How long are industry life cycles

These are individuals who are willing to take risks to use a new product. Another strategy is to initiate and take advantage of network effects. Network effect refers to the positive effect when a large number of users encourages more usage. On the financial side, cash flow and profitability are usually still negative. Companies have to spend a lot of money on marketing and promotion.

Meanwhile, sales are still limited because they only have a few customers. At this stage, the market growth rate increases, usually exponentially. More and more people are using it. And so, the network effect got to work. Competition at this stage is still loose. The low level of market penetration allows the company to pursue growth by acquiring customers instead of seizing customers from competitors. They do this by increasing promotion and marketing. That way, companies can sell more products and achieve higher economies of scale.

Companies may also differentiate their offerings. The number of players increases. New players introduce additional capacity to the market. That may not depress prices because high demand can still absorb additional supply. The consolidation in the industry is still not taking place. Acquisition and merger activities are usually low. If there is, it is usually the acquirer who is external and wants to enter the market. In terms of product development, industry standards emerge and are being adopted by most companies.

Industry standards refer to a common set of engineering features and design options inherent in a product, for example, QWERTY for a keyboard. Standardization can emerge from the ground up through competition, usually coming from first-movers.

These changes have been shown in the industry life cycle which is an S-shaped curve similar to the product life cycle curve. The main life stages are — embryonic, growth, shakeout, maturity and decline. If a firm able to develop proper distribution channels, increase consumer awareness and provide a better quality product or service than the rest of the competition will see sales numbers growing. At this stage, the growth rate of sales and market share accelerates for a strong firm.

There is a standard for the product that is imposed or agreed upon by the government and other standard-setting agencies. The innovation process is looking for ways to make the existing product better by create a better manufacturing process, better delivery method and more. Firms try to optimize their marketing, distribution channel, product in a way that will maximize the market share and reduce competition.

During the shakeout stage of the cycle, the percentage groth rate declines. Firms face competition for market share from other firms. Firms that are weak in their innovation, marketing, customer support, product quality, and after-sales support; start to lose market share and eventually are forced out of the industry.

While sales are expanding and earnings are growing from these "cash cow" products, the rate has slowed from the growth stage.

In fact, the rate of sales expansion is typically equal to the growth rate of the economy. Some competition from late entrants will be apparent, and these new entrants will try to steal market share from existing products. Thus, the marketing effort must remain strong and must stress the unique features of the product or the firm to continue to differentiate a firm's offerings from industry competitors.

A firm at this stage may have excess cash to pay dividends to shareholders. But in mature industries, there are usually fewer firms, and those that survive will be larger and more dominant. While innovations continue they are not as radical as before and may be only a change in color or formulation to stress "new" or "improved" to consumers.

Laundry detergents are examples of mature products. Declines are almost inevitable in an industry. In this phase, sales are decreasing at an accelerating rate.

This is often accompanied by another, larger shake-out in the industry as competitors who did not leave during the maturity stage now exit the industry. Yet some firms will remain to compete in the smaller market.

Management efficiency can help to prolong the maturity stage of the life cycle. Production improvements, like just-in-time methods and lean manufacturing, can result in extra profits. Technology, automation, and linking suppliers and customers in a tight supply chain are also methods to improve efficiency. New uses of a product can also revitalize an old brand. In , sales were dropping due to the introduction of packaged foods with baking soda as an added ingredient and an overall decline in home baking.

New uses for the product as a deodorizer for refrigerators and later as a laundry additive, toothpaste additive, and carpet freshener extended the life cycle of the baking soda industry.

Promoting new uses for old brands can increase sales by increasing usage frequency. In some cases, this strategy is cheaper than trying to convert new users in a mature market. To extend the growth phase as well as industry profits, firms approaching maturity can pursue expansion into other countries and new markets. Expansion into another geographic region is an effective response to declining demand. Because organizations have control over internal factors and can often influence external factors, the life cycle does not have to end.

An example is feminine hygiene products. Sales in the United States have reached maturity due to a number of external reasons, like the stable to declining population growth rate and the aging of the baby boomers, who may no longer be consumers for these products. But when makers of these products concentrated on foreign markets, sales grew and the maturity of the product was prolonged. Often so-called "dog" products can find new life in other parts of the world. However, once world saturation is reached, the eventual maturity and decline of the industry or product line will result.

Just as industries experience life cycles, studies have documented life cycles in many other areas. Countries have life cycles, for example, and we traditionally classify them as ranging from the First World countries to Third World or developing countries, depending on their levels of capital, technological change, infrastructure, or stability.

Products also experience life cycles.