Question

Explain the second and third stage of product life cycle.

Answer 1

1. Growth Stage: In this stage, the demand and sales grow rapidly, distribution is widened, competition increases and prices fall. Promotional focus shifts from "buy my product" to "buy my brand". The firm expands sales by increasing market share in the existing markets and by entry into new markets. The promotional expenses remain high but fall as a percentage of sales turnover. Therefore, profits rise. In some cases, major improvements may take place in the product.
2. Maturity Stage: During this stage, sales continue to grow but at a decreasing rate. Competition increases further and markets get stabilised. The product is known all over the market and a third level market (low income group) may emerge. Due to competition prices are reduced but promotional expenditure remains high. As a result profits decline and marginal producers are forced to go out of the market. Manufacturers broaden their lines and new models of the product are introduced. Supply exceeds demand for the first time. After some time there is saturation in the market. There is no possibility of increase in sales and the sales curve is levelling off. For products with long-run demand, maturity stage may last for a long period. But sooner or later product demand starts declining as new products are introduced in the market. Thus, this stage is characterised by product differentiation, product improvement and identification of new market segments.