Product life cycleThis is the idea that products, like people, have a birth, a life and a death, and that they should be financed and marketed with this in mind. Even as a new product is being launched, its manufacturer should be preparing for the day when it has to be killed off. Its sales and profits start at a low level, rise (it is hoped) to a high level and then decline again to a low level. This cycle is sometimes referred to simply as PLC.
Philip Kotler breaks the product life cycle into five distinct phases:
1 Product development. The phase when a company looks for a new product. New products do not have to be “out-of-the-blue” new (like the video-cassette recorder or the compact disc). They may be merely additions to existing product lines (the first cigarette with a filter tip, for instance) or improvements to existing products (a new whiter-than-white washing powder).
2 Introduction. The product's costs rise sharply as the heavy expense of advertising and marketing any new product begins to take its toll.
3 Growth. As the product begins to be accepted by the market, the company starts to recoup the costs of the first two phases.
4 Maturity. By now the product is widely accepted and growth slows down. Before long, however, a successful product in this phase will come under pressure from competitors. The producer will have to start spending again in order to defend the product's market position.
5 Decline. A company will no longer be able to fend off the competition, or a change in consumer tastes or lifestyle will render the product redundant. At this point the company has to decide how to bring the product's life to an end—what is the best end-game that it can play?
Even if managers know that a new product will follow this cycle, they cannot be sure when each phase will start and for how long it will last. Although some products appear to have been around for ever (Kellogg's corn flakes, for example, or Kleenex tissues) the products that bear these names today are vastly different from the ones that carried the same name 50 years ago. The continuity of the brand name helps to disguise the fact that the product itself has been through several life cycles.