Life Cycle Management

Just as human and biological life moves through successive stages of evolution, so too does an industry. The industry life cycle stages can be characterized according to five distinct phases: the introduction phase, the growth phase, the maturity phase, the decline phase and the exit phase. The following industry life cycle analysis highlights the importance of each stage.

The introduction phase of the industry life cycle is defined as the infancy or embryonic stage. This is where early adopters of new products, technology or processes are typically carving out a niche market and developing products and services in response to an identified need. There is little to no competition unless similar companies have identified the same opportunity. Companies involved in this stage are typically active in sourcing investment capital to execute their business plans. Profits are not yet created because the industry is new to the market and revenue is usually reinvested in business expansion. Growing the industry awareness and positioning the product is the primary promotional focus at this stage.

The growth stage of the industry life cycle is characterized by reinvestment of the industries growing earnings into plant and equipment to meet the expanding demand and to create economies of scale. Firms active in the market are focusing on building market share and differentiating their product. Distribution channels are expanded and market rivalry emerges as firms compete for a bigger slice of the market pie. Research and development funds are allocated to shape products according to consumer needs and demands. This results in product standardization and product positioning to capitalize on key differentiating factors.

The maturity stage of the industry life cycle is where profitability hits a peak. Successfully positioned companies emerge as cash cows and have an abundance of cash to pay out as dividends to shareholders. New competitors enter the market at this stage to capitalize on market profitability. Price wars intensify in response to growing competition and to consolidate market share. Marketing strategies continue to amplify differentiation and brand awareness.

The declining stage of the industry life cycle is when some companies start to exit the industry and mergers and acquisitions hit a peak. Profitability starts to decrease and companies focus on cost cutting initiatives in the production process and streamline marketing initiatives. Sometimes this stage occurs as a result of changing consumer tastes or preferences, the emergence of new products or the invention of a new technology which redefines the industry and consumer preferences.

The exit stage is where companies leave the industry, as it gets replaced by new inventions or technology which changes the industry landscape. Each stage of the industry life cycle growth can vary greatly in length. This depends on the market and nature of the industry in response to market forces.

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