Product Life Cycle Model

The Product Life Cycle Model can be used to analyse the maturity stage of products and industries

Product life cycle

1. Background

THE idea of the Product Life Cycle was first developed in 1965 by Theodore Levitt in an article entitled “Exploit the Product Life Cycle” published in the Harvard Business Review on 1 November 1965.

2. Benefit of the Product Life Cycle model

For a business, having a growing and sustainable revenue stream from product sales is important for the stability and success of its operations. The Product Life Cycle model can be used by consultants and managers to analyse the maturity stage of products and industries. Understanding which stage a product is in provides information about expected future sales growth, and the kinds of strategies that should be implemented.

3. Product Life Cycle model

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The “Product Life Cycle” is the name given to the stages through which a product passes over time. The classic Product Life Cycle has four stages:

  1. Introduction,
  2. Growth,
  3. Maturity, and
  4. Decline.

3.1 Introduction

At the market introduction stage the size of the market, sales volumes and sales growth are small. A product will also normally be subject to little or no competition. The primary goal in the introduction stage is to establish a market and build consumer demand for the product.

There may be substantial costs incurred in getting a product to the market introduction stage. Substantial research and development costs may have been incurred, for example, thinking of the product idea, developing the technology, determining the product features and quality level, establishing sufficient manufacturing capacity, preparing the product branding, ensuring trade mark protection, etc. Marketing costs may be high in order to test the market, launch and promote the product, develop a market for the product, and set up distribution channels.

The market introduction stage is likely to be a period of low or negative profits. As such, it is important that products are carefully monitored to ensure that sales volumes start to grow. If a product fails to become profitable it may need to be abandoned.

Some of the considerations in the introduction stage include:

  • Product development: research and development of the basic technology and product concept, determining the product features and quality level.
  • Pricing: should penetration pricing or a skimming price strategy be used? A skimming price strategy might be appropriate where there are very few competitors.
  • Distribution: distribution might be quite selective until consumer acceptance of the product can be achieved.
  • Promotion: marketing efforts are aimed at early adopters, and seek to build product awareness and to educate potential consumers about the product.

3.2 Growth

If the public gains awareness of a product and consumers come to understand the benefits of the product and accept it then a company can expect a period of rapid sales growth, enter the “Growth Stage”. In the Growth Stage, a company will try to build brand loyalty and increase market share.

Profits are driven by increased sales volume (due to growth in market share as well as an increase in the size of the overall market). Profits might also be driven by cost reductions gained from economies of scale, and perhaps more favourable market prices. Competition in the Growth Stage remains low, although new competitors are expected to enter the market. When competitors enter the market a company might be subject to price competition and increase its marketing expenditure.

Some of the considerations in the Growth Stage include:

  • Product improvement: product quality might be improved, additional features and support services added, and packaging updated.
  • Pricing: if consumer demand is high the price might be maintained at a high level.
  • Distribution: distribution channels might be added as consumer demand increases.
  • Promotion: promotion is aimed at a broader audience. A company might spend a lot of resources on promotion during the Growth Stage to build brand loyalty.

3.3 Maturity

When a product reaches maturity, sales growth slows and sales volume eventually peaks and stabilises. This is the stage during which the market as a whole makes the most profit. A company’s primary objective at this point is to defend market share while maximising profit.

In this stage, prices tend to drop due to increased competition. A company’s fixed costs are low because it is has well established production and distribution. Since brand awareness is strong, marketing expenditure might be reduced, although increased marketing expenditure might be needed to retain market share and fight increasing competition. Expenditure on research and development is likely to be restricted to product modification and improvement, and perhaps research into improved production efficiency and product quality.

Some considerations for the mature product market include:

  • Product differentiation: increased competition in the mature product market means that a company must find ways to differentiate its product from that of competitors. Strong branding is one way to do this.
  • Pricing: prices may be reduced because of increased competition. Firms in the market should be careful not to start a price war.
  • Distribution: distribution intensifies and incentives may be offered to encourage preference to be given over competing products.
  • Promotion: promotion will focus on emphasising product differences and creating/maintaining a strong brand.

