Every
product has a life-cycle. It might seem like
Mars Bar and
Coca Cola have been here since the
dawn of time and will endure to the end of it, but this is not so.
The product life-cycle may be represented graphically1 (sadly impossible here), or described. It is split into five stages, some of which may be repeated with extension strategies (more on that later). The five stages are introduction, growth, maturity, saturation and decline. Not all product life-cycles are as described below (it describes the typical "textbook" example).
Introduction
During the introductory period of a product's life, it is likely to be fairly simple, perhaps tentative, have a high unit cost (costs will eventually go down if the company begins to sell enough to benefit from economies of scale) and not be very widely distributed. This is the first "acid test" in the real world for the product, and the company will soon see if all that hard research and development was worth it. And they'd better hope so, because product development is an expensive deal, which is another reason the unit cost could be high at this point.
Products at this stage are typically supported by the huge revenues hopefully being generated by the company's "cash cows" (products in the maturity stage).
Growth
As sales begin to grow, the cost per unit will begin to fall due to economies of scale. These products are the "rising stars" of the Boston Matrix, and they still need revenues from "cash cows" to help support them. However, the product is now becoming available in more outlets and the marketing has begun to switch from being informative to persuasive - an attempt is being made to make the product's market grow further.
Following the initial introductory period, some "tweaks" may now be made to the product after it has been used in the field for a period. Sometimes problems don't start to arise until the product is used by a large number of people for a while - market research is not infalliable.
Maturity
Maturity is every company's favourite stage of the product life-cycle. Sales are at their highest as the cost per unit hits rock bottom, and advertising can concentrate on stressing the product's competitive advantage to reel in more customers.
Products in the maturity stage are used to finance the introduction of "question marks", the growth of "rising stars" and the removal of "dogs". Every company needs a good supply of mature products (known as "cash cows") to deal with the cost of other products, but it also needs enough products in the introductory and growth stages to be able to keep going when the mature ones fall from grace.
At this point the company can begin product development using the mature product as a starting point. Slight changes can be made to the product and then it can be re-released, leveraging the original product for reputation and success. An example is the recently released "Coke with a dash of lemon".
However, all this goodness can't last for ever. Eventually a product will begin to fall from grace.
Decline
As sales start to fall, the product enters decline. The cost per unit is still low, but it's probably rising. If the company chooses to accept the product has had its day and therefore the decline, it will probably cease marketing and begin to close unprofitable channels of distribution.
The company may choose to push prices up to exploit brand loyalty or low supply as the product declines, or if no bugger wants the thing anyway they might just reduce prices to sell off the remaining stock. However, there's an alternative.
Extension strategies
As the company starts to see the transition from maturity to decline, it could try an extension strategy to keep the product nice and mature a bit longer. They could do this by changing some aspect of the marketing mix, such as the image of the product, where it's distributed or even change the product itself.
They could target an entirely new market segment or event new uses for their products, such as how football stadia are used for other sporting events. Johnson's began to target their baby products at mothers as well as babies.
If an extension strategy is successful, then the product will experience a new wave of growth and maturity. However, what went up must eventually come down...
Notes:
1. It is plotted as a graph of sales against time.