Human beings have life cycle, first we are born then we enter young age then gradually we enter maturity and then we grow old, in the same way industries also have life cycle and industries also like human beings go through various stages of life cycle. Let’s look at the various stages of industry life cycle-
- Pioneering or Introduction Stage – This is the first stage of industry life cycle and under this stage the new product is developed and introduced into the market for consumption by the buyers and see what is the response of buyers towards the product. This stage is the most important stage for any industry because majority of products fails to pass through this stage and company is at risk of losing heavy expenses which it has made on research and development of the product. This stage requires heavy publicity and advertisement expenses.
- Expansion Stage – After the product passes the litmus test of introduction stage it enters into expansion or growth stage under which the sales of the product rises very fast as its consumption increases due to increased acceptance by the consumers which in turn results in increasing profits for the company. This stage is the most fruitful stage because companies enjoy higher margin of profits and also it does not require substantial expenses in the form of advertising and sales promotion.
- Stabilization Stage – Under this stage products become standardized and also due to more competition companies have to reduce the price of their products so as to maintain their sales growth which leads to lower profits margin. In simple words under this stage industry or companies in the industry stops growing or grow at much lesser rate than the expansion stage. After sales service and expenses like distribution costs, employee expenses and other operational expenses began to hit the bottom line of companies operating in the industry.
- Declining Stage – This is the last stage of industry life cycle and under this stage companies in the industry either merge with bigger companies or go out of the industry because of low profits or loss due to stagnation in growth and therefore companies tend to shift their focus on other industries in which they see growth.
As one can see from the above that just like life when you are young many people are your friends you are surrounded by people in the same way in an industry when it is in growth stage many companies go for such industry and just as in life when we are old we have few friends left and nobody cares about the old in the same way industry which is in declining stage companies are no way near to such industries.