The Product Life Cycle and Extension Strategies

There are no sales of the new product yet, but research, design and testing cost money. The business therefore needs funding before it earns sales revenue from the product. This stage is part of the life cycle even though the product is not yet available for customers to buy.

Introduction: making customers aware

Introduction begins when the product is launched. Sales are usually low and increase slowly because many customers do not yet know about it or are unsure whether to try it.

Advertising can explain its benefits and build awareness. The business may also need to establish distribution so customers can actually obtain it. With low sales and launch costs to cover, a successful launch does not necessarily mean the product is already profitable.

Growth: demand rises rapidly

During growth, sales increase rapidly as more customers become aware of the product and decide to buy it. Recommendations and repeat purchases can help demand grow.

The business needs enough production or service capacity to meet this demand. For example, a manufacturer may need to make more units, while a service business may need more staff. Marketing can focus on keeping customers loyal as competing products become available.

Maturity: high sales, slower growth

During maturity, sales remain high, but their rate of growth slows and may level off. Much of the potential market has already been reached, so attracting additional customers becomes harder.

A mature product can still be valuable: it may generate substantial revenue from established customers. The challenge is to maintain those sales against competition and changing customer preferences. This is often a suitable time to consider an extension strategy rather than waiting for a steep decline.

Decline: sales fall

During decline, sales fall. Customers may switch to newer technology, prefer different styles or find a rival product more attractive. Decline means a downward sales trend, not necessarily that sales have already become very low.

The business must decide whether to invest in extending the product's life, reduce spending on it or eventually withdraw it. Spending more is unlikely to be worthwhile if customers no longer have a use for the product.

Read the diagram from left to right. The steep upward section represents growth; the high, flatter section represents maturity; the downward section represents decline. The alternative extension path shows what a business hopes to achieve, not a guaranteed result.

The life cycle is a model, not a fixed timetable. Products can spend very different lengths of time at each stage. Some fail soon after introduction, while others remain mature for many years. Businesses should examine actual sales trends rather than assume that a product must decline simply because it is old.

Extension strategies: renewing customer interest

An extension strategy aims to maintain or increase sales of an existing product and delay its decline. Strategies are often used during late maturity or decline, although acting before sales fall sharply may be more effective.

The right approach depends on why interest is weakening. A tired appearance, missing features, an exhausted target market and a price customers cannot afford are different problems, so they need different responses.

Updating packaging

New packaging can make a familiar product look fresh and attract attention without changing the product itself. Coca-Cola has used people's names and place names on bottles of Coca-Cola and Diet Coke, giving customers a new reason to notice an established drink.

This approach is suitable when customers still value the product but its presentation has become less appealing. However, redesigning and producing packaging costs money, and customers may dislike the change. Attractive packaging is unlikely to solve a problem with the product's usefulness or quality.

Adding more or different features

A business can improve what a product does or offer a new variation. Cadbury's Wispa Gold, which contains caramel, illustrates how a different feature can renew interest in an existing product range.

This is suitable when customers want something the current product lacks. A useful improvement can attract new buyers and encourage existing customers to buy again. However, development and production changes can be expensive and take time. Features will only help if customers value them enough to buy the product.

Changing the target market

A business can seek customers in a different age group, country or other market segment. This gives the product another potential source of demand when sales to its existing customers have stopped growing.

The strategy is suitable if the product meets the needs of a group the business has not previously reached. Advertising, presentation or features may need to change to appeal to that group. Market research and reaching new customers require investment, and a product popular with one group may not appeal to another.

Advertising

Renewed advertising can remind existing customers of a product's benefits and introduce it to people who have not bought it before. Kellogg's continued advertising of Corn Flakes illustrates how promotion can support a long-established product.

Advertising is suitable when the product remains appealing but awareness or interest needs strengthening. It can also support a change of target market. However, campaigns cost money and may produce only a temporary boost. If customers are leaving because the product is outdated, advertising alone may not address the reason for decline.

Reducing the price

A lower price can encourage price-sensitive customers to buy and make a product more competitive. It may be suitable when customers still want the product but consider it too expensive compared with alternatives.

The trade-off is that the business receives less revenue from each unit sold. If costs per unit stay the same, it also earns less profit per unit. Sales volume must rise sufficiently to compensate, and a lower price may weaken a premium image. Reducing prices to clear remaining stock is not necessarily a successful extension: it may simply help the business withdraw the product.

Judging whether an extension is worthwhile

An effective strategy must do more than briefly raise sales. The business should compare the likely extra revenue with the costs of the strategy and consider how long any improvement might last.

For a technological product losing customers because it lacks useful functions, adding features may be more suitable than changing its packaging. For a familiar product that still satisfies customers but is being overlooked, refreshed packaging and advertising may be a better fit. Strategies can be combined, but a larger programme also requires more funding.

Ultimately, the decision depends on customer needs, the reason for declining demand, the business's resources and the likely financial return. Extending a product's life is not always better than withdrawing it.

• Research and development: research, design and testing; no sales yet, but costs are incurred.
• Introduction: launch; low sales, usually growing slowly; awareness must be built.
• Growth: sales rise rapidly; capacity must keep up with demand.
• Maturity: sales are high, but growth slows or levels off.
• Decline: sales fall as customer preferences or competing products change.

On a sales–time graph, height = sales level; slope = sales trend. The model does not predict fixed stage lengths.

Extension strategies: when suitable

Evaluate effectiveness

Usually consider extension during late maturity or decline. Match the strategy to the cause of falling demand.

Weigh likely sales gains and their duration against costs, budget and customer response. Higher sales do not automatically mean higher profit. Withdrawal may be better if little demand remains.