Question

Explain the three stages in the international product life cycle theory by providing an illustrative example (please provide the name of the company and the name of the product) to explain each stage of this theory.

Answer 1

The international product life cycle theory was proposed by Raymond Vernon. This theory portraits different stages through which the product is pushed through the economy and reaches its final stage. The stages are :

Introductory stage :

This is the first phase of the product life cycle. This stage follows with the introduction of the product into the market. Companies adopt different strategies such as price penetration, cost leadership to get hold of the customers. In this phase, the sales and the profit will be comparatively low as the product is just introduced into the market. Companies adopt push policy through discounts, distributing sample packets of the product. The company will produce fewer products during this stage to know the customer response.

For example: consider the introduction of an android mobile phone into the market. In the introductory stage, the sales will be low as customers are yet to get familiarised with the product. The market leaders will closely monitor the new phone and its features. About the extent to which the features are upgraded comparing to the rivals.

Maturity stage :

In this stage, customers start accepting the product. Thus the firm put more effort into developing new features. Companies produce customized products to attract customers. The product is manufactured locally which helps the company to reduce the variable costs. The firm invests more in R&D to provide strong competition to the rivals. The company gains profit and high sales during this stage. The competitors are consequently evaluated to gain a strategic advantage over other leaders.

Example: the new android device is accepted by the customers and the sales increase during this stage. The company produces upgraded customized versions of the device to attract more customers.

Decline stage :

In this stage, the substitute product for the existing product is introduced and the sales start declining. The profit reduces and the company either decides to withdraw the product or to upgrade the product line. This stage is followed by the low customer acceptance. The company cut off the production of the product and make sure the replacement for the product is launched soon. The company focuses on selling the existing product for discounts and adopt the cost differentiation strategy for that. The profit gained is invested in the innovation of new products.

Example: introduction of a mobile phone with fingerprint features, reduced the popularity of the ordinary mobile device.