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Product Life Cycle Theory

Paper Type: Free Essay Subject: Marketing
Wordcount: 3670 words Published: 12th May 2017

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The product life cycle theory was propounded by economist Raymond Vernon in 1966. With the help of this theory, Raymond Vernon sought to explain the various stages that a product goes through after it enters the market. It explains the reasons that determine the growth, maturity and the decline of a product and how the life cycle stages determine foreign trade.

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Product Life Cycle Theory

Raymond Vernon explained that from the invention of a product to its demise due to a lack of demand, a product goes through four stages: introduction, growth, maturity and decline. The duration of these stages is not fixed. The duration of the product phases depend largely on the demand for the product in the market and, to some extent, the costs of production and the revenues that the product generates. If the product remains in demand for a long period of time and the costs of production steadily decline, the life of the product will be longer. On the other hand, if the costs of production are too high and the demand is largely limited, then the product will die sooner. Hence, it is not possible to predict the cycle’s duration.

A product life cycle is the typical stages a product goes through during its lifetime. The product life cycle is broken down into five different stages, which include the development, introduction, growth, maturity and decline stages of the product. Characteristics for each stage differ and in response to the different needs of the product as it moves through its life cycle, the market mix (various marketing tactics) used during these stages differ as well. Understanding the product life cycle can help business owners and marketing managers plan a marketing mix to address each stage fully.

The theory of a product life cycle was first introduced in the 1950s to explain the expected life cycle of a typical product from design to obsolescence, a period divided into the phases of product introduction, product growth, maturity, and decline. The goal of managing a product’s life cycle is to maximize its value and profitability at each stage. Life cycle is primarily associated with marketing theory.


During the development stage, the product may still be just an idea, in the process of being manufactured or not yet for sale. In this stage, the marketing mix is in the planning phase, so rather than implementing marketing strategies, the product producer is researching marketing methods and planning on which efforts the company intends on using to launch the product. The marketing mix for this stage includes ways to bring awareness of the product to potential customers through marketing campaigns and special promotions.


This is the stage where a product is conceptualized and first brought to market. The goal of any new product introduction is to meet consumers’ needs with a quality product at the lowest possible cost in order to return the highest level of profit. The introduction of a new product can be broken down into five distinct parts:

Idea validation, which is when a company studies a market, looks for areas where needs are not being met by current products, and tries to think of new products that could meet that need. The company’s marketing department is responsible for identifying market opportunities and defining who will buy the product, what the primary benefits of the product will be, and how the product will be used.

Conceptual design occurs when an idea has been approved and begins to take shape. The company has studied available materials, technology, and manufacturing capability and determined that the new product can be created. Once that is done, more thorough specifications are developed, including price and style. Marketing is responsible for minimum and maximum sales estimates, competition review, and market share estimates.

Specification and design is when the product is nearing release. Final design questions are answered and final product specs are determined so that a prototype can be created.

Prototype and testing occur when the first version of a product is created and tested by engineers and by customers. A pilot production run might be made to ensure that engineering decisions made earlier in the process were correct, and to establish quality control. The marketing department is extremely important at this point. It is responsible for developing packaging for the product, conducting the consumer tests through focus groups and other feedback methods, and tracking customer responses to the product.

Manufacturing ramp-up is the final stage of new product introduction. This is also known as commercialization. This is when the product goes into full production for release to the market. Final checks are made on product reliability and variability.

In the introduction phase, sales may be slow as the company builds awareness of its product among potential customers. Advertising is crucial at this stage, so the marketing budget is often substantial. The type of advertising depends on the product. If the product is intended to reach a mass audience, than an advertising campaign built around one theme may be in order. If a product is specialized, or if a company’s resources are limited, then smaller advertising campaigns can be used that target very specific audiences. As a product matures, the advertising budget associated with it will most likely shrink since audiences are already aware of the product.

Techniques used to exploit early stages make use of penetration pricing (low pricing for rapid establishment) as well as “skimming,” pricing high initially and then lowering price after the “early acceptors” have been lured in.


The growth phase occurs when a product has survived its introduction and is beginning to be noticed in the marketplace. At this stage, a company can decide if it wants to go for increased market share or increased profitability. This is the boom time for any product. Production increases, leading to lower unit costs. Sales momentum builds as advertising campaigns target mass media audiences instead of specialized markets (if the product merits this). Competition grows as awareness of the product builds. Minor changes are made as more feedback is gathered or as new markets are targeted. The goal for any company is to stay in this phase as long as possible.

It is possible that the product will not succeed at this stage and move immediately past decline and straight to cancellation. That is a call the marketing staff has to make. It needs to evaluate just what costs the company can bear and what the product’s chances for survival are. Tough choices need to be made—sticking with a losing product can be disastrous.

