What is Industry Life Cycle?

Understanding the different stages of the life cycle help the businesses in making efficient decisions at each stage by identifying the opportunities and threat. Furthermore, it helps the businesses take entry, exit, or reentry strategies. It resembles an economic cycle, and similar to the stages of economic cycles, it is difficult to predict the duration of each stage.

Key Takeaways

  • The industry life cycle represents the different stages in the lifespan of an industry, indicating the emergence, rise, and decline in popularity.There are primarily four stages: introduction, growth, maturity, and decline.The introduction stage indicates the starting stage in the life cycle where the offering is emerging and new to customers. It is followed by the growth and maturity stage manifesting profit increase and maximization. Finally, the decline stage showcase a decrease or negative growth.Analysis and understanding of the different stages help in the strategic decision-making process.

Stages of Industry Life Cycle

The industry life cycle model applies to most industries where businesses experience the four stages of the cycle. The entities enter the cycle when they develop an idea and then traverse the life cycle. Let’s look into the four stages of the life cycle.

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Introduction

The introduction is the starting phase of the life cycle where a new product, service, idea, or solution to a persistent problem is introduced in the market. Since it is new to the market, the level of demand, sales, and revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more is low, potential consumers are not aware of it, the product may not be a complete version, and requires wide-reaching advertisements. Most of the aspects of the new industry will be in uncertain categories like target marketTarget MarketA target market consists of different groups of individuals, households, and organizations towards which a company aims to offer its products and services.read more and business model to follow to fit in the industry.

Some of the defining factors that the industry exhibits at its introduction phases are as follows:

  • Few innovators are creating the industryCompetitors, substitute productsSubstitute ProductsAny alternative, replacement, or backup of a primary product in the market is referred to as a substitute product. It refers to any commodity or combination of goods that might be used in place of a more popular item in normal circumstances without affecting the composition, appearance, or utility.read more, or complementary goodsComplementary GoodsA complementary good is one whose usage is directly related to the usage of another linked or associated good or a paired good i.e. we can say two goods are complementary to each other. read more are lessThe industry works to reach out to as many people as possibleMarketing and advertising are done aggressively to create awarenessDiscounts offers and rewards are given to the product to attract customers

Growth

The second stage of the Industry life cycle is the growth phase. During the growth phase, consumers start to identify and show interest in the industry’s offerings. The supply and demand increase. Companies grow organically; they gain and increase market shareMarket ShareMarket share determines the company’s contribution in percentage to the total revenue generated within an industry or market in a certain period. It depicts the company’s market position when compared to that of its competitors.read more.

A dynamic environment is not uncommon for the industries during the growth stage. Also, the atmosphere is filled with opportunities, proactiveness specifically in the strategy-making process, is crucial for growth. The companies in the industry now have appropriate business models and processes.

  • Spend of research and developmentResearch And DevelopmentResearch and Development is an actual pre-planned investigation to gain new scientific or technical knowledge that can be converted into a scheme or formulation for manufacturing/supply/trading, resulting in a business advantage.read moreProducers try to optimize the existing offeringsFocus on organic growthOrganic GrowthOrganic growth is the rate of growth that a company achieves by increasing sales revenue by increasing volume of products sold or by achieving greater operational efficiency leading to a reduction in the cost of production or any other internal improvement.read more & geographical growthComplementary and supplementary goods emergeInvestment increasesProfit starts rising

Maturity

The maturity phase follows the growth phase. The focus shifted from growth to increasing the cash flowCash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more and revenue through the appropriate strategies. They don’t have to spend on R&D or marketing, but competition is intense at this phase. To confront the competition, firms resort to strategies like mergers and acquisitionsMergers And AcquisitionsMergers and acquisitions (M&A) are collaborations between two or more firms. In a merger, two or more companies functioning at the same level combine to create a new business entity. In an acquisition, a larger organization buys a smaller business entity for expansion.read more, economies of scaleEconomies Of ScaleEconomies of scale are the cost advantage a business achieves due to large-scale production and higher efficiency. read more, cost reduction, competitive pricing, etc.

  • The industry is leading and enjoys maximum profitRate of growthRate Of GrowthThe Growth rate formula is used to calculate the annual growth of the company for a particular period. It is computed by subtracting the prior value from the current value and dividing the result by the prior value.read more slowdown representing the shakeout stageIntense competitive pressure and resources are constrainedDominant designs or improvisations occurs, adding more stress to competeCompetitively aggressive firms exhibit high performance

Decline

After experiencing growth and maturity, the industry moves to a declining phase. At this phase, many companies in the industry face difficulty surviving or prolonging the successful period due to no growth and intense competition. Therefore, they have to find strategies apt for the phase to sustain.

  • The weaker competitors are forced out of the marketMay witness a steep fall in income The negative impact of factors like market competition, substitutes, consumer behavior, consumer psychology signifiesThe decline phase can be delayed using rebranding techniques, large-scale improvements, and attractive rewards

Industry Life Cycle Example

Let’s look into one of the industry life cycle examples by explaining the life cycle of the video game sector. Its introduction phase started in the 1950s when few scientists experimented by developing simple games. The mainstream usage or commercialization was during the early 1970s with the first consumer-ready video game hardware. Following the success of a few game consoles, many other companies entered the industry to capture the success.  

The video game evolution is constant with technological advancements. The growing phase witnessed the rising revenue of the game industry. It was followed by the focus on the features like software development, creativity, and artistic elements. The international level competition changed the standards for the entire industry, and many tried to achieve standardization of work and standardized systems.

Since game software development and their processes are not very mature and worldwide competition for innovative concepts, the absence of dominant design has made video game creation increasingly difficult. It lengthens the maturity time when compared to other sectors. There is tremendous rivalry during the mature period, and games get increasingly complex.

The decline phase following the maturity phase is often easily identified in the case of companies following different styles of games that rise in popularity, and after a significant period, the trend or style declines. In contrast, other categories move into the maturity phase but exhibit little evidence of moving into the decline phase.

This has been a guide to what is an Industry Life Cycle and its definition. Here we discuss its various stages along with an example. You may learn more about financing from the following articles –

It is the portrayal of different life stages or phases that companies experience in the industry. Different stages are introduction, growth, maturity, and decline.

It is the process of evaluating the position of a company in the life cycle to understand its growth. The management and other stakeholders usually make decisions based on the company’s financial reports. At the same time, this analysis helps management to make the right strategic decisions based on the current stages where the company is in by understanding the industry.

Introduction: It indicates the starting stage in the life cycle. At this stage, the companies’ offerings in the industry are new to potential consumers.Growth: The industry steadily grows and catches the eyes of the customers. The investments and profit start rising.Maturity: The industry reaches maturity fully, enjoying maximum profits, sales, supply, demand, and revenue.Decline: The last stage of the life cycle, no growth-friendly environment, making it hard for companies to sustain, eventually forcing the weaker participants out of the industry.

  • Business Life CycleBusiness Life CycleThe Business Life Cycle is a natural method of business progression that depicts the gradual, slow, and steady stages of business development, starting with the development of a prototype idea and progressing through the stages of gaining traction, moving from the initial phase of slow growth to high growth.read moreProduct Life CycleProduct Life CycleThe term “product life cycle” refers to the entire process that a product goes through from the time it is launched in the market until it is taken off the market and is divided into four stages: introduction, growth, maturity, and decline.read moreLife Cycle Cost AnalysisLife Cycle Cost AnalysisLife cycle cost analysis examines and assesses the total cost of resource ownership and records expenses related to buying, maintaining, operating and disposing of a project or an object. It selects the best project from multiple projects with exact performance requirements but differs in operating costs and initial costs.read more