Part of being a small business owner is strategizing pricing, creating and marketing products or services, and paying attention to industry trends. If you sell goods, you need to know about the product life cycle.
Product life cycle is a model that the majority of business owners recognize and follow. It helps small business owners to strategize and predict product success from the time they release it. What is the product life cycle?
What is the product life cycle?
A product’s life cycle is its progress from when it is created to when it is discontinued. There are four stages in the cycle, which are development, growth, maturity, and decline. The product life cycle helps business owners manage sales, determine prices, predict profitability, and compete with other businesses.
Product life cycle management, or PLM, is the process of observing a product throughout its life cycle. Track each product’s activities and successes to keep profits high and avoid steep losses.
Product life cycle stages
Every product progresses through different stages between its beginning and end on the market. To better manage the product’s life cycle, you need to know these four stages.
Understanding how to deal with each new product is important. And, the different stages of the product life cycle help you with strategic pricing. Strategic pricing is when a business decides how to price products or services based on what will attract buyers.
The initial stage of a product’s life cycle, development, is when the product is first introduced to the market. Typically, sales are slow during this stage because consumers are unfamiliar with the new product.
Sales are especially slow when the product is unique because consumers might not have an instant demand for it. But, there is generally low competition.
During this stage, you might choose to increase your marketing efforts to raise awareness about the new product. You can promote the product on a budget through outlets like social media channels and your business website. You will need to explain the product in your marketing materials.
Developing a product is expensive, so you might be desperate to make sales. Therefore, you will need to come up with a pricing strategy that fits your business.
Pricing strategy in this stage: Many businesses either price their products low or high, depending on their industry and financial projections.
Pricing products low (market penetration) helps a business penetrate the market and gain consumer attention. Once the business has a loyal customer base, it typically increases prices.
Businesses might choose to introduce products with high prices. You might price products high (price skimming) to try to turn a quick profit and make up for the costs of developing. Pricing products high is especially good if there is a demand for a product and lack of competition.
During the growth stage of the life cycle of a product, there is high demand for the product and a lot of sales. Though this is a really great stage for the product, there are some drawbacks.
When you sell a product in its growth stage, your competition might begin to duplicate it. Competitors might release the same product you sell at a lower price, or they might work on making the product better.
You might need to work on getting your customers to choose your product over the competition. This could require more marketing and lowering your prices. You might try to market to new customers.
Pricing strategy in this stage: Because of the competition, you might need to lower your prices and adopt a competitive pricing strategy.
In the maturity stage, there isn’t as much sales growth. When the product is mature, most of your target customers already have the product, so there is not as much demand.
Your sales volume will not be climbing like during the growth stage. Some businesses continue making additions to their products during this stage.
Typically, the maturity stage has the most competition. Once products are developed, they are more unique from competitor to competitor. Many businesses work on marketing their product and emphasizing its uniqueness as well as any discounts.
Pricing strategy in this stage: Many businesses continue using the competitive pricing strategy in the maturity stage. In fact, competition is usually more fierce than in the growth stage. Consider cutting your prices to keep customers, but don’t go below your break-even point.
You could also use a discount pricing strategy so that consumers will prefer your product. With a discount pricing strategy, you need to mark down the price.
The final stage in a product’s life cycle is decline. There is less demand for the product, and businesses must decide if they want to discontinue the product or keep producing and selling it.
Some businesses that don’t pull the product add features to make it stand out more and give it fresh life.
There are a few different reasons for the decline of a product:
- Competitors’ products are getting more attention than yours
- Consumers are no longer interested in the product
- You aren’t profiting off the product anymore
Pricing strategy in this stage: During a product’s decline, many businesses choose to lower its price. In fact, there are a few different pricing strategies you can try in this stage.
You can try a discount pricing strategy to increase customer traffic. This will help free up space at your business for new products.
Another pricing strategy option is bundling. With bundling, you could include the declining product in a deal with other products. This can help get rid of the declining product and increase sales.
Be aware that some businesses choose to do nothing during the decline stage, especially if they are unsure if the product is declining for good or just going through a temporary dip in sales.
Preparing for the product life cycle
There is no definite way you can prepare for the product life cycle. You can’t predict the exact amount of time the product will be in each stage. But, understanding the product life cycle will help you know how to handle pricing strategies, competition, and marketing.
Need an easy way to track your expenses and income? Patriot’s online accounting software lets you keep track of incoming and outgoing money. And, it’s made for the non-accountant. Try it for free today!
This article is updated from its original publication date of August 22, 2017.This is not intended as legal advice; for more information, please click here.