Understanding the Product Life Cycle (PLC) is of critical importance to a firm launching a new product. It helps a firm to manage the risk of launching a new product more effectively, whilst simultaneously maximising the sales and profits that could be achieved throughout the product's life cycle.
1. What is the product life cycle?
The PLC indicates that products have four things in common: (1) they have a limited lifespan; (2) their sales pass through a number of distinct stages, each of which has different characteristics, challenges, and opportunities; (3) their profits are not static but increase and decrease through these stages; and (4) the financial, human resource, manufacturing, marketing and purchasing strategies that
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The introduction of a new product onto the market is typically characterised by very slow sales, which may grow only very slightly over a long period of time. Whilst profits will gradually improve during this stage, it may take until near the completion of the introductory stage in the PLC before the company witnesses positive profitability. The reason for such low profitability during this stage is not so much the limited success of the product – measured in terms of low, albeit growing, sales – but the high costs of production and promotion that are required to try to develop customer awareness. Depending on the nature of the product, the firm many need to invest in building inventories or acquiring fixed assets such as plant and machinery. Whilst this stage in the process can take a long time and consume considerable resources, firms must not be tempted to try to obtain early profitability at the expense of long-term product viability. For example, introducing a new product at a low price may encourage a lot of consumers to make an immediate purchase, but the firm not only sacrifices long-term sales because too many people have bought the product early on but also may considerably reduce its margins, making it more difficult and time consuming before the product first becomes profitable and hits its break-even level. As such, firms must make careful choices over their marketing