A product’s life cycle (which should not be mistaken with a project’s life cycle) bears a strategic relevance for the company that produces it.
Each year, countless products are released into the market in a cleverly designed way to connect with the consumer and hope that the investment pays off for the organization that created it.
However, once the goal of connecting with the consumer is achieved, durability, or rather managing the product’s life cycle, is the key to ensuring that this product thrives year after year and makes the Company that produced it thrive as well.
In this article we will be looking at its relevance in business strategies. By the way, have you already checked out our article explaining the difference between Corporate Governance and Management?
What is product life cycle management?
Product life cycle (PLC) describes the different stages a product undergoes from launch to its potential obsolescence.
Here’s a simple example: let’s think of a product as a flower in a garden.
You can’ t just plant it, i.e., launch the product in the market, water it, i.e., create occasional promotions, and expect it to flourish year after year. At some point, its vitality will decrease and you will have to consider what to do, whether to replant it or to eliminate it altogether.
You can see, then, how managing the life cycle of a product is an important part of business strategy and helps you adapt your approach to the product.
The four phases of a product’s life cycle and related business strategies
To better understand this, it is worth breaking down the product life cycle into 4 distinct phases, which will be examined below.
This is referred to as the launch phase of the new product, where sales increase slowly because awareness is currently limited.
Costs are high and include large amounts of advertisement and promotion.
In the introduction phase, the organization will operate at a loss, making this the most critical phase of the product life cycle.
Strategies for achieving success during the introduction phase:
- Clearly identify the market so that at launch you can target and effectively engage with the consumer most likely to become a customer.
- Build a dominant market position, stand out from your competitors, your product doesn’t have to be just one of the many in the crowd, but have a unique incentive for consumers to connect with it.
- Be a pioneer. Being the first to launch a new product never seen before.
- Set a strong brand identity.
Once awareness is built up and an appropriate distribution strategy is implemented, the product will be growing and, economically speaking, break-even will be reached first, after which the organization will begin to earn a profit.
When a product is growing, it means the market has accepted it and consumers are trying it out.
This is the moment to ramp up distribution to make sure you match the product’s supply to demand.
During growth, of course, competitors will enter the market – if they aren’t already there or otherwise increase their share.
Here are the business strategies during the growth phase:
- Keep track of prices to ensure you will remain competitive with new offers.
- Confirm that the actual customer fits the expected target customer and modify the message to users if necessary.
- Find new distribution channels using sales history.
- Improve product quality by possibly adding new features or support services to increase market share.
The product reaches its maturity stage when sales volume slows down and begins to plateau or, in some cases, drops slightly.
Now an action becomes necessary otherwise the product sales will start to decline rapidly.
Products reach maturity for a number of reasons, including competition launching a product that is highly valued by customers, price wars, and initial enthusiasm for the new product beginning to fade.
This obviously leads to a decrease in profit, given by both a decrease in sales and an increase in promotional spending.
Common business strategies that can help during this phase fall into one of two categories:
- Market change: this includes moving into new market segments, redefining target markets, winning over competitors’ customers, and converting non-users.
- Product change: for example, adjusting or improving product features, quality, prices and distinguishing it from other products in the industry.
The example of Apple best serves to show the second point. In fact, Apple is the first company to show innovative product life cycle management.
Realizing that most cell phone users subscribe 12- to 24-month contracts, Apple releases a new “modified” iPhone every 12 to 18 months. By the time the current model is approaching its maturity, the company releases a new, updated model. The result, you know, is a loyal following proud of the latest technology that is unlikely to switch to a competitive product offering.
This stage can be identified by both a decline in sales volume and a reduction in profits.
Allowing the product to reach decline should be a strategic choice, meaning that the organization has identified the “expiring” product and intentionally planned that this would not be upgraded, but would be discontinued at some point in the future.
For example, this choice is given by a scheduled launch of a new product that will replace the current one but will not be an upgrade.
Business strategies to minimize losses during decline are:
- Minimize promotional expenditures on the product: rather than trying to boost sales with contests and discounts, you need to allow sales to naturally decline.
- Reduce the number of distribution points.
- Roll out price discounts to persuade customers to purchase your product while supplies last.
Product life cycle: bottom line
A product’s life cycle is seamless, and so should business strategy.
Knowing where the product is within its life cycle will help determine refinements or adjustments to strategy.
The most important piece of advice for using product life cycle management in business strategies is to regularly review sales volume and profitability.
Here, data that will help identify what stage the product is in can be extracted, allowing you to plan your product life cycle response strategies more effectively.