If the product is doing well and killing it is out of the question, then the marketing department has other responsibilities. Instead of just building awareness of the product, the goal is to build brand loyalty by adding first-time buyers and retaining repeat buyers. Sales, discounts, and advertising all play an important role in that process. For products that are well-established and further along in the growth phase, marketing options include creating variations of the initial product that appeal to additional audiences.


At the maturity stage, sales growth has started to slow and is approaching the point where the inevitable decline will begin. Defending market share becomes the chief concern, as marketing staffs have to spend more and more on promotion to entice customers to buy the product. Additionally, more competitors have stepped forward to challenge the product at this stage, some of which may offer a higher-quality version of the product at a lower price. This can touch off price wars, and lower prices mean lower profits, which will cause some companies to drop out of the market for that product altogether. The maturity stage is usually the longest of the four life cycle stages, and it is not uncommon for a product to be in the mature stage for several decades.

A savvy company will seek to lower unit costs as much as possible at the maturity stage so that profits can be maximized. The money earned from the mature products should then be used in research and development to come up with new product ideas to replace the maturing products. Operations should be streamlined, cost efficiencies sought, and hard decisions made.

From a marketing standpoint, experts argue that the right promotion can make more of an impact at this stage than at any other. One popular theory postulates that there are two primary marketing strategies to utilize at this stage—offensive and defensive. Defensive strategies consist of special sales, promotions, cosmetic product changes, and other means of shoring up market share. It can also mean quite literally defending the quality and integrity of your product versus your competition. Marketing offensively means looking beyond current markets and attempting to gain brand new-buyers. Relaunching the product is one option. Other offensive tactics include changing the price of a product (either higher or lower) to appeal to an entirely new audience or finding new applications for a product.


This occurs when the product peaks in the maturity stage and then begins a downward slide in sales. Eventually, revenues will drop to the point where it is no longer economically feasible to continue making the product. Investment is minimized. The product can simply be discontinued, or it can be sold to another company. A third option that combines those elements is also sometimes seen as viable, but comes to fruition only rarely. Under this scenario, the product is discontinued and stock is allowed to dwindle to zero, but the company sells the rights to supporting the product to another company, which then becomes responsible for servicing and maintaining the product.


While the product life cycle theory is widely accepted, it does have critics who say that the theory has so many exceptions and so few rules that it is meaningless. Among the holes in the theory that these critics highlight:

There is no set amount of time that a product must stay in any stage; each product is different and moves through the stages at different times. Also, the four stages are not the same time period in length, which is often overlooked.

There is no real proof that all products must die. Some products have been seen to go from maturity back to a period of rapid growth thanks to some improvement or redesign. Some argue that by saying in advance that a product must reach the end of life stage, it becomes a self-fulfilling prophecy that companies subscribe to. Critics say that some businesses interpret the first downturn in sales to mean that a product has reached decline and should be killed, thus terminating some still-viable products prematurely.

The theory can lead to an over-emphasis on new product releases at the expense of mature products, when in fact the greater profits could possibly be derived from the mature product if a little work was done on revamping the product.

The theory emphasizes individual products instead of taking larger brands into account.

The theory does not adequately account for product redesign and/or reinvention.

Example 1>

Explaing the Product Life Cycle using examples of hotels at different stages of the life cycle including details of each hotel and explaining why I think it is at that stage of the life cycle.

Much like most of the things in our world the product is I considered having its Life Cycle. This cycle begins when a product is being developed (born), includes the products performance in the market based on demand as well as sales (life) and ends when there is no longer any demand for the product (death). I will try to explain in detail each of the five stages of a product’s life while focusing on a hotel and what is the product a hotel offers? The answer is nothing else but quality accommodation of course.

Stage one, Product Development.

A hotel when is being built as for example the new Hilton Hotel built on Kos Island, it has not yet a product it can distribute into the market. That is why before it opens and is ready to host guests the management will have to decide what will be the quality of the services offered and the kind of rooms they will have (simple rooms, suites, apartments, bungalows etc). This is when the business begins to plan and develop the actual product they will soon present to the market. As it is natural since the product does not exist yet, or is not in a condition to be sold (since the hotel is still being built) the hotel has no sales at this point, but the costs required creating the product keep adding up. The hotel will be unable to generate revenue to cover the development costs (labor costs, utilities, building taxes etc.) until it is finished and ready to accept its first guests.

