Products and product groups can be precisely assigned based on their market age. In order to be able to carry out a precise analysis of the current competitive position on the market, the product life cycle must be considered . Ultimately, it is a marketing concept in which the passage of time of a product is observed.
Starting with the market introduction to the market exit. A distinction is made between five phases , because depending on the phase, a product can be different for a company. This knowledge enables companies to take certain measures in order to remain competitive or to achieve the best possible profit on a product.
What does product life cycle mean? – definition
In general, companies that want to sell a certain product try to sell it successfully for as long as possible. It should be clear to everyone that at some point every product will no longer sell as well as it might have been at the beginning. In recent years it has become clear that the time in which the products are offered on the market is getting shorter and shorter . This means that the individual product life cycles are getting shorter and shorter. It is therefore all the more important to react faster and in a more contemporary way as a company.
What does the product life cycle describe?
According to gradchem, a product life cycle describes individual phases that begin with the market launch and end when production is discontinued. Anyone wondering why the product life cycle is getting shorter and shorter: The reasons why the cycles are now shortening can be found in the field of competition and rapidly advancing technology. Thus, the competition and the number of companies that bring similar or equivalent products to the market is growing. Of course, it is important here to constantly adapt to these situations.
Technological advances, which are being developed better and faster, also make it necessary to adapt your products to the current status more and more quickly. Of course, a company is happy when a product sells well for as long as possible. But if it no longer does that at some point, from an economic point of view, changes must be addressed.
Objective of the product life cycle
A product does not only need attention at the beginning of the market launch. You have to constantly monitor , control and improve this . The aim is to take appropriate marketing measures based on forecast sales and profit trends in order to sell the product profitably for as long as possible. A company that, after successfully launching a product on the market, does not develop further or takes the measures just described will not survive long. Not even if the introduction was a complete success.
If, for example, the manufacturer Apple had stopped development after the introduction of its first iPhone, customers would no longer buy an Apple iPhone today due to the competition. And that although the introduction of the first iPhone, the Apple company, was an insane success from an economic point of view. It was followed by the iPhone 4, 4S, the iPhone 5 and many other models. And although these are always technically cutting-edge models, this only applies for a certain period of time. But how can you extend the product life cycle ? And is that even possible? The answer is yes, as illustrated by the five phases of the product lifecycle model .
The 5 phases of the product life cycle model
Overall, the course of a product life cycle shows the course of sales and profit . Although this varies from product to product, it is usually a typical curve that reaches its peak in phase 3 to 4 and then steadily decreases.
Phase 1 – market launch
The first phase is probably the most exciting time for a company, because this is where the finished product begins to enter the market. From this point on, customers can buy the product. In the meantime, of course, it makes sense to officially advertise the exact time of market entry. This allows customers who are interested in the product to place pre-orders. This preparatory work is less of a marketing measure than an instrument for measuring success. Based on the reactions and the number of pre-orders, companies can see how successful the product will be before entering the market. The transition to the actual market launch is thus easier.
The market launch phase ends with the product being accepted by the selected or intended target group and sales figures increasing continuously. If the so-called break-even is reached, the product goes into the second phase, the growth phase.
What does break-even mean? In German, the break-even or break-even point can also be referred to as the breakeven point . If a company has arrived there, it has made a profit of 0 euros at the time of break-even. Even if that doesn’t sound like anything good at first, you can actually speak of success. After all, so many products have been sold to date that the resulting profit has taken all the fixed costs up to the time of market entry.
Break-even point =
Sales * price – sales * variable costs – fixed costs = 0
With break-even analysis, a company can accurately calculate whether or not a product will turn out to be profitable. A product should bring in enough profit that the breakeven point is reached as quickly as possible, so that the product itself still has a chance of growth. If the first phase takes too long, it becomes more and more difficult to successfully position yourself on the market.
Even if products are generally subject to a product life cycle, this is no guarantee that a product will transition into the growth phase. A lot of products flop or fail at all to bring in sales costs again. And that is not even rare, experts assume that around 70% of all products introduced will be withdrawn from the market before the growth phase. The threshold into the second phase is therefore to be viewed as critical for a company and is influenced by various factors:
- Product features
- Customer requirements
- Customer acceptance
- Customer benefit
- Vendor’s go-to-market strategy
- Resources for market and customer development