3.4 Decline

A product enters into decline when sales and profits start to fall. The market for that product shrinks which reduces the amount of profit available to the firms in the industry. A decline might occur because the market has become saturated, the product has become obsolete, or customer tastes have changed.

A company might try to stimulate growth by changing their pricing strategy, but ultimately the product will have to be re-designed, or replaced. High-cost and low market share firms will be forced to exit the industry.

As sales decline, a company has three strategy options:

  • Hold: maintain production and add new features and find new uses for the product. Reduce the cost of manufacturing (e.g. move manufacturing to a low cost jurisdiction). Consider whether there are new markets in which the product might be sold.
  • Harvest: continue to offer the product, reduce marketing expenditure, and sell possibly to a loyal niche segment of the market.
  • Divest: Discontinue production, and liquidate the remaining inventory or sell the product to another firm.

Some considerations for a declining market include:

  • Product consolidation: the number of products may be reduced, and surviving products rejuvenated.
  • Price: prices may be lowered to liquidate inventory, or maintained for continued products.
  • Distribution: distribution becomes more selective. Channels that are no longer profitable are phased out.
  • Promotion: Expenditure on promotion is reduced for products subject to the Harvest and Divest strategies.

4. Criticisms

The Product Life Cycle is useful for monitoring sales results over time and comparing them to products with a similar life cycle. However, the Product Life Cycle model is by no means a perfect tool. Products often do not follow a defined life cycle, not all products go through each stage, and it is not always easy to tell which stage a product is in at any one time. Consequently, the life cycle concept is not well-suited for the forecasting of product sales.

The length of each stage will vary depending on the product and the marketing strategies employed. A Product Life Cycle may be as short as a few months for a fad or as long as a century or more for a product like petrol cars. In many markets the product life cycle is longer than the planning cycle of the organisations involved. Major products often hold their position for several decades or more, indeed, Coca-Cola was introduced in 1886 and is still the leading brand of cola.

The Product Life Cycle is only one of many considerations that a company must bear in mind. The product life cycle of many modern products is shrinking, while the operating life for many of these products is lengthening. For example, the operating life of durable goods like household appliances has increased substantially. As a result, a company that produces these products must take their market life and service life into account when planning.

Some critics have argued that the Product Life Cycle may become self-fulfilling. For example, if sales peak and then decline a manager may conclude that a product is on the decline and cut back on marketing, thus precipitating a further decline.

[For more information on consulting concepts and frameworks, please download “The Little Blue Consulting Handbook“.]

Cover letters win interviews

1. The importance of a cover letter

A COVER letter is a short one page sales letter that accompanies your resume as part of your job application. The cover letter is important because it creates a first impression of you with your potential employer.

The main purpose of a cover letter is to obtain an interview, not to tell a lengthy story. A cover letter needs to capture the employer’s interest, indicate why you are writing, show how you will benefit the company, express interest in the position and, most importantly, convince the employer to give you an interview.

Writing a cover letter is like creating a work of art. While there are some general rules that you should follow, each cover letter you write should be distinctive.

2. Personalise your cover letter

One of the most important things about a cover letter is that it differentiates you from all the other applicants. To do this a cover letter should connect with the employer, and reflect your unique personality and the requirements of the job. Here are some points to bear in mind:

2.1 Address a specific person

You should not address your cover letter “to whom it may concern”, this is lazy. If you are unsure who to address your application to, call the company and ask. Make sure you get the person’s title and the correct spelling of their name.

2.2 Own your achievements

You should use the active voice, i.e. you should avoid expressions like “this experience gave me the opportunity to…” or, “these goals were met by me.” You don’t want to sound like everything happened to you or was done by someone else.

2.3 Tailor your story

Tailor your story to the job requirements. You should adapt your cover letter so that you mention the specific skills that the employer is interested in.

2.4 Establish rapport

You need to establish a connection between you and the employer. Mention a mutual contact you might have, explain why you like the company, its culture, or why you have a particular interest in some area of the company’s business.

