Industry Life Cycle
by Martin Luenendonk
An industry life cycle is a series of identifiable phases during the industry process used to analyze the latter in order to determine whether the risk is worth the potential investment.
Stages of the industry life cycle
- As a new product or service takes life, this is considered the first stage in its cycle (e.g. a new product being developed and patented);
- Marketing campaigns refers as these product offers as ‘question marks’ since their success has not been proven in the market;
- At this stage, the company will focus on the specific characteristics of the product in order to attract more customers possibly interested into its full cycle;
- These first customers are known as ‘innovators’ or ‘early adopters’ and market strategies focus on raising awareness and explaining the product related to the clients’ needs;
- Usually, all profits deriving from this stage are re-invested into the company in order to adapt the product to market needs and continue into the second phase.
- At this stage, the goal of the company is to differentiate its products from the competition;
- The industry will experiencing more product standardization at this stage, thus encouraging economies of scale and facilitating development of a line-flow layout for production efficiency.
- At this stage, research and development play an important role in order to adapt the product to customers’ needs and suggestions.
- During the growth stage, the life cycle curve is very steep, indicating fast growth. Companies tend to spread out geographically during this stage and then continue to disperse during the maturity and decline stages.
- An indication of entering this phase is a slower growth indicated by a flat industry life cycle curve;
- Marketing efforts should stay strong and stress the unique characteristics of the product as to differentiate it from the competitors;
- At this stage, the competition might tend to focus on the quality as late entrants might offer lower costs for inferior quality;
- At this stage, the market is made up of fewer companies who tend to be dominant.
- As the life cycle ends, sales decrease at a high rate and the company needs to set up its exit strategy;
- If the company has not left at the maturity stage, it may remain to compete in the smaller declining market;
- Mergers and consolidations are also viable solutions companies often set up and continue towards acquisition and/or diversification.