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What is industry lifecycle?

Like other living creatures, industry also has its circle of life. The industry lifecycle imitates the
human lifecycle. The stages of industry lifecycle include fragmentation, shake-out, maturity and
decline (Kotler 2003). These stages will be described in the followings section.

What are the main aspects of industry lifecycle?


Fragmentation Stage
Fragmentation is the first stage of the new industry. This is the stage when the new industry
develops the business. At this stage, the new industry normally arises when an entrepreneur
overcomes the twin problems of innovation and invention, and works out how to bring the new
products or services into the market (Ayres et al., 2003). For example, air travel services of major
airlines in Europe were sold to the target market at a high price. Therefore, the majority of airlines'
customers in Europe were those people with high incomes who could afford premium prices for
faster travel.

In 1985, Ryanair made a huge change in the European airline industry. Ryanair was the first
airline to engage low-cost airlines in Europe. At that time, Ryanair's services were perceived as
the innovation of the European airline industry (Le Bel, 2005). Ryanair tickets are half the price of
British Airways. Some of its sales promotions were as low as £0.01. This made people think that
air travel was not just made for the rich, but everybody (Haley & Tan 1999).

Ryanair overcame the twin problems of innovation and invention in the airline industry by
inventing air travel services that could serve passengers with tight budgets and those who just
wanted to reach their destination without breaking their bank savings. Ryanair achieved this goal
by eliminating unnecessary services offered by traditional airlines (Kaynak & Kucukemiroglu,
1993). It does not offer free meals, uses paper-free air tickets, gets rid of mile collecting scheme,
utilises secondary airports, and offers frequent flights. These techniques help Ryanair save time
and costs spent in airline business operation (Haley & Tan 1999).

Shake-out
Shake-out is the second stage of the industry lifecycle. It is the stage at which a new industry
emerges. During the shake-out stage, competitors start to realise business opportunities in the
emerging industry. The value of the industry also quickly rises (Ayres et al., 2003).

For example, many people die and suffer because of cigarettes every year. Thus, the UK
government decided to launch a campaign to encourage people to quit smoking. Nicorette, one of
the leading companies is producing several nicotine products to help people quit smoking. Some
of its well-known products include Nicorette patches, Nicolette gums and Nicorette lozenges
(Nicorette 2007).

Smokers began to see an easy way to quit smoking. The new industry started to attract brand
recognition and brand awareness among its target market during the shake-out stage
(Hendrickson et al., 2006). Nicorette's products began to gain popularity among those who
wanted to quit smoking or those who wanted to reduce their daily cigarette consumption.

During this period, another company realised the opportunity in this market and decided to enter it
by launching nicotine product ranges, including Nic Lite gum and patches. It recently went beyond
UK boarder after the UK government introduced non-smoking policy in public places, including
pubs and nightclubs. This business threat created a new business opportunity in the industry for
Nic Lite to launch a new nicotine-related product called Nic Time (ABC News 2006).

Nic Time is a whole new way for smokers to "get a cigarette" – an eight-ounce bottle contains a
lemon-flavoured drink laced with nicotine, the same amount of nicotine as two cigarettes (ABC
News 2006). Nic Lite was first available at Los Angeles airports for smokers who got uneasy on
flights, but now the nicotine soft drinks are available in some convenience stores (ABC News
2006).

Maturity
Maturity is the third stage in the industry lifecycle. Maturity is a stage at which the efficiencies of
the dominant business model give these organisations competitive advantage over competition
(Kotler, 2003). The competition in the industry is rather aggressive because there are many
competitors and product substitutes. Price, competition, and cooperation take on a complex form
(Gottschalk & Saether, 2006). Some companies may shift some of the production overseas in
order to gain competitive advantage.

For example, Toyota is one of the world's leading multinational companies, selling automobiles to
customers worldwide. The export and import taxes mean that its cars lose competitiveness to the
local competitors, especially in the European automobile industry. As a result, Toyota decided to
open a factory in the UK in order to produce cars and sell them to customers in the European
market (Toyota, 2007).

