Products have a life cycle which tracks their progress from initial ‘a-ha!’ moment to eventual decline – something business leaders need to understand when considering marketing strategy.
Organisations keen to maintain growth and profit-making must have a long-term product strategy in place. So argues Harvard professor Theodore Levitt in his seminal article from 1965, helpfully identifying the four stages of the product life cycle:
These, he explains are plotted against 'sales made' and 'the length of time the product has been available to its market' ('markets' being what 'marketing' is all about). As we reach each stage, we should already be considering the competitive requirements of the next one as a way of planning the sequence of moves most likely to extend a product’s normal life.
“If you don’t look ahead, you’ll always be behind,” warned author and businessman Harvey MacKay.
A new product is brought to market before there is a proven demand for it. Sales are low and creep along slowly.
This stage is fraught with uncertainties, unknowable risks, and often ravaging costs.
Generally, demand has to be ‘created’ – and how long this takes depends on a number of factors, such as the product’s complexity, the presence of competitive substitutes, and the degree of ‘newness’.
The greater the degree of newness, the greater the risk of failure, as it can be very difficult to survive a long period of turning prospects into customers. That’s why so many new products never get off the ground.
In addition, if we are the innovator, we’ll bear most of the costs and the risks of developing both the product and the market. And even if we do succeed, there are likely to be armies of imitators on the horizon, ready to rush in and capitalise on the hard work we’ve already put in.
Demand begins to accelerate and the size of the total market expands rapidly. This might also be called the ‘take-off’ stage.
The usual characteristic of a successful new product is a gradual rise in its sales curve. At some point, a marked increase in consumer demand occurs and sales take off.
Potential competitors who have been watching developments may then decide to jump into the fray –some with carbon-copies of our own product; others, with functional and design improvements to offer. And all this helps to drive brand differentiation.
Now, a new challenge emerges, namely getting consumers to prefer our brand rather than simply trying the product. This generally requires important changes in our marketing strategy and methods, and the presence of competitors both dictates and limits what can easily be tried; for example, testing for the best price level or the best channel of distribution.
As the rate of consumer acceptance accelerates, it generally becomes easier to open new distribution channels and retail outlets. It’s worth noting that the consequent filling of distribution pipelines may give an exaggerated impression of profit opportunity which, in turn, attracts more competitors.
Some of these will begin to charge lower prices because of later advances in technology, production shortcuts, or the need for lower margins. And this moves us to the threshold of a new stage of competition.
Demand levels off and grows, for the most part, only in line with population growth.
The first sign of this stage is evidence of market saturation. Sales now grow but only on a par with the population, and price competition become intense. Competitive attempts to achieve and hold brand preference now involve making finer and finer differentiations in product claim, customer service and promotional practices.
At this stage, retailers and distributors will typically move from actively ‘selling’ the product to simply displaying it and direct communication with the consumer becomes increasingly important; for example, advertising specific benefits to discrete market segments.
This stage may be passed through rapidly (as in the case of fashion fads) or it can persist for generations, either with per capita consumption neither rising nor falling, or in a state of steady decline.
The product begins to lose consumer appeal and sales drift downward.
When market maturity tapers off, the product enters the stage of market decline. The overcapacity already apparent during the period of maturity now becomes endemic and few companies are able to weather the competitive storm.
Some producers may feel that with proper management (and cunning plans) they will be one of the survivors. And they may seek to hasten their competitors’ downfall, by frightening them into early withdrawal from the market with tactics such as aggressive mergers or buy-outs.
Those companies that do survive tend to see production concentrated into fewer hands. Prices and margins become depressed and consumers grow bored and are hard to excite. At this point, it’s pretty much game over.
While it’s difficult to predict the exact slope and duration of a particular product’s lifespan, understanding the four stages of the life cycle at least gives us a framework for thinking ahead.
What we’re aiming for is an active rather than a reactive mindset.
For example, we should consider the moves likely to be made by our competitors, as well as potential changes in consumer reactions to our product. This can help us to prepare for and act at the optimum point of consumer readiness and/or competitive effectiveness.
When developing a new product or service, we should therefore try to plan at the very outset the series of actions we can employ at each subsequent stage. In this way, we have the best chance of infusing new life into a flagging product at the right time and in the right way - and of being more purposeful when phasing out those that really are dead in the water.
Levitt cites the example of nylon, originally used in a military context (for making things such as parachutes, rope, and thread) which went on to enter, and then dominate, the women’s hosiery market.
Here, nylon developed the kind of steadily rising growth and profit curves that most companies dream about. Until, after some years, those curves began to flatten out.
Rather than accepting the inevitable decline of nylon, the manufacturer – Du Pont – had already considered measures to revitalise sales and profits using four classic steps:
Similarly, over the years, 3M has gone from being a Scotch tape business to one that recognises its expertise is actually the technology of bonding things. As a result, it has developed scores of more profitable items, including electronic recording tape and ‘Thermo-Fax’ duplicating equipment.
We could probably all benefit from taking a more expansive view of the nature of our products and services – or even our whole business.
Planning ahead can also help to guard against potential pitfalls. For example, Levitt cites the case of Metrecal, initially advertised as a diet food for the ‘overweight’ consumer, using a strong medical theme. Sales boomed until imitative competitors decided to emphasise ‘fashionable slimness’.
Metrecal’s med-heavy image then proved far less appealing than the brands perceived as fashion-smart. Yet the draw of the original advertising was so strong that overturning consumers’ existing view of Metrecal proved a formidable task.
As Levitt himself later said, corporate purpose is not just about “merely making money”; it is “to create and keep a customer”. So let’s not lose them too soon, by letting them slide too swiftly down the product life- cycle curve.