# Product life cycle

The product life cycle is a business administration concept that describes the process from the market launch or completion of a marketable product to its removal from the market. The product lifespan, on the other hand, is the period from the manufacture of the product to the point in time when the product can no longer be earned. When the product life cycle, the "lifetime" is divided into several phases of a product on the market that the main tasks of the active product policy in the context of life cycle management ( English life cycle management group). In most cases, the product life cycle only applies to consumer goods. For innovations, the technology life cycle (TLC) should be consulted.

## General

The product life cycle theories, which go back to the work of Raymond Vernon (1966) and Hirsch (1967) ( product life cycle according to Vernon ), divide the “life” of a product on the market into four phases: introductory phase , growth phase , maturity / saturation phase and Decline / degeneration phase . They describe how new products come onto the market ( product innovation ) and how those that have already been introduced are adapted to the constantly changing market conditions ( product variation ). An already existing product line is supplemented by another variant ( product differentiation ), new product lines are added that are horizontally, vertically or laterally related to the previous ones ( product diversification ), and products that are no longer economically viable are removed from the market ( product elimination ).

In the following, the typical functional course of the life cycle models is shown and a basic model is set up. Then different model variants and explanatory approaches that are used in business are presented.

## Life cycle models

Typical functional course of the growth and saturation models

In addition to diffusion models, life cycle models describe growth and saturation processes. You assume that the time series to be analyzed (e.g. sales ) will approach a saturation limit in the long term. In contrast to diffusion models, degeneration is explicitly mapped in life cycle models. The typical course of both model variants is clear from this graphic.

With the help of mathematical modeling, the factors influencing the growth process and the position of products in the life cycle can be derived and used as a basis for sales forecasting, planning and strategic decisions.

## Product life cycle basic model

Representation of the sales, profit and profit rate curve over the course of the product life cycle

The product life cycle represents the change in sales and profit of a product as a function of time. The following phases are distinguished:

• Introductory phase
• Growth phase
• Maturity phase
• Saturation phase
• Degeneration phase (decline)
• if necessary, there is also talk of a follow-up phase.

### introduction

At the beginning of the introductory phase , the company had already drawn attention to the new product through advertising and public relations . Thus, sales gradually increase. However, no profits are made at this stage due to previous product development costs and ongoing communications expenses. In this phase it is decided whether the market will accept the product at all. The image is built up here on the basis of the statements made by market communication . For products that are already a bestseller when they are launched, there are often production bottlenecks at the beginning due to the high demand. The introductory phase ends when the break-even point is reached, i.e. the proceeds offset the costs.

Sometimes a phase is added before the product life cycle in which the product development takes place, i.e. the development phase . This is also referred to as a generic product development process (PDP) and indicates that the quality of the product development determines the quality of the product manufacturing.

### growth

At the beginning of the growth phase, profits are made for the first time, although the expenses for promotion and communication remain high. This phase is characterized by strong growth that is accelerated by advertising. The price and conditions policy is becoming more important. The competitors are the product carefully ( free-rider problem ).

### Maturity

The maturity phase is usually the longest market phase. This phase is the most profitable. Due to increasing competition, profits decrease at the end of the phase. The growth rates are declining, but the companies still have a high market share . You can secure or expand this through suitable maintenance marketing and product variations .

### saturation

Usually the saturation phase occurs at some point . The product no longer has market growth - sales and profits decline. Various modifications can now be used to try to win more customers. The saturation phase ends when the sales revenues fall below the contribution margin again, i.e. when no more profits can be made.

### decline

The next phase is the decline phase (degeneration): the market is shrinking and the decline in sales cannot be absorbed by targeted marketing measures. The product is losing market share, has negative growth and profits decline. The portfolio should be adjusted, unless there are affiliations with other products (economies of scope). If action is not taken correctly and quickly here, unnecessary costs arise for a product that hardly generates any sales. If the decline phase becomes apparent, the relaunch (reconsolidation phase) of a product can also be considered. The product is modified and repositioned. The objective of this measure is that the product goes through a further life cycle. One example of this is the conversion from the Golf I to the Golf II. If no relaunch is started, the decline phase ends with the discontinuation and the drop in sales to zero - production is stopped. The product has now completed its life cycle - it has, as it were, died .

### Follow-up or end-of-life phase

The follow -up phase or end-of-life phase includes all activities that arise in connection with the product after the discontinuation of series production, such as guarantee services, supply of spare parts, return and disposal of old products as well as the disinvestment of operating resources. In most cases, the payouts then exceed the deposits, so that the overall success of the product decreases. It is often the case that the production facilities and the organization of the series manufacturer are not suitable for the follow-up phase. In this case, it makes sense to outsource the end-of-life business to companies or organizational units that have specialized in this business model.

