In the market introductionstage, sales are low as a new idea is first introduced

to a market. Customers aren’t looking for the product. Even if the product offers

superior value, customers don’t even know about it. Informative promotion is

needed to tell potential customers about the advantages and uses of the new product concept.

Even though a firm promotes its new product, it takes time for customers to learn

that the product is available. Most companies experience losses during the introduction stage because they spend so much money for Promotion, Product, and Place

development. Of course, they invest the money in the hope of future profits.

In the market growthstage, industry sales grow fast—but industry profits rise and

then start falling. The innovator begins to make big profits as more and more customers buy. But competitors see the opportunity and enter the market. Some just

copy the most successful product or try to improve it to compete better. Others try

to refine their offerings to do a better job of appealing to some target markets. The

new entries result in much product variety. So monopolistic competition—with

down-sloping demand curves—is typical of the market growth stage.

This is the time of biggest profits for the industry. It is also a time of rapid sales

and earnings growth for companies with effective strategies. But it is toward the end

of this stage when industry profits begin to declineas competition and consumer price

sensitivity increase. See Exhibit 10-1.

Some firms make big strategy planning mistakes at this stage by not understanding the product life cycle. They see the big sales and profit opportunities of the early

market growth stage but ignore the competition that will soon follow. When they

realize their mistake, it may be too late. This happened with many dot-coms during the late 1990s. Marketing managers who understand the cycle and pay attention

to competitor analysis are less likely to encounter this problem.

The market maturitystage occurs when industry sales level off and competition

gets tougher. Many aggressive competitors have entered the race for profits—except

in oligopoly situations. Industry profits go down throughout the market maturity

stage because promotion costs rise and some competitors cut prices to attract business. Less efficient firms can’t compete with this pressure—and they drop out of the

market. Even in oligopoly situations, there is a long-run downward pressure on prices.

New firms may still enter the market at this stage—increasing competition even

more. Note that late entries skip the early life-cycle stages, including the profitable

market growth stage. And they must try to take a share of the saturated market from

established firms, which is difficult and expensive. The market leaders have a lot at

stake, so they usually will fight hard to defend their market share and revenue stream.

Satisfied customers who are happy with their current relationship typically won’t be

interested in switching to a new brand. So late entrants usually have a tough battle.

Persuasive promotion becomes more important during the market maturity stage.

Products may differ only slightly if at all. Most competitors have discovered the most

effective appeals or quickly copied the leaders. Although each firm may still have

its own demand curve, the curves become increasingly elastic as the various products become almost the same in the minds of potential consumers. By then, price

sensitivity is a real factor.

In the United States, the markets for most cars, boats, television sets, and many

household appliances are in market maturity. This stage may continue for many

years—until a basically new product idea comes along—even though individual

brands or models come and go. For example, high-definition digital TV (HDTV) is

coming on now, and over time it will make obsolete not only the old-style TVs but

also the broadcast systems on which they rely.

3

During the sales declinestage, new products replace the old. Price competition

from dying products becomes more vigorous—but firms with strong brands may

make profits until the end. These firms have down-sloping demand curves because

they successfully differentiated their products.

As the new products go through their introduction stage, the old ones may keep

some sales by appealing to the most loyal customers or those who are slow to try new

ideas. These conservative buyers might switch later—smoothing the sales decline

Remember that product life cycles describe industry sales and profits for a product

idea within a particular product-market. The sales and profits of an individual product or brand may not, and often do not, follow the life-cycle pattern. They may vary

up and down throughout the life cycle—sometimes moving in the opposite direction of industry sales and profits. Further, a product idea may be in a different

life-cycle stage in different markets