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Product/Service Life Cycle

FastTrac, Kauffman Foundation

Just as businesses go through stages, so do products and services. The product or service life cycle is determined by how long it is marketable. The life cycle of the TV cathode ray tube (CRT) is coming to an end as more and more flat screens are being purchased. The life cycle of voice-over IP telephone service is entering its growth phase as more and more people try it out.

The common stages a product or service may go through during its life are introduction, growth, maturity, and decline or innovation.

Introduction stage – Profits are low in this stage because research and development, production, and marketing costs are high. Prices are set high on the product or service to recoup some of the development and introduction costs. For example microwave ovens that can now be purchased for $50 were priced between $2,000 and $3,000 when they were first introduced. In this stage, you’ll want to keep a close watch on the market’s reaction to your products and services and be ready to make changes. It sometimes helps to experiment with several different product and service configurations to see what works in these early stages.

Growth stage – Sales generally increase with the demand for the product. Cash flow improves and profits are at their peak. When real estate is being developed, there is an increased demand for construction and the products and services that support the development. Continue to make refinements to stay ahead of the competition. Build product and service development capabilities with the cash you
get from increasing sales.

Maturity stage – Sales may continue to increase or level off. Profits decrease since prices are continually lowered to compete. Still, a great amount of cash flow is generated through sales. Conduct market research to determine trends. Invest in research and development. Adapt your product or service to meet the coming trends. If you don’t look for new opportunities in new markets and new products, the coming decline stage will leave you with products and services that no longer sell.

Decline or innovation stage – Sales drop rapidly even though prices continue to fall. Profits are extremely low at this stage, but the product or service has generated sufficient cash flow during its life. When a product or service hits this stage many entrepreneurs reintroduce it with a new feature or create a new benefit. Simply increasing the size of a candy bar by 33 percent can start its life cycle over again. Consider making changes to your product or service or the way you market it. You may decide to discontinue your product or service before losses eat into the cash flow generated by sales.

Knowing where your products or services are in their life cycle will help you determine refinements or adjustments you may need to make to align them with the vision and strategy you have already developed.

© 2007 Ewing Marion Kauffman Foundation. All rights reserved.

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