INTRODUCTION
In 1960, Raymond Vernon, an American economist, developed an economic theory known as the Product Life cycle theory. As the name suggests, this theory talks about a product that goes through different stages. The international product life cycle is a theoretical model describing how an industry evolves over time and across national borders.
Products enter the market and gradually disappear again. According to Raymond Vernon, each product has a certain life cycle that begins with its development and ends with its decline.
ASSUMPTIONS
Two assumptions have to be kept in mind while studying this Product Lifecycle Theory by Raymond Vernon.
This theory is only applicable to developed countries and not to developing countries.
It was assumed that the new product will only be produced in the country where it was first invented.
STAGES
Product Life Cycle theory talks about 4 stages:
1.Introduction Stage2.Growth State3.Maturity Stage4.Decline Stage
INTRODUCTION STAGE
The stages of the product life cycle theory always begin with the introduction of a new product. When an organization has developed a product successfully, it will be introduced into the national (and international) outlet. In order to create demand, investments are made with respect to consumer awareness and promotion of the new product in order to get sales going.Considering that it is the first stage of the product life cycle, the profit will be low, but when the demand for the product increases, the profit will also increase simultaneously. Since the demand for the product is increased, it will automatically enter the next stage of the product life cycle.
GROWTH STAGE
In this stage the demand for the product increases. As a result, the production costs decrease and high profits are generated. The product becomes widely known, and competitors will enter the market with their own version of the product. Usually, they offer the product at a much lower sales price.Increased competition can lead to a reduction in the price. Availability of the product came into question to ensure that every customer can get that product.To maintain this growth, customer satisfaction should be the number one priority of the producers.
MATURITY STAGE
In the maturity stage, the product is widely known and is bought by many consumers. Competition is intense and a company will do anything to remain a stable market leader. This is why the product is sold at record low prices.
At this stage, the original producer of the product has to spend a lot of money to sustain their product as a market leader. They have to focus on the sale and prevent it from dropping off. This can be done by decreasing the price and maintaining the market share. Since the product is already popular, so the cost of promotion and development decreases during this stage. The profit margin also decreases, but the volume of sales is still high.
2. INTRODUCTION
In 1960, Raymond Vernon, an American economist, developed an economic
theory known as the Product Life cycle theory. As the name suggests, this
theory talks about a product that goes through different stages. The
international product life cycle is a theoretical model describing how an
industry evolves over time and across national borders.
Products enter the market and gradually disappear again. According to
Raymond Vernon, each product has a certain life cycle that begins with its
development and ends with its decline.
3. ASSUMPTIONS
Two assumptions have to be kept in mind while studying this Product Lifecycle
Theory by Raymond Vernon.
● This theory is only applicable to developed countries and not to
developing countries.
● It was assumed that the new product will only be produced in the country
where it was first invented.
4. STAGES
Product Life Cycle theory talks about 4 stages:
● Introduction Stage
● Growth State
● Maturity Stage
● Decline Stage
5. INTRODUCTION STAGE
The stages of the product life cycle theory always begin with the introduction
of a new product. When an organization has developed a product successfully,
it will be introduced into the national (and international) outlet. In order to
create demand, investments are made with respect to consumer awareness
and promotion of the new product in order to get sales going.
Considering that it is the first stage of the product life cycle, the profit will be
low, but when the demand for the product increases, the profit will also
increase simultaneously. Since the demand for the product is increased, it will
automatically enter the next stage of the product life cycle.
6. GROWTH STAGE
In this stage the demand for the product increases. As a result, the production
costs decrease and high profits are generated. The product becomes widely
known, and competitors will enter the market with their own version of the
product. Usually, they offer the product at a much lower sales price.
Increased competition can lead to a reduction in the price. Availability of the
product came into question to ensure that every customer can get that
product.To maintain this growth, customer satisfaction should be the number
one priority of the producers.
7. MATURITY STAGE
In the maturity stage, the product is widely known and is bought by many
consumers. Competition is intense and a company will do anything to remain
a stable market leader. This is why the product is sold at record low prices.
At this stage, the original producer of the product has to spend a lot of money
to sustain their product as a market leader. They have to focus on the sale and
prevent it from dropping off. This can be done by decreasing the price and
maintaining the market share. Since the product is already popular, so the
cost of promotion and development decreases during this stage. The profit
margin also decreases, but the volume of sales is still high.
8. DECLINE STAGE
By the name of this stage, we can suggest that the sale is going down during this
stage. The sale started declining in such a manner that neither the promotion nor
the marketing can maintain it. There is no point in producing more of these
products because revenue has been dropped because of the declining sales. The
cost of producing the goods becomes higher than the sale of the goods which
eventually means that the level of profit will drop.
The two options which are left with the producer are either to discontinue the
product from the market or sell their product to the other company. So, in this
stage of the product life cycle, the production will transfer to the developing
countries.
9. CONCLUSION
Not every product has to go through each of the stages. There are products that
never get beyond the introduction stage, whereas other products remain in the
maturity stage for a considerable length of time.
For example, the Philips light bulb was a product that found itself in the maturity
stage for decades. The duration of each stage depends on demand, production
costs and revenues.
Low production costs and a high demand will ensure a longer product life. When
production costs are high and there is a low demand for the product, it will not be
offered on the market for a long time and, eventually, it will be withdrawn from the
market via the decline stage.
