What Is the Product Life Cycle?

The product life cycle is the process a product goes through from when it is first
introduced into the market until it declines or is removed from the market. The
life cycle has four stages—introduction, growth, maturity, and decline.

While some products may remain in a prolonged maturity state for some time,
all products eventually phase out of the market due to several factors including
saturation, increased competition, decreased demand, and dropping sales.

Companies use PLC analysis (the process of examining their product's life
cycle) to create strategies to sustain their product's longevity or change it to
meet market demand or adapt with/to developing technologies.

The 4 Stages of the Product Life Cycle

Once a product is developed, it typically goes through the four stages of the
product life cycle—from introduction through decline—before eventually being
retired from the market.
The four stages of the product life cycle are introduction, growth, maturity, and
decline.

1. Introduction

Once a product has been developed, it begins the introduction stage of the PLC.
In this stage, the product is released into the market for the first time. The
release of a product is often a high-stakes time in the product's life cycle,
although it does not necessarily make or break the product's eventual success.

During the introduction stage, marketing and promotion are at a high, and the
company often invests quite a bit of effort and capital in promoting the product
and getting it into the hands of consumers. This is perhaps best showcased in
Apple's (AAPL) - Get Free Report famous launch presentations, which
highlight the new features of their newly (or soon-to-be) released products.

It is in this stage that the company is first able to get a sense of how consumers
respond to the product, whether they like it, and how successful it may be.
However, it is also often a heavy-spending period for the company with no
guarantee that the product will pay for itself through sales.
Costs are generally very high during this stage, and there is typically little
competition. The principal goals of the introduction stage are to build demand
for the product and get it into the hands of consumers, hoping to later cash in on
its growing popularity.

2. Growth

During the growth stage, consumers start taking to the product and buying it.
The product concept is proven as it becomes more popular, and sales increase.

Other companies become aware of the product and its space in the market as it
begins to draw more attention and pull in more revenue. If competition for the
product is especially high, the company may still heavily invest in advertising
and promotion of the product to beat out competitors. As a result of the product
growing, the market itself tends to expand. Products are often tweaked during
the growth stage to improve their functions and features.

As the market expands, more competition often drives prices down to make the
specific products competitive. However, sales usually increase in volume and
continue to generate revenue. Marketing in this stage is aimed at increasing the
product's market share.

3. Maturity

When a product reaches maturity, its sales tend to slow, signaling a largely
saturated market. At this point, sales may start to drop. Pricing at this stage
tends to get competitive, so profit margins shrink as prices begin to fall due to
the weight of outside pressures like increased competition and lower demand.
Marketing at this point is targeted at fending off competition, and companies
often develop new or altered products to reach different market segments.

Given the highly saturated market, less-successful competitors are often pushed
out of competition during the maturity stage. This is known as the "shake-out
point."
In this stage, saturation is reached and sales volume is maxed out. Companies
often begin innovating to maintain or increase their market share, changing or
developing their product to satisfy new demographics or keep up with
developing technologies.

The maturity stage may last a long time or a short time depending on the
product. For some brands and products—like Coca-Cola (KO) - Get Free
Report—the maturity stage lasts a long time and is very drawn out.

4. Decline

Although companies generally attempt to keep their product alive in the

maturity stage as long as possible, eventual decline is inevitable for virtually
every product.

In the decline stage, product sales drop significantly, and consumer behavior
changes, as there is less demand for the product. The company's product loses
more and more market share, and competition tends to cause sales to
deteriorate.

Marketing in the decline stage is often minimal or targeted at already-loyal

customers, and prices are reduced.