### Product variants and product life cycle

Durable and varied goods, especially technical consumer goods (vehicles, televisions, hand tools, household appliances, etc.) and capital goods (machines, medical devices, technical equipment, tools, etc.) are supplemented with new equipment and functions over time and are constantly being technically improved . In order to be able to differentiate between these changes and the construction status of a product, the year of construction of the vehicle is also given in the automotive industry, for example . In the case of a technically completely redesigned vehicle, the product name is retained by the customer for marketing reasons (e.g. VW Golf ), but the vehicle is then internally identified by the series (e.g. Golf 7 , Golf 8 etc.) or another type designation distinguished. The customer orders the new vehicle under the same sales or product name, which he can then change according to his wishes by selecting various options (equipment, colors, functions, etc.). In the case of such products, the above-mentioned phases of the product life cycle are therefore somewhat blurred. Here it must be decided on a case-by-case basis whether it is still the same product or a new product with a new product life cycle.

## Variants of the concept

Within the business administration has to represent the de facto standard and synonymous with the term product life cycle , the two-dimensional four-field portfolio with relative dimensions of the Boston Consulting Group ( BCG matrix established). In addition, the McKinsey nine-field matrix ( McKinsey matrix ) is used as a more precise model. The product lifecycle analysis by Arthur D. Little ( ADL model ) with 16 to 20 fields is rather rare, but interesting in individual cases. The basic model in two-dimensional visualization with simple absolute dimensions according to sales and time is still used for a large number of individual considerations.

The planning of a product life cycle is the task of the strategic management of companies. Depending on its strength, a product life cycle has four to seven phases - not all are always achieved. The planning and observation models are generally recognized in economics, but they cannot be generally empirically proven. With the help of the various representations, the connection between the product life cycle and the cost experience curve as well as the revenue or the market attractiveness and the competitive advantages in different phases of market participation should be made clearer.

While the basic phase model organizes the product life cycle according to sales and time , the more commonly used matrices from the Boston Consulting Group and McKinsey use a coordinate system with dynamic parameters . The nine-field portfolio is only a more differentiated variant of the above four-field version and is also based on the basic idea of ​​the product life cycle.

Before a product can be launched on the market, it must be developed and tested for its market suitability. This is done through the so-called product innovation process and is part of the product policy in marketing .

### Boston Consulting Group's product lifecycle

Representation of the postcode in the BCG matrix. The sales and contribution margin curves from graphic no. 1 above are derived from the four quadrants of this graphic.
For further possible uses, see the main article BCG matrix .

The BCG portfolio developed by the Boston Consulting Group , also known as the BCG matrix and growth share matrix , is based, among other things, on the three variables assumed to be independent: product life cycle, experience curve and competitive situation. Although this portfolio can also be evaluated without considering the life cycle, it is based on the cyclical view because the four phases of the product life cycle mentioned usually follow one another.

1. Question Marks : The Question Marks, the question mark , even junior products called the newcomer among the products are. Marked as introductory phase in the diagram of the basic model . You have a low growth rate at the beginning, but then it increases steadily. However, their relative market shares are still very small. In this phase, the investments clearly exceed the sales cash flow. An offensive strategy should be chosen to develop the product into a star.
2. Stars : The stars are the brilliant stars of the company. Marked with growth in the diagram of the basic model . Not only do they have a high relative market share, but they also have high market growth. They are in a rapidly growing segment and should remain "stars" for as long as possible. Investments must therefore be made in them in order to grow with them. They then become Cash Cows later . Otherwise, they will lose market share and become question marks .
3. Cashcows : The cashcows, in German milking cows , have a large relative market share , but only low market growth . Marked with maturity in the diagram of the basic model. They are leaders in cash flow and should be milked without further investment. The standard strategy is: Hold your position and skim off income.
4. Poor dogs : The poor dogs are (at the end of their product life cycle) the problem products , the poor dogs in the range. Marked as a decline phase in the diagram of the basic model . They have (initially / only) little market growth, sometimes even a market decline and a low relative market share. In addition, there is even a risk that they will bring losses. The standard strategy here provides for innovation or elimination.

Note : The quadrant known as Poor Dogs is only referred to as Dogs in English-speaking countries . The poor attribute is not used in this context.

According to the authors, around 75 percent of all larger companies have been using the portfolio matrix for investment decisions and strategy development since the 1980s, not just for looking at the product life cycle itself. Today there is practically no more diversified company that does not work with the portfolio concept.

#### Criticism of the BCG portfolio

The consideration of the market growth rate, which is viewed as a given factor in the BCG model, is questionable. In fact, a company can positively influence market growth through appropriate marketing measures.

