Product life cycles Like human beings, products (and to a lesser extent services) have a recognizable life cycle, depicted in Figure 11.6. This biological analogy has considerable significance for the pricing decision, because different pricing Strategies will be appropriate for different stages in the cycle, depending on levels of demand and market structures. It is worth examining each of the classic stages in some detail. Introduction When a product is first launched on the market, demand is likely to be small. Lack of familiarity with the new product and its sources of availability will militate against large initial sales, and it will usually be necessary to spend heavily on advertising to bring the product to the attention of potential customers. A combination of relatively high unit costs, relatively low sales volume, and the potential problem of rejection by the market conspire to make this the riskiest stage in the life cycle. Figure Product Life Cycle Growth Assuming the product successfully negotiates the perils of the introduction stage it will enter the growth phase, where demand for the product increases steadily and average costs fall with the economies of scale that accompany the greater production volume. This stage should offer the greatest potential for profit to the producer, despite the fact that competitors will be prompted to enter the growing market (with or without slight product variants). Maturity By this stage the product has reached the mass market, and the increase in demand will begin to slow down. The sales curve will flatten out, and eventually start to decline. Profitability will generally be at a lower level than in the growth phase. Decline The fall in sales accelerates when the market reaches saturation point. Although it is still possible to make profits for a short period during this stage, it is only a matter of time before the rapidly dwindling sales volumes herald the onset of losses for all producers who remain in the market. The product has effectively reached the end of its life cycle, and more profitable investment opportunities must be sought elsewhere. However, it must be pointed out that this is a very general model of sales behaviour over time. It is not possible to specify the length of any particular timespan within the cycle, or even the total length of the cycle itself, as these will obviously be a function of an individual product's characteristics. For example, at one extreme could be the market for souvenirs of a specific event, lasting a few months; at the other extreme, certain basic types of machinery could have a market lasting decades. The presumption is that the life cycle will follow the pattern of a bell-shaped curve, but as long as it begins with a (a) The demand ior the product (also see section 10.3). (b) The number of suppliers in the market. (c) The hit spectancy of the product. (d) The stage in the life cycle at which it enters the market.