Translating an inspired idea into a robust business plan
013 Product Life Cycle
Markets for products or services usually grow in an s-shaped manner and eventually decline to be replaced by new products. This s-shaped curve is referred to as the product life cycle if it relates to products or the industry life cycle if it relates to a whole industry and can be described in terms of the number of users, unit sales or market value.
The observations with regards to behaviour such as the product life cycle curve, provide inputs with regards to forecasting sales volumes, prices and market share, i.e. the essential elements of a demand forecast. This is extremely useful, because it means that by using an s-curve to forecast penetration, it is possible to forecast price. It may be argued that lower prices increase demand. Therefore one has to forecast price to establish demand. However, prices relate in some ways to costs, and costs are a function of volumes. While in specific cases cause and effect can be clearly identified, medium to long-term forecasts are subject to many influences in a complex system. The product life cycle model encapsulates these effects and is therefore an appropriate model for medium to long-term demand forecasts.
The industry life cycle is not the same as the product life cycle, because within an industry there is a constant updating of products. For example TV manufacturers first produced monochrome TVs, then colour TVs and subsequently home entrainment systems. Within the colour TV segment, the screen technology has evolved from cathode ray displays to flat screens such as plasma screens. The first 3G TVs and Internet enabled TV sets have already appeared on the market.
