Controller Library Value Pack
CFO Library Value Pack

Accounting Bestsellers
This form does not yet contain any fields.

    The product life cycle

    The product life cycle refers to the different stages that a product passes through over time. The concept is used to set pricing, product revision, and marketing strategies for a product.

    The product life cycle is comprised of the following four phases:

    1. Introduction Phase - In this phase, a business is trying to build market acceptance for a new product. This has the following effects:
      • Making significant marketing expenditures to establish a brand
      • Pursuing early adopters, who can then influence others to buy
      • Pricing can be set high to skim off profits before competitors enter the market, or set low to deter others from entering
      • Since the company is uncertain of success, it is more likely to minimize risks by outsourcing high-investment production work
      • There is a strong cash outflow, as the company is making large expenditures to support the product
    2. Growth Phase - In this phase, the company builds market share to maximize sales of the product. This has the following effects:
      • Additional versions of the product are released, along with adjacent spin-off products and the build-out of a complete product line
      • Marketing is expanded to ensure that all possible customers are reached
      • The product is sold through a large number of distribution channels
      • As long as customer acceptance is strong, price points are held or even increased
      • There can still be a cash outflow, since the company is investing in more fixed assets and working capital to support the expansion of sales
    3. Maturity Phase - In this phase, there are many competitors, so the primary task is to defend market share. This has the following effects:
      • There is a close analysis of how each product variation matches up against competing products, resulting in products that have differentiating features
      • There is ongoing, downward pressure on prices, which can result in the imposition of a target costing program to design lower-cost products
      • Coupon and other discount deals may be offered to spur demand from customers
      • A maintenance level of marketing expenditures is used to ensure that customers are aware of the product offerings
      • There is an increased focus on cost reduction throughout the product line
      • Cash flows can be strongly positive, since there is no longer a growth phase that would otherwise require more working capital
    4. Decline Phase - In this phase, product sales gradually decline, leading to the eventual termination of the product. This has the following effects:
      • Reduce costs to the greatest extent possible in order to preserve positive cash flows
      • Gradually withdraw the product from some distribution channels, focusing on those remaining niches where the product still generates a profit
      • Conduct an orderly product termination, selling off excess inventory and shutting down production lines in the most cost-effective manner

    This concept can be applied to a single product or to an entire product line.

    The duration of the product life cycle depends on the market. In some cases, a product may last for decades, while other products may have a life span of less than one year.