How do industry profits change as a product moves through the four stages of its life cycle?
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The four stages of a product's life cycle are introduction, growth, maturity, and decline. Industry profits can change significantly throughout these stages. Here's how:
1. Introduction stage:
During the introduction stage, a new product is launched into the market. Industry profits are likely to be low or even negative during this stage due to high costs associated with product development, marketing, and distribution. Companies need to heavily invest in research and development, product promotion, and building brand awareness. Companies typically focus on market penetration rather than immediate profit maximization.
2. Growth stage:
In the growth stage, the product gains market acceptance and customer demand starts to increase. Industry profits begin to rise during this stage as sales volume grows rapidly. Economies of scale can be achieved, production costs decrease, and marketing expenses are spread over a larger customer base. The competition may also increase during this stage as new competitors enter the market, reducing profitability.
3. Maturity stage:
The maturity stage signifies market saturation, where the product reaches its peak sales and market share levels. Industry profits may stabilize or reach their highest point during this stage. However, intense competition, price wars, and market saturation can lead to declining prices and reduced profit margins. Companies may focus on cost-cutting measures and efficiency improvements to maintain profitability.
4. Decline stage:
The decline stage indicates a decline in sales and customer demand. Industry profits typically decrease during this stage due to a shrinking customer base and increased competition. Companies may struggle to maintain profitability, leading to product discontinuation or strategic diversification. Some businesses still manage to generate profits by targeting niche markets or implementing product innovation, but the overall industry profitability tends to decline.
It's important to note that the duration of each life cycle stage can vary significantly depending on the industry and the specific product. Additionally, products can experience multiple cycles or may skip certain stages altogether depending on market dynamics and the pace of technological advancements.
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