NOMINAL: The actual dollar price of stuff when it's bought or sold. The contrast is with the term real, which is actual value adjusted for price changes or inflation.
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PRODUCT LIFE CYCLE:
The different stages that a product traverses over the course of its life from initial availability (birth) to eventual unavailability (death). The key stages are development, introduction, growth, maturity, saturation, and decline. The product life cycle, represented by an S-shaped curve, is an adaptation of the biological life cycle and is common to the study of marketing. It is also important in the analysis of innovation and economic instability. In addition to biological growth, comparable S-shaped life cycles are found in short-run production of a firm, the growth of a person's income, the acquisition of knowledge, and the development of a civilization. The product life cycle is the basic stages that a product experiences over its life. One the product is developed or invented, it is introduced to the market. It then enters a period of rapid growth, followed by the maturity stage. This is followed by the peak of its market saturation, then subsequent decline. The decline stage might end with removal from the market or modification and reintroduction, which triggers another product life cycle.
The study of marketing takes a keen interest in the product life cycle as different marketing techniques are needed during each of the stages. The product life cycle is also important to the study of innovations, especially the difference between invention and innovation, the roles of entrepreneurial and managerial behavior. The evolution of market structures and the transition between monopoly, oligopoly, and monopolistic competition is also based on movement through the product life cycle.
Life Cycle StagesThe product life cycle includes six stages -- development, introduction, growth, maturity, saturation, and decline.
While the product life cycle is often applied to standard, tangible, sold-through-the-market products, it can also work for other types of "goods," including ideas, organizations, customs, and laws. For some, the life cycle might last only a few months, for others it might last for centuries.
- Development: The product life cycle begins with creation of the product, the act of invention. Development might be undertaken by a profit-seeking business, a government agency, a university, or someone working in their basement. This stage might be short, it might be long. A newly invented product might languish in a lab, closet, back room, or garage for years before moving into the next stage. This stage might not end, the product might never enter the next stage of the product life cycle. In this stage there are no benefits, only costs.
- Introduction: The useful life of the product is launched with the introduction stage. In contrast to invention during the development stage, the introduction stage is the process of innovation. The product is made available for use, which is initially limited to just a few. Only the most innovatively inclined, the most entrepreneurial, those willing to take risks, make use of the product during this stage. During this stage benefits are generated, but often falling short of costs.
- Growth: During this stage of the product life cycle, product use grows rapidly extending from a few early adopters to a large fraction of the population. Innovation is still an important part of the growth stage as adopters and users must be inclined to change existing institutions. Benefits increase rapidly during the growth stage, outpacing costs, which usually decline as production techniques are better established.
- Maturity: The product life cycle enters the maturity stage when the product is widely adopted and used throughout society. During this stage behavioral inclination changes from entrepreneurial to managerial. New and different are no longer the key terms, being replaced with established and familiar. Benefits are solid and costs are low. As the established product, newly developed, competing innovations seeking to dethrown "the king" are likely to emerge during this stage.
- Saturation: The end of the maturity stage is marked by saturation. This is the maximum proportion of the population that will make use of the product. It might be 100%, as in everyone has one, or just almost everyone has one. But those who don't have one, won't be getting one. Saturation might be a single point in time or last for an extended period.
- Decline: Once saturation is reached, the next stage is decline. The product has outlived its useful life, often replaced with something newer and better. A smaller and smaller proportion of the population makes use of the product. During this stage the product either vanishes completely from society, being relegated to the history books or antique stores, or it is revitalized, repackaged, and reworked, launching a new product life cycle.
The Life Cycle Curve
The exhibit to the right presents a standard product life cycle curve. The vertical axis measures the proportion of the population make use of the product. The horizontal axis measures time. The six stages are highlighted.
|The Product Life Cycle
During the development stage the curve is absolutely flat and coincides with the horizontal axis. No one makes use of the product. The launch of the product then begins the introduction stage. The product life cycle curve is relatively flat, but a modest increase in use is seen. The growth stage corresponds with the increasing slope of the curve as the proportion of those using the product rapidly increases. The growth stage gives way to the maturity stage when the slope of the curve goes from steeper to flatter, technically termed the inflection point. The peak of the curve is the saturation, which is finally followed by the decline.
A Note on Market StructuresFor those products exchanged through markets, the product life cycle often corresponds with a particular evolution of market structures. Markets come in four basic varieties, depending on the number of competitors, the relative size of each firm, the degree of market control, the availability of information, and the ease of entry and exit.
On one end of a continuum of market structures is perfect competition, with a large number of small competitors, no market control, perfect information, and the freedom to enter and exit the industry. At the other end is monopoly, with a single firm, complete market control, restrictions on information, and high barriers to entry and exit.
Between the extremes, residing close to perfect competition is monopolistic competition, with a large number of small competitors, with a modest degree of market control, relatively complete information, and the freedom to enter and exit the industry. Residing closer to monopoly is oligopoly, with a small number of large competitors, a great deal of market control, limited information, and barriers to entry and exit.
While oligopoly is the market structure most likely to consistently engage in the development of products, any of the market structures could invent a new product by design or by luck.
Once invented, the launch of the product by a single firm automatically creates a monopoly. One and only one firm offers that particular product for sale. The monopoly might be short lived, it might not be profitable, and the market might be extremely small, but it is a monopoly.
If the product begins to capture the public's fancy, it prompts imitators, substitutes, and competitors. Depending on the ease of creating competitors, the monopoly can move into oligopoly and then monopolistic competition during the introduction stage.
Monopolistic competition continues into and through the growth phase. Consolidation of the market begins during the end of the growth phase and increases during the maturity phase. Some firms merge, others go out of business, as monopolistic competition moves back to oligopoly. The maturity phase is dominated by a small number of large firms.
PRODUCT LIFE CYCLE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: March 5, 2024].
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