Question

2c) Describe the product life cycle (PLC). What happens to the sales of a product category or industry as it moves through the four stages. Why does the total industry profit decline begin to decline towards the end of the market growth stage? In your opinion, does the PLC accurately reflect a typical product category; why or why not? In 3 - 5 paragraphs

Answer 1

PLC refers to PRODUCT LIFE CYCLE concept.

There are four major stages in the product life cycle which we can understand with the help of graph as well as following explanation.

1. INTRODUCTION-in this situation the profit and sale are very low. This stage is termed as seeding process. Firm has to make several efforts to increase the sales. Therefore firm keeps its profit margin low.
2. GROWTH- in this situation the sales increases and profit margin also increases. The firm is earning profit and experiencing business expansion.
3. MATURITY - in this situation the business has reached at its full capacity and potential.the marginal productivity has reached zero.
4. DECLINE- after the maturity, if firm doesn't attempt to adapt innovation then the competitors get benefit and firm's profit decline.

as discussed earlier in the initial period the firm wants to increase the consumer base and market size therefore instead of being profit maximizer the firm becomes market oriented and keep its share of profit margin lower to overcome the cut throat competition.therefore in the beginning the profit of the firm is low.

after the maturity period when firm is earning stable profit then new firms comes in the market and provide better quality products at lower prices due to cost effective manufacturing process.this stage can be postponed if firm keep investing in innovative machines and hiring efficient and skilled labors.

PLC theory is an estimation of product life and it would represent different product with different perspective. it represents the stages of life cycle of product up to some extent.