Eventually, the product is retired out of the market altogether unless it is able to
redesign itself to remain relevant or in-demand. For example, products like
typewriters, telegrams, and muskets are deep in their decline stages (and in fact
are almost or completely retired from the market).
What is product planning?
Product planning is the process of developing successful
products to offer your customers. It includes all aspects of the
product development cycle, including market research,
strategic planning, product design and development,
manufacturing and pricing. A product development plan helps
you construct realistic goals for each stage of the development
process. It also allows you to measure your progress toward
those goals, assess your successes and make adjustments as
needed.
4 product planning (Steps/ways)
Here are four ways to develop a product plan
1. Start with a target market
The first approach to developing a successful product plan is
to know which customers you want to target with your new
product. Conducting market research helps you identify the
needs of your customers, clarify your focus on key
demographics and design products with the specific desires of
your customers in mind. As part of this stage of the product
planning process, performing quantitative and qualitative
research through surveys, focus groups, interviews and other
methods can help you gain insight into what your customers
want and how your products can fit their needs.
2. Focus on customer retention
Another approach to product planning is to consider
opportunities to retain current customers. Businesses often
look to implement new products that appeal to their current
customers in order to retain them and encourage repeat
purchases. To improve customer retention, businesses can
conduct research into their current customers' buying habits to
identify their most popular products, to notice which products
customers often purchase together and to determine whether
they can offer additional products to supplement or support
the functions of their existing products.
3. Focus on new customers
The next way to conduct product planning is to identify
opportunities to gain new customers by expanding your
selection of products. To conduct this method of product
planning, consider your current target market and related
markets that you haven't yet accessed. Knowing which
demographics are related to your current target market can
help you identify opportunities for expansion.
4. Optimize for growth
One important consideration during the product planning
process is optimizing your manufacturing operations and
product availability for growth. This means accounting for the
expenses of developing, manufacturing, transporting, storing
and selling a new product while anticipating your earnings to
ensure your new product is profitable. The process of
developing new products can be expensive, so it's important to
conduct thorough research into your target market. This
research helps you determine how likely your customers are
to purchase your product and how much they're willing to pay
for it so you can budget effectively.
benefits of product planning
Product planning has several benefits, both for your business
and for your customers. Here are some benefits of product
planning:
Meeting your customers' needs
One major benefit of product planning is developing products
that fulfill your customers' needs. Products that provide value
to your customers are more likely to succeed and may give
customers a positive impression of your business. By
identifying who your customers are, you can leverage various
research tools and techniques to understand which products
provide value to them
Using resources effectively
Creating a detailed product development plan allows you to
assess how effectively you're using your resources. Product
plans provide an opportunity for you to determine which
resources you need in order to develop, manufacture and sell
new products. For example, your plan can include budget
information, a development timeline and pricing information
to show where you're applying your resources and how you've
optimized them to generate profit.
Improving inventory control
Developing a product plan can improve your inventory
control by helping you decide how many units of a product to
manufacture in a given period. Tracking your inventory
allows you to plan for storage and transport, forecast your
sales and adjust your production as needed. A product plan
includes predictions of how many units you may sell in a time
period and compares your expected sales with the cost of
manufacturing, storing and transporting products. Assessing
the expenses of inventory management with your expected
earnings allows you to make inventory decisions that
contribute to your profit goals.
Importance of Product Planning
1. Starting Point for Marketing Programme
All the decisions made of an enterprise are directly or indirectly
affected by product planning. For example, if а marketing
programme is prepared without considering product planning,
it cannot be expected to be successful. Therefore, it is necessary
that product planning must be completed before preparing
marketing programmes.
2. Symbol of Managerial ability
Product planning is а process which embraces аllthe other
efforts of an enterprise to forecast different aspects of product
planning such as:
▪ Can the product satisfy the needs and wants of consumers?
▪ Can the product face competition?

▪ Can the consumers pay the price for the product?

▪ Can the enterprise earn desired profit?

If the reply to all the above questions is affirmative, a decision

is taken to produce it, or else, it is decided otherwise. Therefore,
the process of planning is considered a symbol of managerial
ability. If an enterprise does not undertake the process of
product planning, it implies managerial bankruptcy in the
organisation.
3. To meet Social Responsibilities
It is true that the ultimate objective of every business and
industrial enterprise is to earn maximum possible profits but at
the same time it is also true that this cannot be the sole objective
of an enterprise. Every business bears a great deal of
responsibility of meeting and fulfilling the social requirements
and expectations. Moreover, the objective of earning maximum
profits can also be achieved only by fulfilling these social
expectations. Such a fulfillment is possible only through
product planning because the process planning decides upon
the nature and characteristics of products that may fulfill these
expectations. Thus, it can be said that product planning is a tool
of meeting social responsibility.
4. Helpful in facing the Competition
Product planning is regarded as a competitive weapon because
the success of marketing efforts of an enterprise depends upon
the extent to which its products can face stiff completion in the
market. Many decisions are taken in the process of product
planning for improvements and changes in products so that the
challenges in competitive situations may be met successfully.
5. Wide Scope
Product planning is important because many decisions are
taken in the process of product planning. These decisions are
— development of a new product, expansion or contraction of
product mix, improvement in the product, determination of
brand, label, packing, color, design, size and price, etc. Thus,
the scope of product planning is very wide.
The above discussion makes it clear that product planning is of
great importance for an enterprise and the success of all the
marketing efforts of the enterprise depends upon it. Therefore,
it can be concluded that product planning is the foundation of
the production and marketing programmes.
Factory Cost Definition
Factory Costs are the expenses incurred by the business to
manufacture goods intended to be sold to the customers in the
normal course of business and include all costs linked to
production like direct material, direct labor, and other
manufacturing overheads.

