The product life cycle is defined as all the stages that a product goes from its conception through its obsolescence. The cycle starts with the initial product design, which involves research and development (R&D) and ends with the withdrawal of the product from the marketplace (discontinued). Each stage is often linked with changes in the flows of raw materials, suppliers, 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 it was initially conceptualized to the point it is introduced on the market. The great majority of ideas do not reach the promotion stage as the products being proposed do not have enough market potential, utility, or are not possible to manufacture. The corporation having an innovative idea first will often have a period of monopoly until competitors start to copy and improve the product. This phase can be extended when a patent is involved, since at allows the innovator exclusivity for a period of time. This is the case in industries such as pharmaceuticals and allows innovators the opportunity to recoup their investments by being granted a temporal monopoly. The introduction of a new product generally takes place within developed economies and close to markets where the product is likely to be adopted.
- Growth. If a 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 with high levels of profits and 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 and some firms decide to cease production. 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-cost locations, notably in developing economies. 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 allowing to efficiently allocate design, production, and distribution according to the global factors of production., outsourcing and subcontracting.