Every manufacturer and distributor of after-market parts needs to know the different stages of their product life cycle to ensure inventory levels are being accurately forecasted and replenishment reorder points are in alignment with customer demand.

Different stages of a product life cycle

From the time a new product is launched to the market, it will invariably go through a typical life span where demand will traverse though nine different demand types from initial product launch to the end of the life cycle.

As the product moves through the demand stages that are outlined in Figure 1. 2, different forecasting and planning techniques are required to effectively forecast demand. Figure 1 2 illustrates how a product life cycle changes over time as it migrates from one pattern to the next.

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The four main stages of a product life cycle are:

1 | Launch:  There are heavy distribution and promotion expenses to sell this new product and an inventory planner may need to increase inventory levels to ensure product is available as sales begin to rise.

2 | Growth: As a product increases in popularity with consumers, sales will start to rise. It may be a rapid growth or a slower one, but the growth trend will still be positive. Growth rates can be highly variable and sporadic. Successful inventory planners will frequently run demand forecasts to ensure they have the right stock levels, safety stock and reorder points to optimize their cost model while ensuring a high order fill rate.

3 | Maturity: Once the product is well established and the consumer marketplace has been saturated or has met their satisfaction with the product, then the growth slows down and begins to level off. In this stage, inventory planners will typically see erratic, slow or fast spikes in customer demand. This demand pattern type can vary greatly and will require frequent forecasts to ensure stocked items are optimized.

This is the primary stage of the product life cycle where managers of stock will want to begin inventory planning to reduce their target customer service levels in order to lower inventory levels for the oncoming decline of product demand.

This is a difficult transition for most companies as they do not want to risk missing sales due to lower inventory levels and stock outs, but the costs associated with carrying large quantities of excess or obsolete stock could be a huge financial burden if not managed properly.

4 | Decline: After a product has reached its maturity stage, sales will eventually fall due to changes in consumer demand or due to newer product offerings or competing products being supplied to the market.

Different products have different growth and decline patterns. Smart inventory planners that have already accounted for the decline in demand have typically taken a number of actions to ensure stock levels are being reduced at an appropriate level to avoid being left with obsolete stock.

Orders will diminish as contract time periods end, and suppliers must be careful not to be caught with dead and obsolete stocks of raw materials, components or finished products.

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A product’s stage within its life cycle influences the need for product development and adaptation. Organizations selling products internationally to multiple markets need to know exactly where the type of product they sell is in the product life cycle, for each different market.

This knowledge, combined with research on competitors’ products, current regulations and market demand, will help determine whether they need to adapt a current product or develop a new product before entering a new target market.

In many cases, products need to be changed before they can be introduced into new markets. Depending on the life cycle stage, this may involve marginal changes to product labelling or packaging, or involve alterations to design and functionality.

For example, infant car seats have reached the maturity period in North America, but the pioneer period in China. A French manufacturer looking to expand into the U.S. may need to adapt its product based on regulatory differences, as well as on competitors’ products, trends and consumer preferences. It may need to considerably differentiate its product to break into the competitive American market, and perhaps even look at developing a new, cutting-edge car seat.

To establish sales in China, the manufacturer would also explore whether regulations would require adapting its seat, but would face far less competition and lack consumer feedback. It may wish to conduct surveys or focus groups, and it may need to change its packaging to outline how car seats reduce injury and death.

Product Life Cycle

For a product at the end of the life cycle, organizations could consider the shift away from quality and toward price as a product’s underlying technology becomes commonplace and imitators enter the market. To reduce its costs, an organization may need to adapt its product to include cheaper components or require less labour to produce. Companies will continue to offer a product only as long as they can do so more cheaply than their competitors, and no alternatives emerge to make the product obsolete.

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Should you adapt your product, or is it time to let it go?

Organizations must also consider whether it is worth investing resources in adapting or developing a product if it is at the end of its life cycle. Many obsolete or marginal products linger in the market until their inability to generate profit becomes too hard to ignore. Such products may:

• Involve expensive, short-run production as demand declines or becomes sporadic.
• Take up an inordinate amount of management and sales time.
• Project an image of a non-progressive and technologically backward company.
• Delay new product development in hopes that things will improve.

Before eliminating a product, the organization must assess the overall international value of the product to the company, as opposed to simply monitoring the product’s performance in individual markets.

Products should not remain in the international market simply because a few overseas markets still want them. Product elimination procedures and controls, such as a product review committee, are more significant in international markets than domestic ones since the company may have many markets, products and modifications to consider. In addition, the international marketer may need to consider product elimination from the exporter’s viewpoint (one production source) or the multinational viewpoint (several production sources).

There are exceptions to every rule – including the product life cycle

There are some products that transcend the product life cycle, normal economic models and consumer trends.

Customers expect standardized products to be the same for various reasons. Luxury (also known as Veblen) goods may have a special cachet, a brand affiliation or an image that infers a certain status to its owners. Think of Louboutin shoes or a Porsche automobile. Some of these products can hold or even increase in value over time. The sales of luxury products would lose customer value if they were widely available and the price lower.

Customers may also want a standardized product to eliminate uncertainty. For example, a McDonald’s Big Mac hamburger is the same worldwide. Products with specific technical functions, such as a tape measure that uses a standard unit of measurement, are the same wherever that standard measurement is used and function for as long as the product lasts.

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