Life cycle model

The period from birth of an item to the end of its life Products, companies and industries all have life cycles Begins with development and ends with withdrawal

Introduction phase

There is some sales demand but total sales are low Firms that make and sell the product incur investment costs Start-up costs and running costs are high The product is not yet profitable

Growth phase

Total sales demand in the market grows at a faster rate New entrants are attracted due to high sales and profits Companies begin to earn profits

Maturity phase

Total sales remain fairly stable, prices and profits stabilize Opportunity for more growth no longer exists Product life can be extended through product updates Companies seek profits through product differentiation

Decline phase

Total sales and profits in the market start to fall Companies gradually leave the market No longer possible to produce and sell the product at a profit The product is discontinued by companies that make it

Relevance to strategic management

Strategic timing of market entry and market exit Management assesses the position of a product in its life cycle The future prospects in terms of profits and cash returns Entrepreneurial companies look for opportunities to enter a new market The number of competitors in the future will be influenced by the product phase Management consider the likely sales and returns over the entire life cycle for new product