In addition, the portfolio can only be used meaningfully in manageable oligopoly markets with a few large providers. The dimensions of market growth and market share are often insufficient, especially in strong competitive markets with many differently sized providers. This disadvantage can be avoided with the McKinsey matrix by including appropriate variables and weighting factors.

Another point of criticism is that the BCG analysis can usually only be applied meaningfully to one's own products. It draws a current picture of the portfolio and is therefore well suited to rethinking your own portfolio and, if necessary, modifying it, but offers little or no possibility of benchmarking (comparison with the market leader or the strongest competitor, if you are the market leader yourself ).

### McKinsey Product Lifecycle

 High Selective expansion Specializing in a limited number of strengths Seek overcoming weaknesses Withdrawal if there is no growth Expansion with investment Fight for market leadership Selectively build on existing strengths Strength prone areas Defend position Invest at the maximum manageable pace Concentrate your forces on maintaining your existing strengths Market attractiveness Expand limited or harvest Find low risk expansion opportunities; Incidentally, minimize investments and streamline operational processes Selection / profit orientation Defend the current program Focus investments on high-profit and low-risk segments Selective expansion Invest heavily in attractive segments Strengthening the defense against competition Profitability through increased productivity Low Disinvestment Sell ​​at the time of highest sales value Lower the fixed costs without making any new investments Profit orientation Defend the position in the most profitable segments Optimize assortments Minimize the investment Defense and shift of focus Seek present profit Concentration on attractive segments Defend existing strengths Weak relative market share Strong ${\ displaystyle \ rightarrow}$

The nine-field McKinsey matrix (also: McKinsey portfolio ) also became known as the representation model for portfolio analysis for the product life cycle. Its dimensions reflect the attractiveness of the market (Y-axis) and the relative competitive advantages (X-axis). However, the dimensions can also be determined differently.

The information texts in the quadrants of the example graphic on the left are not required for use in operational practice. The norm strategies in the individual quadrants would have to be formulated differently when considering less life-cycle-oriented dimensions. Depending on the graphical representation, a static dimension can be mapped better by fading in product key figures (as in the example of the BCG of sales as bubbles in corresponding quadrants) without the visualization suffering as a result. The example graphic here only serves to consider product lifecycle strategies.

Since there are a large number of considerations for the interpretation of the McKinsey matrix, the particular advantage of this model lies in its variability and versatility. Basically, it is a further development of the BCG matrix . Although this model can be used for further business considerations, it is based on the assumption that products have a certain cyclical career.

The market attractiveness (Y-axis) can be represented with the help of the following main criteria:

• Market growth and size,
• Market quality,
• Supply of energy and raw materials,
• Environmental situation.

These in turn are made up of various sub-criteria.

To determine the relative competitive advantages in relation to the strongest competitor (X-axis), consider e.g. B. the following four main criteria:

• relative market position or market share,
• relative production potential,
• relative R&D potential,
• relative qualifications of managers and employees.

So-called standard strategies can also be derived from the actual position of the strategic business units:

The matrix is ​​divided into three fields:

1. Investment and growth strategies (zone of commitment of funds, here green). The strategic business units are determined by medium to high market attractiveness and medium to high competitive advantages.
2. Selective strategies are developed for business areas in the middle area of ​​the matrix (here dark blue).
3. Skimming and Disinvestment Strategies. These are strategic business areas with low or medium market attractiveness and small to medium competitive advantages (zone of release of funds, here gray-blue).

There are three different selective strategies: offensive strategies, defensive strategies and transition strategies. Which strategy you choose depends on whether the position of the various SBUs can be improved or not.

The marketing manager has reached his target portfolio when the business areas in the investment area are opposed to business areas in the skimming area. The nine-field portfolio is therefore simply a differentiated variant of the above four-field version and is also based on the basic idea of ​​the product life cycle.

#### Criticism of the McKinsey product lifecycle portfolio

On the one hand, the aggregation of the various indicators and on the other hand, the one-sided consideration of the degree of fulfillment with relative references that are difficult to assess and target formulations that are difficult to derive from them must be viewed critically . In addition, the criteria are subjectively assessed and weighted in comparison to the BCG matrix (market growth and market share). The quality of the results therefore depends heavily on the knowledge and assessments of the executors.

### Arthur D. Little (ADL) product lifecycle

Illustration of the Arthur D. Little (ADL) product life cycle

One dimension of the ADL portfolio developed by Arthur D. Little forms, analogous to the BCG approach, the relative market position or a comparable key figure. The second dimension of the ADL portfolio is the evaluation of the company's strategic business areas or their phase in the product life cycle.

