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:
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.
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.
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.
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.