatile than that. You might not sell a single product for weeks, then suddenly an influencer tries it and promotes it and suddenly you’re struggling to fulfil orders. It happens.
Take a second to think about the producers of fidget spinners. They became a craze pretty much overnight, and suddenly three weeks later, everyone went back to not wanting them.
It’s usually around this time, that a new market tends to have an influx of new competitors. Savvy businesspeople observe the meteoric rise of a product and hope to get in on the party. And often, they’ve learnt from the early mistakes of the first-mover. We discussed the second-mover advantage in depth last week.
3. Maturity Stage
At some point, the party ends. The good news is that unless the product was simply a craze (see fidget spinners), sales won’t drop off. Sales growth will simply level out. The days of rapid expansion and revenue growth are replaced with stability and consistency. That isn’t necessarily a bad thing; one silver lining is that the business will need less capital investment as they maintain their level of production.
Yet as you know, there’s no room for complacency in a competitive market. A mature market often signals a saturation point, where the majority of the target market already owns the product and there’s plenty of competing businesses. Anyone with a basic understanding of supply and demand can understand what will happen next; the price wars begin. Competitors start to lower their prices in an effort to scoop up a greater share of the market, and often other businesses will follow suit. Suddenly every player in the game has lower prices and profit margins are being eroded.
Price wars aren’t guaranteed to happen. But they’ve dismantled plenty of strong markets in the past.
4. Decline Stage
No one can really tell you when it’s going to happen, but at some point, in a product’s life, it may enter its final stage; the decline. Either the price wars eat too much of the revenue pie or demand for the product simply drops of. Some companies think they’re savvy enough to make it through the decline and some quickly turn back to the drawing board to get started on developing their next successful product.
Again, this stage isn’t necessarily a guaranteed occurrence at any point in a product’s life. Some products are so useful that they never reach the decline stage, such as washing machines. Yet specific products almost always reach the decline stage. Something new and improved comes along that simply makes the product obsolete. And customers eagerly adopt the new shiny product that is more effective than the old one.
Why Is It Relevant for You?
So, what does this mean for you, the budding innovator with a new product idea? Well, most importantly, it means that you can be realistic in your understanding of your product’s potential. We’ve talked about optimism bias before, where every founder loves to think that their product is the best thing since sliced bread. Yet having an understanding of the product life cycle and the characteristics of each stage is crucial to developing realistic expectations for your products success.
Not only will it help you with your expectations, it will help you with your planning. Being able to identify which stage the product is in can be an incredibly powerful tool. In most cases, the ideal course of action for a business depends on which stage the product is in.
Maybe you’re considering investing some money into small improvements in a product, but you soon realise that the product has just entered the decline stage. Is that really a wise decision with that knowledge? Shouldn’t you be considering investing that money into a new product idea you had, rather than try to revive a product with declining sales?
The crucial thing to remember is that the product life cycle is simply a framework to use to evaluate your product. It isn’t a rule of law that dictates how a product is going to sell, it is simply designed to help you make a more informed decision about your product which is more likely to be successful.
Some business owners ignore it completely, some live by. That choice, is up to you.