Another approach to examine product mix is by looking at different stages of products life cycle. Every product introduced has a specific life span. This life span is divided into different phases.
Phase1: Introduction stage of product life cycle.
Phase 2: Growthstage of product life cycle.
Phase 3: Maturitystage of product life cycle.
Phase4: Declinestage of product life cycle.
Introduction stage of product life cycle:
This product life cycle reflects sales and profits of a product over different phases of its life. Generally, most products show an established path which forms an “S” shaped curve. It is important to understand how the product contributes to profit and sales in different phases.
During an introduction phase of product life cycle , there are many costs involved in order to introduce the product into the market. For example, new product development cost (also termed as NPD), expense involved in promotional activities, high operational costs etc. Due to this in majority of cases during introduction phase products tend to contribute negligibly towards profits. Rather at this time it is an expense involved (could be termed as loss). The other reason is that as the product is new and even suppliers of the raw material for the product are not very confident about the success of the product so they often tend to resist giving credits and the dealing has to be done all in cash.
Growth stage of product life cycle
As the introduction stage of product life cycle ends, the product has spent considerably moderate time into the market where customers / consumers get familiar to the product and start buying the product (or consuming it). As the product is now into the market it becomes more strengthened and faces more intense competition. This competition now offers greater choice to the customer in the form of different product type, packaging and price. The market base expands as more customers by the product. More trade channels are now willing to keep the product and one generally observes softening of prices.
At this time the company soon starts operation on economic levels. There are les product bottlenecks hence cost is low. To remain competitive over a period of time the firm initiates product improvement or modification in the product to stay in the market, but profits taper off at the end of this phase.
Maturity Stage of product life cycle
This now brings the product to its maturity stage. There can be ample number of reasons for product getting mature. For example, entry of a new product that may be offering better quality at a cheaper price which has induced the consumer to shift. This calls for some great marketing strategies that could revitalize the product so that the product stays in the market. But at this point, it’s difficult to survive, as there are new entrants that are now offering better priced products. This maturity often leads to death of the product and this is the time when company is incurring losses due to its production (no sign of profits).
Remember, till the time a product is contribution to the growth of the company, the product is continued to be produced. But when the carrying cost increase than cost of production the production is stopped.