The haute couture fashion industry is another good example. There are many western-branded
fashion labels that manufacture their products overseas by cooperating with overseas partners, or
they could seek foreign suppliers who specialise in particular materials or items. For instance,
Nike has factories in China and Thailand as both countries have cheap labour costs and cheap,
quality materials, particularly rubber and fabric. However, their overseas partners are not allowed
to sell shoes produced for Adidas and Nike (Harrison & Boyle, 2006). The items have to be
shipped back to the US, and then will be exported to countries worldwide, including China and
Thailand.

Decline
Decline is the final stage of the industry lifecycle. Decline is a stage during which a war of slow
destruction between businesses may develop and those with heavy bureaucracies may fail
(Segil, 2005). In addition, the demand in the market may be fully satisfied or suppliers may be
running out (Ayres et al., 2003).

In the stage of decline, some companies may leave the industry if there is no demand for the
products or services they provide, or they may develop new products or services that meet the
demand in the market. In such cases, this will create a new industry (Francis & Desai, 2005).

For example, at the beginning of the communication industry, pagers were used as the main
communication method among people working in the same organisation, such as doctors and
nurses. Then, the cutting edge of the communication industry emerged in the form of the mobile
phone. The communication process of pagers could not be accomplished without telephones. To
send a message to another pager, the user had to phone the call-centre staff who would type and
send the message to another pager. On the other hand, people who use mobile phones can
make a phone-call and send messages to other mobiles without going through call-centre staff
(Hui et al., 2002).

In recent years, the features of mobile phones have been developing rapidly and continually. Now
people can use mobiles to send multimedia messages, take pictures, check email, surf the
internet, read news and listen to music (Hui et al., 2002). As mobile phone feature development
has reached saturation, thus the new innovation of mobile phone technology has incorporated the
use of computers.

The launch of personal digital assistants (PDA) is a good example of the decline stage of the
mobile phone industry as the features of most mobiles are similar. PDAs are hand-held
computers that were originally designed as a personal organiser but it become much more multi-
faceted in recent years. PDAs are known as pocket computers or palmtop computers (Wikipedia,
2007). They have many uses for both mobile phones and computers such as computer games,
global positioning system, video recording, typewriting and wireless wide-area network
(Wikipedia, 2007).

How do you use industry lifecycle analysis?


It is important for companies to understand the use of the industry lifecycle because it is a
survival tool for businesses to compete in the industry effectively and successfully (Baum &
McGahan, 2004). The main aspects in terms of strategic issues of the industry lifecycle are
described below:

Competing over emerging industries

• The game rules in industry competition can be undetermined and the resources may be
constrained. Thus, it is vital for firms to identify market segments that will allow them to
secure and sustain a strong position within the industry (Ayres et al., 2003).
• The product in the industry may not be standardised so it is necessary for companies to
obtain resources needed to support new product development and rapid company
expansion (Ayres et al., 2003).
• The entry barriers may be low and the potential competition may be high, thus companies
must adapt to shift the mobility barriers (Ayres et al., 2003).
• Consumers may be uncertain in terms of demand. As a result, determining the time of
entry to the industry can help companies to take business opportunities before their rivals
(Ayres et al., 2003).

Competing during the transition to industry maturity

• When competition in the industry increases, firms can have a sustainable competitive
advantage that will provide a basis for competing against other companies (Baum &
McGahan, 2004).
• The new products and applications are harder to come by, while buyers become more
sophisticated and difficult to understand in the maturity stage of the industry lifecycle.
Thus, consumer research should be carried out and this could help companies in building
up new product lines (Baum & McGahan, 2004).
• Slower industry growth constrains capacity growth and often leads to reduced industry
profitability and some consolidation. Therefore, companies can focus greater attention on
costs through strategic cost analysis (Baum & McGahan, 2004).
• The change in the industry is rather dynamic, and an understanding of the industry
lifecycle can help companies to monitor and tackle these changes effectively (Baum &
McGahan, 2004). Firms can develop organisational structures and systems that can
facilitate the transition (Baum & McGahan, 2004).
• Some companies may seek business opportunities overseas when the industries reach
the maturity stage because during this stage, the demand in the market starts to decline
(Baum & McGahan, 2004).

