Product Life Cycle
INDUSTRY EVOLUTION: Industry move through various stages from conception to stabilization to decline and stagnation. Where the industry is in its evolution impacts how investors see the future. The typical progression tracks along the following pattern:
Technological Innovation
Period of rapid growth
Maturity and consolidations
Decline or death
Potential rebirth with new innovation (e.g., catalogue retailing to internet retailing)
Closely related to this is the product life cycle.
PRODUCT LIFE CYCLE: The stages a new product goes through in the marketplace. The stages are INTRODUCTION, GROWTH, MATURITY, and DECLINE. The curves on the chart are for industry revenue and industry profit. Stages are:
INTRODUCTION: When product is first introduced to the marketplace. There are losses or small profits, due mainly to the high cost of developing market the product.
Few product variations.
Firms spend heavily on raising awareness and stimulate trial.
Stimulate PRIMARY DEMAND (desire for a product class) because it is new. As they move along the life cycle, try to stimulate SELECTIVE DEMAND (or brand demand/preference).
Pricing is either SKIMMING (high pricing to cover development costs) or PENETRATION (low pricing to build unit volume).
Distribution is limited, service is limited.
Light competition, if any.
GROWTH: Period of rapid growth in demand (sales).
Competitors begin to appear.
Prices