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A product life cycle analysis is a popular tool to use as part of the strategic analysis step within the overall strategic
planning process:
strategic choice
Typical characteristics of these stages are set out in the following table:
Various strategies have been suggested for products that have entered the decline
stage. Hofer and Schendel suggest four choices when sales are less than 5% of those of the industry leaders:
concentration on a small market segment and reduction of the firm's asset base to the minimum levels
needed for survival
acquisition of several similar firms so as to raise sales to 15% of the leaders' sales
selling out to a buyer with sufficient cash resources and the willingness to use them to effect a turnaround
liquidation
liquidation.
Every product will be different and there is no hard and fast rule as to what will happen to product costs. So the above
table is simply an illustration of what would 'typically' happen to a product's costs over its life cycle.
If we look at 'competition costs' as an example. Competition costs represent element such as the cost of matching
competitor prices or offers, the cost of matching their services, or the cost of competing for resources such as staff
and materials that become scarce when competitors enter the market.
In the early stages of product development and introduction these costs should be non-existent (if competition do not
yet exist) or low (as competitors enter the market). In the growth phase they will start to rise though not yet to high
levels as there should be less need to compete for existing customers as there should be plenty of new customers to
attract in order to meet goals. But when the market matures then these costs can be high as customers become more
discerning, it is difficult to find replacement customers for any that are lost, and rivals look for new ways to gain a
competitive advantage.
In the decline phase these costs might actually ease off. The business might take a deliberate decision to 'harvest'
the product and compete less aggressively, or competitors might themselves realise that further costs here creates a
'lose-lose' situation, or price stability arises, or competitors leave the market - there are many justifications for a fall in
competition costs at this stage.
Some firms now try to incorporate lifecycle costing into their pricing decisions.