On the basis of these basic models, numerous related evaluation methods are in use, which usually only differ in the choice and weighting of various key figures for the company and the market. When evaluating (forecasting) the development of a portfolio (or market), the following basic assumptions are made in classical theory:

1. All price changes of individual values ​​in the market and their causes are independent of one another.
2. In the current price, all information on the market is shown in full.
3. The price fluctuations are normally distributed, i.e. That is, they are described by the Gaussian curve (bell curve).

In real markets, these assumptions have turned out to be factually incorrect (see e.g. BB Mandelbrot, Spektrum der Wissenschaft 5/99): price changes can certainly be correlated with one another. Mass effects are particularly observed in the case of major price falls, where almost all values ​​in a market move downwards (e.g. July 98 and many other examples). A correlation between the individual values ​​can also be clearly demonstrated in phases of optimism. When making a decision (buy / sell), the investor evaluates not only the individual value, but also the overall market situation.

#### Criticism of the ADL product life cycle portfolio

The duration of the phases varies greatly and it is difficult to determine the current phase. In addition, if, as in the example graphic, the course of the theoretical life cycle can hardly be influenced in a controllable manner by a strong orientation of one of the two dimensions to the competitor. In practice, this can often hardly be readjusted.

## Factors influencing product life cycles

The duration of a cycle often fluctuates very strongly. There are goods with a very short life cycle (fashionable consumer goods such as accessories) and others with a very long one, for example bread (the life cycle of bread must not be confused with its shelf life). The duration of the phases can only be determined afterwards .

The duration of a complete product life cycle depends on various factors. In addition to the four classic areas of the marketing mix :

Above all, external conditions must also be taken into account:

1. economic framework conditions,
2. Back office by competitors,
3. Investment and consumer climate,
4. Laws and requirements for the products.

Last but not least, strategic decisions also influence the product life cycle (see ABC analysis ).

## acceptance

Today, no larger company and hardly any SME forego the strategic orientation of its product policy . The high frequency of use of the various, especially dynamic, models for planning offers on the market can be traced back to a few positive overall aspects of the portfolio models:

• Orientation towards resources, not plans,
• simple competitive strategies for the SBUs ,
• strategic goals are clearly defined,
• clear overall performance picture.

## Life cycle of a structure

In the area of life cycle management for a thing or a building, an attempt is made to record and, if possible, optimize all other costs that arise before, during and after the use phase in addition to the pure manufacturing costs of the thing .

For structures, this means that all of the following costs are taken into account:

• Planning costs,
• Building-costs,
• Operating costs (e.g. energy costs),
• Maintenance and servicing costs,
• Costs from subsequent changes of use,
• Disposal or demolition costs.

Life cycle management sometimes leads to different insights into the profitability of investments. So z. For example, the running costs of an office building made of steel and glass (high heating costs in winter, high cooling costs in summer) consume the entire profitability.

In addition, life cycle management is a keyword that is also used in connection with environmental protection . The focus here is on planning the disposal of the product in its design phase and, if possible, optimizing it from an environmental point of view.

Related terms are also life cycle engineering, i.e. H. Life-cycle-oriented - sustainable - planning and construction, definitely also in preparation for the optimal, e.g. energy-efficient operation (economy, ecology) of the buildings with user comfort (human factor), which leads to so-called green buildings, i.e. sustainable buildings (see also Green Building Labeling or certificates, e.g. DGNB). This is guaranteed by the optimal interaction of all relevant engineering disciplines (green building design for new buildings or green building management for existing buildings). Facility Management Consulting, which accompanies the planning and construction, brings the requirements of later operations (users, tenants) into the planning and construction process in good time and ensures them. This prevents later "nasty surprises", additional costs and rescheduling. The life cycle cost analysis creates planning security of up to 20 years and determines the operating and usage costs of the building, which amount to a multiple of the original investment for the construction of the building. With "clever" investment planning, maintenance and investments for maintenance and repairs can be optimized in an economical manner while at the same time observing the prescribed maintenance cycles. This optimizes costs, makes a contribution to the return and still minimizes the risk of operator liability.

## literature

• Geml, Richard and Lauer, Hermann: Marketing and Sales Lexicon , 4th edition, Stuttgart 2008, ISBN 978-3-7910-2798-2
• Olbrich, Rainer: Marketing, An Introduction to Market-Oriented Management , 2., neubearb. Ed., Berlin et al. 2006, ISBN 3-540-23577-9
• Herlyn, W .: PPS in automobile construction - production program planning and control of vehicles and assemblies . Hanser Verlag, Munich 2012, ISBN 978-3-446-41370-2 .