Competing in declining industries


The characteristics of declining industries include the following:

• Declining demand for products


• Pruning of product lines
• Shrinking profit margins
• Falling research and development advertisement expenditure
• Declining number of rivals as many are forced to leave the industry
For companies to survive the dynamic environment, it is necessary for them to:

• Measure the intensity of competition (Baum & McGahan, 2004)


• Assess the causes of decline (Baum & McGahan, 2004)
• Single out a viable strategy for decline such as leadership, liquidation and harvest (Baum
& McGahan, 2004).

Where do you find information on the industry lifecycle?


The information, model and theory for the industry lifecycle can be found in many business
management books. Several variations of lifecycle model have been developed to address the
development and transition of products, market and industry. The models are similar but the
number and names of each stage can be different (Baum & McGahan, 2004). The following are
some of the major models:

• Fox, 1973: Pre-commercialisation – introduction, growth, maturity and decline


• Wasson, 1974: Market Development – rapid growth, competitive turbulence,
saturation/maturity and decline
• Anderson & Zeithaml, 1984: introduction, growth, maturity and decline
• Hill & Jones, 1998: fragmentation, growth, shake-out, maturity and decline

Conclusion
The industry lifecycle imitates the cycle of human being. Industry lifecycle comprises four stages
including fragmentation, growth, maturity and decline. An understanding of the industry lifecycle
can help competing companies survive during periods of transition. Information on the industry
lifecycle can be found in most business management books. Several variations of the lifecycle
model have been developed to address the development and transition of products, market and
industry. The models are similar but the number of stages and names of each may differ. Major
models include those developed by Fox (1973), Wasson (1974), Anderson & Zeithaml (1984),
and Hill & Jones (1998).

References
Books
Ayres, R., Ayres, L. & Rade, I. (2003), The Life Cycle of Copper, Its Co-products and
Byproducts, Kluwer Academic Publishers, Massachusetts.

Baum, J. & McGahan, A. (2004), Business Strategy over the Industry Lifecycle, JAI
Press, Oxford.

Hendrickson, C., Lave, L. & Matthews, S. (2006), Environmental Life Cycle


Assessment of Goods and Services: An Input-output Approach, Future Press,
Washington DC.

Kotler, P. (2003), Marketing Management, Prentice Hall, New Jersey.

Journal Articles
Gottschalk, P. & Saether, H. (2006), 'Maturity model of IT outsourcing relationship', Industrial
Management & Data System, vol. 106, no. 2, pp.200–212.

Haley, G. & Tan, C. (1999), 'East vs West strategic marketing management meets',
Journal of Business & Industrial Marketing, vol. 14, no. 2, pp.91–104
Harrison, J. & Boyle, E. (2006), 'Falling into capability learning traps: The role of the
firm's predominant managerial mental models', Management Decision, vol.
44, no. 1, pp. 31–43.

Hui, S., Lau, S. & Fong, C. (2002), 'Unified personal mobile communication services
for a wireless campus', Campus-Wide Information Systems, vol. 19, no. 1, pp. 27–35.

Kaynak, E. & Kucukemiroglu, O. (1993), 'Successful Marketing for Survival: The


Airline Industry', Management Decision, vol. 31, no. 5, pp.108–120.

Le Bel, J. (2005), 'Beyond the friendly skies: an integrative framework for managing
the air travel experience', Managing Service Quality, vol. 15, no. 5, pp.437–451.
Segil, L. (2005), 'Metrics to successfully manage alliances', Strategy & Leadership, vol. 33, no. 5,
pp.46–52.

Yen, D. & Chou, D. (2000), 'Wireless communications: applications and managerial


issues', Industrial Management & Data Systems, vol. 100, no. 9, pp.436–443.

World Wide Web


ABC News (2006), Nicotine Drink Touts Alternative to Smoking. Retrieved: August 20, 2007, from
http://abcnews.go.com/GMA/Health/story?id=2114263

Nicorette (2007), My quit place. Retrieved: August 20, from


http://www.nicorette.com/

Toyota (2007), About Operation. Retrieved: August 20, 2007,


from http://www.toyota.com/about/operations/index.html?s_van=GM_TN_
ABOUT_OPERATIONS

Wikipedia (2007), Personal digital assistant. Retrieved: August 20, 2007, from
http://en.wikipedia.org/wiki/Personal_digital_assistant