Product Life Cycle Theory
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Transcript of Product Life Cycle Theory
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Product Life Cycle
Theory The product life-cycle theory is an
economic theory that was developed byRaymond Vernon
The theory suggests that all the parts andlabor associated with that product comefrom the area in which it was invented
After the product becomes adopted and
used in the world markets, productiongradually moves away from the point oforigin
Sometimes product becomes an item that is
imported by its original country of invention
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Stages of Product LifeCycle1) Introduction)#ew product launched on the
market
)$ow level of sales
)$ow capacity utili%ation
)&sually negative cash 'ow
)(eavy promotion to makeconsumers aware of the product
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Stages of Product LifeCycle2) Growth• )ash 'ow may become positive
• The market grows, pro*ts rise but
attracts the entry of newcompetitors
• Advertising to promote brand
awareness• Increase in distribution outlets
• Improve the product + new
features, improved styling, more
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Stages of Product LifeCycle3) aturity(igh pro*ts for those with high
market share
)ash 'ow should be strongly positiveeaker competitors start to leave
the market
Slower sales growth as rivals enterthe market
-rices and pro*ts fall
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Stages of Product LifeCycle!) "ecline.alling sales
arket saturation and/or
competition0ecline in pro*ts 1 weaker cash
'ows
ore competitors leave themarket
0ecline in capacity utili%ation
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International changes duringa Product Life Cycle
Introduction
Growth aturity "ecline
-roduct$ocation
arket$ocation
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International changes duringa Product Life Cycle
Introduction
Growth aturity "ecline
)ompetitive .actors
-roduction Technology
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#le$ents of InternationalProduct Life Cycle
23 The structure of the demand forthe product
43 anufacturing
53 International competitionand marketing strategy
63 The marketing strategy of the
company that invented orinnovated the product
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Stages fro$ the initiatingcountry %iew point
ProductStage
Trade Targetar&et
Co$petitors
Production CostLocally
#ew Limitedproductionfor home
market
Inventor’scountry
few localfirms
Initially high
ature Increasingexports
Inventor’scountry andlaterdevelopingmarkets
competitorsfromadvancedmarkets
Decliningdue toeconomiesof scale
Standardi%ation
Decliningexport atfirst, later inphasebecomeimports
Inventor’scountry
Competitorsfrom mostlydevelopingmarkets
Lowereconomiesof scale andcomparativedisadvantages
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Pros of InternationalProduct Life Cycle
The model helps organisationsthat are beginning theirinternational e7pansion
According to Vernon, mostmanagers are myopic
The I-$) model was widely
adopted as the e7planation of theways industries migrated acrossborders over time
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Cons of International ProductLife Cycle
It is di8cult to determine thephase of a product in product lifecycles
(e used the product side of theproduct life cycle, not theconsumer side
Selling 9older: products to alesser developed market does notwork if transportation costs for
imports is low