Stage two, Introduction

When a hotel opens for the first time or develops a new package or holiday program and begins to advertise this new product, this is the initiation stage. The renovated Grecotel in Athens, Omonia square; now known as the Two Fashion hotel is a good example to explain this stage. When the hotel opened after it’s renovation it offered a new product to the market which was unknown before that, this new concept was not yet known nor established in the market what meant little sales and still lost of development costs needing to be covered as well as advertising. The initiation of a new product in the market is always followed by a period of time before the product becomes established and known in the market when the sales are low and hardly enough to cover the so far accumulated costs.

Stage three, Growth

This is the stage in the product’s life when it becomes better known in the market and profits from sales rapidly increase. When the Euro Disney resort opened in Paris is swiftly became very popular among European families who did not possess the required resources for a cross Atlantic flight in order to visit Disney Land in America. This fact and increase in its original output gave a great boost to the company’s revenue in combination with the opportunity for better (higher) prices. Since Europeans no longer hat to take an expensive flight to America, European prices could be slightly higher than those in America. In the stage of growth the hotel will find investing on its market share is less costly while it also enjoys a general growth of the market. Also during this stage major amount of recourses is committed in the promotion of the product.

Stage four, Maturity

The Grand Brittan Hotel in Athens is a well known hotel which’s product is well established in the market as it is the most known hotel in Athens. It’s hard to find someone in Greece who has been in Athens and does not know where the particular hotel is or that has not visited it at least once. Any business of which the product of which is currently in the period of maturity sees its sales slowly pausing to grow. That happens because the hotel’s product (quality of accommodation) has managed to be accepted by most of its targeted market. Furthermore profit levels of the business slowly decrease because more resources are required for marketing and advertisement in order to protect the product from competition.

Stage five, Decline

In this final stage of a product’s life cycle the market begins to shrink, the amount of sales begins to drop as the product becomes indefinite to buyers and profit drops. An example of such a product would be a hotel which has lost its attractiveness towards the guests and people see no reason why they should go there as there are new far better places and hotels to visit right now. For example the once known and attractive Daphnila Bay hotel on Corfu which as grew older the quality its original product offered has become outdated and over shadowed by other new luxuries and modern hotels. During this stage the hotel’s product has to be managed with care and caution if the business wishes it’s product to survive a bit longer for example:

-Trying to lessen some of the production costs, by cutting down on stuff or the quality of beverages.

-Offer the product at lesser prices, hoping to attract more guests.

-Approach other cheaper markets like the all inclusive.

Finally, based on the fact if the product maintains its profitability or not, the hotel may decide if it should end its distribution and try to develop something new or keep going for as long as the product manages to.

Example 2>

A very good example of an innovative product = colgate sensitive toothpaste.



-High Costs

-Inefficient Production Levels

-Cash Demands HIGH


-Few or No Competitions

-Limited Product Awareness and Knowledge

-Limited Demand


-Stimulate Demand

-Establish High Price

-Offer Limited Product Variety

-Increase Distribution




-successful entry in the market.


-increase sales.


-identify customer segments


-Comply With External Regulations

& Accepted Values


-Assure High Quality


-use cost plus strategy


-build product awareness


-build and channels



-Smoothing Production

-Lowering Costs

-Operation Efficiencies

-Product Improvement Work


-Expanding Markets

-Expanded Distribution

-Competition Strengthens

-Prices Soften a Bit


-Cultivate Selective Demand

-Product Improvement

-Strengthen Distribution

-Price Flexibility




-gain market share

-increase profitability


-increase / maximize sales volume.


-determine customer acceptance.


-determine channel responses.


-offer extensions or value added like service.


-penetrate deeper into the market


-induce trial.


-use selective distribution





-efficient scale of operation

-production modification work

-LOW profit


-product standardization

-Decreasing Profits



-slowing growth

-strong competition

-expanded market

-heightened competition


-Faltering demand

-fierce competition

-shrinking number of competitors

-established distribution pattern



-Emphasise Market Segmentation

-Improve Service and Warranty

-Reduce Prices


-ultimate in market segmentation

-competitive pricing

-retain distribution




-consolidate market share

-maximize profit.


-maximize sales.


-determine re-purchase rates.


-monitor competitive activities


-diversify the brands or models


-price war with competitors


-stress favourable evaluations


-more intensive distribution




-Permanently Declining Demand


-Reduction of Competitors

-Limited Product Offerings

-Price Stabilisations


-Increase Primary Demand

-Profit Opportunity Pricing

-Prune and Strengthen Distribution




-arrest the market share decline.

-minimize effort/time in marketing expenses.


-retain sales volume.


-evaluate customer complaints.


-search for new opportunities.


-phase out weak items


-cut price or offer other incentives


-maintain loyalty


-depend on middlman


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