2.5 Mirror their wording

Imitation is the sincerest form of flattery. If the employer uses specific terms or industry specific language in the job advertisement, mirror this language in your cover letter.

2.6 Be positive

Sell your skills in a positive way. Never complain about past employers, or grumble about any past experiences.

3. Structure your cover letter

It is important that your cover letter follows the right structure. The body of your cover letter should be broken up into four paragraphs.

3.1 Paragraph 1 – Why are you writing?

In the first paragraph you should briefly explain why you are writing to the company in a way that engages the reader. Name the position you are applying for. If you heard about the position through a mutual contact, this is worth mentioning. You may also allude to your career goals in this first paragraph.

3.2 Paragraph 2 – Why are you interested in consulting, and the company?

Explain why you would like to work in consulting, and demonstrate that you would like to work for the company by showing that you have researched the position. Companies want to know that you’re interested in them and understand what they do. For example, you might want to explain specific reasons why the position fulfills your career aspirations and is consistent with your ambitions for the future. You may apply for hundreds of different jobs but you need to make each prospective employer think that their job is the one you want.

3.3 Paragraph 3 – What do you have to offer?

Explain why you are qualified for the position. Use your most important qualifications and skills to show that you have the experience and skill to perform the tasks and fulfil the responsibilities of the position. If you are responding to a job ad that lists selection criteria, you should say how your skills and experience meet each of the criteria they’re looking for. Make sure that it’s clear how your education and skills are transferable, and thus relevant, to the position that you are applying for.

3.4 Paragraph 4 – Suggest the next steps

Direct the employer to your enclosed resume. Provide your contact information (phone number and e-mail address) and welcome them to get in touch. Indicate your availability for an interview and, if you want to be assertive, state when you will contact the company to set up a meeting. If you are merely enquiring about possible job openings, indicate when you will phone to follow up on your enquiry (ten business days is a pretty good guide). It’s important to finish off by thanking the employer for their time and consideration.

3.5 Signing off

Conclude your cover letter with an appropriate sign-off like “Yours sincerely”, and leave four blank lines to allow space for you to sign your name. You should use blue ink instead of black ink to sign your name because black ink may look like a photocopy.

4. Polish your cover letter

In addition to personalising and structuring your cover letter, you also need to make sure that your cover letter is polished and professional. Here are some things to keep in mind:

4.1 Be concise

Keep the length of your cover letter to one page. Don’t use more words than you need to. Use short sentences and simple language. It might be a good idea to use bullet points to list your key skills.

4.2 Be informative

Don’t just summarise your resume. Consider the job description and highlight the skills and experiences from your resume that fit the employer’s requirements.

4.3 Keep it relevant

Keep your message relevant and to the point. The purpose of your cover letter is to highlight your resume and obtain an interview, not to tell them everything you’ve ever done.

4.4 Be professional

Don’t be too colloquial, for example, break down contractions like “I’ve” and “I’m” to “I have” and “I am”. Your cover letter should never be hand written. Also, make sure you include your contact details on the cover letter.

4.5 Proofreading is important

There are likely to be lots of mistakes in your cover letter after you have written the first draft. You should get friends and/or family members to proof read your cover letter. It is important to have at least one set of fresh eyes look at the document before you send it out.

4.6 Check your spelling and punctuation

Use spell check, it’s not that hard. Spelling mistakes make a bad first impression and are easily fixed by running a final spell check before sending the cover letter. Also, be careful when using words like “there/their/they’re”, “your/you’re”, “effect/affect”, “its/it’s”, etc.

4.7 Adapt your cover letter for online

If you are submitting your application by email, you should indicate the position you are applying for in the subject line of your email. Before emailing your application, send it to yourself first to make sure there are no formatting errors. You should attach your cover letter and resume as a single document; if you were sending an application by post you wouldn’t send your cover letter and resume in two separate envelopes.

5. Samples and Templates

We invite you to download our Guidebook on “How to create a Killer Cover Letter” which includes FREE access to the current version of our sample and template cover letters (to access the download, you will need to sign up for a member account).