Product Life Cycle
The product life cycle is defined as the period that starts with the initial product design (research and development) and ends with the withdrawal of the product from the marketplace. It is characterized by specific stages, including research, development, introduction, maturity, decline, and finally obsolescence as the product is removed from the market (discontinued). Each stage is often linked with changes in the flows of raw materials, parts and distribution to markets as production (input costs) is adjusted to face increasing competition. Conventionally, four main stages compose a product's life cycle:
  • Introduction. This stage mainly concerns the development of a new product, from the time is was initially conceptualized to the point it is introduced on the market. The great majority of ideas do not reach the promotion stage. The corporation having an innovative idea first will often have a period of monopoly until competitors start to copy and/or improve the product (unless a patent is involved as it is the case in industries such as pharmaceuticals). Generally, associated freight flows take place within developed countries and/or close to markets where to product is likely to be adopted.
  • Growth. If the new product is successful (many are not), sales will start to grow and new competitors will enter the market (by replicating the product or developing new features on their own), slowly eroding the market share of the innovative firm. The product starts to be exported to other markets and substantial efforts are made to improve its distribution since competition mainly takes place more on the innovative capabilities of the product than on its price. This phase tends to be associated by high levels of profits and a fast diffusion of the product.
  • Maturity. At this stage, the product has been standardized, is widely available on the market and its distribution is well established. Competition increasingly takes place over cost and a growing share of the production is moved to low cost locations, particularly for labor intensive parts. Associated freight flows are consequently modified to include a greater transnational dimension.
  • Decline. As the product is becoming obsolete, production essentially takes place in low costs locations. Production and distribution economies are actively sought as profit margins decline. Eventually, the product will be retired, an event that marks the end of its life cycle.
Conventionally, as a product went through its life cycle the least profitable functions were relocated to lower costs locations, notably in developing countries. This dichotomy is being challenged since it is becoming more common, even for high technology products, that the manufacturing of a new product immediately takes place in a low labor cost location. Multinational corporations have global production networks that enable them to efficiently allocate design, production and distribution according to global factors of production. This also relies on outsourcing and subcontracting.