Product Life Cycle

Theory

Theproduct life-cycle theoryis an

economic theory that was developed by
Raymond Vernon
The theory suggests that all the parts and
labor associated with that product come
from the area in which it was invented
After the product becomes adopted and
used in the world markets, production
gradually moves away from the point of
origin
Sometimes product becomes an item that is
imported by its original country of invention

Stages of Product Life

Cycle
IMAGE

Stages of Product Life

Cycle
Introduction
)New product launched on the
market
)Low level of sales
)Low capacity utilization
)Usually negative cash flow
)Heavy promotion to make
consumers aware of the product

1)

Stages of Product Life

Cycle
2) Growth
Cash flow may become positive
The market grows, profits rise but
attracts the entry of new
competitors
Advertising to promote brand
awareness
Increase in distribution outlets
Improve the product - new
features, improved styling, more

Stages of Product Life

Cycle
3) Maturity
High profits for those with high
market share
Cash flow should be strongly positive
Weaker competitors start to leave
the market
Slower sales growth as rivals enter
the market
Prices and profits fall

Stages of Product Life

Cycle
4) Decline
Falling sales
Market saturation and/or
competition
Decline in profits & weaker cash
flows
More competitors leave the
market
Decline in capacity utilization

International changes during

a Product Life Cycle
Introducti
on
Product
Location

Market
Location

Growth

Maturity

Decline

International changes during

a Product Life Cycle
Introducti
on
Competitiv
e Factors

Production
Technolog
y

Growth

Maturity

Decline

Elements of International
Product Life Cycle
The structure of the demand for
the product
2) Manufacturing
3) International competition
andmarketing strategy
4) The marketing strategy of the
company that invented or
innovated the product
1)

Stages from the initiating

country view point
Product
Stage

Trade

Target
Market

Competito
rs

Productio
n Cost
Locally

New

Limited
production
for home
market

Inventors
country

few local
firms

Initially high

Mature

Increasing
exports

Inventors
country and
later
developing
markets

competitors
from
advanced
markets

Declining
due to
economies
of scale

Inventors
country

Competitors
from mostly
developing
markets

Lower
economies
of scale and
comparative
disadvantag
es

Standardizat Declining
export at
ion
first, later in
phase
become
imports

Pros of International
Product Life Cycle
The

model helps organisations

that are beginning their
international expansion
According to Vernon, most
managers are myopic
The IPLC model was widely
adopted as the explanation of the
ways industries migrated across
borders over time

Cons of International Product

Life Cycle
It

is difficult to determine the

phase of a product in product life
cycles
He used the product side of the
product life cycle, not the
consumer side
Selling older products to a
lesser developed market does not
work if transportation costs for
imports is low