Industry Life Cycle

Just as a human being is born, grows, matures and then ultimately reaches to a decline stage so too industries and product lines. These stages are similar for all industries yet their experiences at each stage are different, some will last for a longer time and some just passes away very quickly. Even within the same industry, several firms will be at different life stages. The firm’s strategic plan lies at a point where they are greatly influenced by that stage in the life cycle at which the firm has found it. Many companies or industries make new uses of the products at the decline stage, thus to extend their life cycle.
Following are the stages of an industry life cycle:

1-    Introduction:

At this stage, the industry has fewer competitors and no threats from the substitutes as the industry is new. The consumer’s buying power is low, because those who want to purchase the product are willing to get hold of supplies as possible that are usually limited. This is the development of a new product, from the time it was being conceptualized to the time it’s being launched in the market. The investors might face some risks of investing significant amount of cash in order to promote the product.

2-    Growth:

The number of competitors gets increased as the industry is growing rapidly. As the growth in demand exceeds the growth of competencies, the rivalry amongst companies is kept in check. The growth stage also requires more capital. The firm’s marketing effort is to differentiate one’s product offering from its competitors. Therefore, the growth stage require finances  to launch a new marketing campaign as well as finances for constant investment in property, plant and other equipments to assist the growth required by the markets demand. The duration of this stage depends on the industry or its product line. The computer industry is a good example of a long growth stage due to advanced hardware services, add-on products and features. The firms are keener to spread out geographically at this stage and decide to get dispersed at the time of maturity and decline.

3-    Maturity:

When the industry approaches maturity, the industry life cycle indicated slowing sales growth. New entrants in the market will try to steal away the market share from the current products. The industry has to differentiate itself from the competitors by bringing up unique features of the products. A firm may try the low cost /low price strategy to increase the level of sales and to make profits from the inventory returns. There are fewer firms in the maturity stage who are supposed to be dominant in the industry. A laundry detergent is a good example of maturity products.

4-    Decline:

Declines are most unsurprising in an industry. If the product innovation is unable to keep a pace with other competitor’s products or other technological changes in the product has made the industry to become obsolete, the whole sale suffers and the life cycle experiences a decline.

The life cycle concept is very important for the managers in order to better understand sales growth and changes over time.

References:

http://www.inc.com/encyclopedia/industry-life-cycle_pagen_2.html

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One response to Industry Life Cycle

“Industry Life Cycle”. I claimed to have understood it during my MBA course 🙂 experience comes later.
I stumbled on this write-up today. On this web page!
ILC has been part of my professional journey (18yrs). At times it is not lack of differentiation but ‘Industry Structure’ that sidelines firms. Firms that cannot do business profitably are bought by other more profitable ones in their segment. These predators are usually companies with deeper pockets.
One option for smaller companies, aspiring to make it big, is to change the way business transactions happen in industry. This means doing business differently. Pursuing target markets differently. This differentiation can be by different ways of contracting with customers, modifying supply chain, etc.
Product innovation and differentiation is one way that most start-ups or smaller firms focus to stay in business during Maturity stage. Unfortunately, they continue to play in market by the rules that are set by larger firms. These rules are sometimes competitive advantage for these larger firms.
They seldom attempt differentiation in ways of conducting business or terms with customers that can change dynamics and make usual Predators loose their competitive advantage.

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