Elements of Cost
The elements of cost are those elements which constitute the
cost of manufacture of a product. We can broadly divide these
elements of cost into three categories. In a manufacturing
organization, we convert raw materials into a finished product
with the help of labor and other services. These services are
Material, Labour and Expenses.

1. Direct Material
It represents the raw material or goods necessary to produce or
manufacture a product. The cost of direct material varies
according to the level of output. For example, Milk is the direct
material of ghee.
2. Indirect Material
It refers to the material which we require to produce a product
but is not directly identifiable. It does not form a part of a
finished product. For example, the use of nails to make a table.
The cost of indirect material does not vary in the direct
proportion of product.

Learn more about Meaning of Cost, Costing and Cost

Accounting here in detail

3. Direct Labour
It refers to the amount which paid to the workers who are
directly engaged in the production of goods. It varies directly
with the level of output.

4. Indirect Labour
It represents the amount paid to workers who are indirectly
engaged in the production of goods. It does not vary directly
with the level of output.

5. Direct Expenses
It refers to the expenses that are specifically incurred by
the enterprises to produce a product. The production cannot
take place without incurring these expenses. It varies directly
with the level of production.

6. Indirect Expenses
It represents the expenses that are incurred by
the organization to produce a product. These expenses cannot
be easily identified accurately. For example, Power expenses
for the production of pens.
 Source: freepik.com

7. Overhead
It refers to all indirect materials, indirect labour, or and indirect
expenses.

8. Factory Overhead
Factory overhead or Production Overhead or Works Overhead
refers to the expenses which a firm incurs in the production
area or within factory premises.

Indirect material, rent, rates and taxes of factory, canteen

expenses etc.are example of factory overhead.

9. Administration Overhead
Administrative or Office Overhead refers to the expenses
which are incurred in connection with the general
administration of the organizations.

Salary of administrative staff, postage, telegram and telephone,

stationery etc.are examples of administration overhead.
10. Selling Overhead
All expenses that a firm incurs in connection with sales are
selling overheads. Salary of sales department staff, travelers’
commission, advertisement etc.are example of selling
overhead.

11. Distribution Overhead

It represents all expenses incurred in connection with the
delivery or distribution of finished goods and services from the
manufacturer to the consumer. F Delivery van expenses.
loading and unloading, customs duty, the salary of deliverymen
are examples of distribution overhead.

Break-Even Analysis
A break-even analysis is an economic tool that is used to
determine the cost structure of a company or the number of
units that need to be sold to cover the cost. Break-even is a
circumstance where a company neither makes a profit nor loss
but recovers all the money spent.
The break-even analysis is used to examine the relation
between the fixed cost, variable cost, and revenue. Usually, an
organisation with a low fixed cost will have a low break-even
point of sale.
Importance of Break-Even Analysis
• Manages the size of units to be sold: With the help of
break-even analysis, the company or the owner comes to
know how many units need to be sold to cover the cost.
The variable cost and the selling price of an individual
 product and the total cost are required to evaluate the
break-even analysis.
• Budgeting and setting targets: Since the company or
the owner knows at which point a company can break-
even, it is easy for them to fix a goal and set a budget for
the firm accordingly. This analysis can also be practised
in establishing a realistic target for a company.
• Manage the margin of safety: In a financial breakdown,
the sales of a company tend to decrease. The break-even
analysis helps the company to decide the least number of
sales required to make profits. With the margin of safety
reports, the management can execute a high business
decision.
• Monitors and controls cost: Companies’ profit margin
can be affected by the fixed and variable cost. Therefore,
with break-even analysis, the management can detect if
any effects are changing the cost.
• Helps to design pricing strategy: The break-even point
can be affected if there is any change in the pricing of a
product. For example, if the selling price is raised, then
the quantity of the product to be sold to break-even will
be reduced. Similarly, if the selling price is reduced, then
a company needs to sell extra to break-even.
Components of Break-Even Analysis
• Fixed costs: These costs are also known as overhead
costs. These costs materialise once the financial activity
of a business starts. The fixed prices include taxes,
salaries, rents, depreciation cost, labour cost, interests,
energy cost, etc.
• Variable costs: These costs fluctuate and will decrease
or increase according to the volume of the production.
 These costs include packaging cost, cost of raw material,
fuel, and other materials related to production.
Uses of Break-Even Analysis
• New business: For a new venture, a break-even analysis
is essential. It guides the management with pricing
strategy and is practical about the cost. This analysis also
gives an idea if the new business is productive.
• Manufacture new products: If an existing company is
going to launch a new product, then they still have to
focus on a break-even analysis before starting and see if
the product adds necessary expenditure to the company.
• Change in business model: The break-even analysis
works even if there is a change in any business model
like shifting from retail business to wholesale business.
This analysis will help the company to determine if the
selling price of a product needs to change.