What is the industry life cycle?
An industry lifecycle refers to the evolution of an industry or business through four stages based on the business characteristics commonly exhibited at each stage.
The industry lifecycle has four stages: introduction, growth, maturity, and decline. Industries are created when new products are developed, with significant uncertainties regarding market size, product specifications, and major competitors.
As established industries grow, they are whittled down by consolidation and failure, and as growth slows and eventually demand wanes, remaining competitors minimize spending.
Important points
- Industry lifecycle refers to the evolution of an industry or business based on stages of growth and decline.
- The industry lifecycle has four phases: introduction, growth, maturity, and decline.
- The industry life cycle ends at the peak of the decline phase, when the industry or business is no longer able to sustain growth.
- Mature industries include food, agriculture, mining, and financial services.
- Investors can make better-informed investment decisions by understanding the industry lifecycle.
Understand industry life cycles
Although there is no common definition for the various stages of an industry lifecycle, they can generally be categorized as introduction, growth, maturity, and decline.
Life cycles exist in every aspect of life. The industry life cycle involves youth, inexperience, determination (adoption), learning, improvement, social expansion (growth), achievement and fulfillment (maturity), competition, winning, and a diminished ability to thrive (decline). Masu.
The relative length of each phase of an industry lifecycle can vary significantly from industry to industry. Standard models usually deal with industrial products, but today's service economy may function somewhat differently, especially in the area of Internet communication technologies.
Sales, profits, and cash flow are typical financial metrics that are closely tracked at every stage of an industry's lifecycle.
Industry life cycle stages
Implementation phase
The introduction, or launch, phase involves the development and initial marketing of a new product or service. Innovators often start new businesses to enable the production and dissemination of new products.
Information about products and industry players is often limited, making demand unclear. At this stage, consumers of goods and services need to learn more about new providers while they are still developing and refining their services.
Industries and businesses tend to be highly fragmented during the introduction stage. Participants tend not to make a profit because it is expensive to develop and market the product while revenues are still low.
growth period
In this second stage, consumers came to understand the value of the new product, business, or industry. Demand grows rapidly.
Typically, a small number of important players emerge and compete to establish a new market share. As companies spend money on research and development and marketing, short-term profits are usually not their top priority.
Business processes improve and geographic expansion becomes commonplace. Once the feasibility of a new product is demonstrated, large companies from adjacent industries tend to enter the market through acquisition or internal development.
maturity period
The maturity stage begins with a shakeout period, during which sales growth slows, focus shifts to cost reduction, and consolidation occurs (as companies begin to merge or acquire each other).
Some companies achieve economies of scale that impede the sustainability of smaller competitors. Growth can continue.
As maturity increases, entry barriers become higher and the competitive landscape becomes clearer. Now that growth has become relatively less important, market share, cash flow, and profitability are the main goals of the remaining companies.
As consolidation reduces product differentiation, price competition becomes even more important.
Companies may extend their maturity period by repositioning their products, investing in new markets and technologies, and fostering new growth.
period of decline
The decline stage marks the end of an industry or company's ability to support growth. Obsolescence and evolution of end markets (end users) negatively impact demand and lead to decreased revenue. This creates margin pressure and forces weaker competitors out of the industry.
Further integration is common as participants seek additional benefits from synergies and scale. A period of decline often marks the end of the existence of an existing business model, pushing industry players into adjacent markets.
As with the maturity stage, the decline stage can be delayed through extensive product refinement and repurposing. However, these tend to only prolong decline and eventual market exit.
example
Implementation phase
Industries in the startup or emerging stage include the artificial intelligence industry, the self-driving car industry, the biotechnology industry, and the virtual reality industry.
growth period
Coca-Cola is an example of wise survival through its life cycle. In Western countries, the market is said to be at a mature stage with no room for expansion. However, the company's ability to efficiently and effectively change its business to serve Asia's vast population puts it in a growth phase.
The computer industry has also been in an extended growth phase due to its long-standing focus on updating hardware, features, and capabilities.
maturity period
Mature industries in the United States include food, agriculture, mining, and financial services. Companies such as Apple, Xerox, Intel, IBM, and P&G are considered mature companies.
period of decline
According to a specific revenue analysis study, the fastest declining industries in the United States are:
- steel manufacturing industry
- Natural gas distribution
- semiconductor machine manufacturing
- oil drilling and gas extraction
- egg production
Does the industry lifecycle apply to all businesses?
As it turns out, yes. However, how the individual stages occur and how long they last will vary depending on the company and its industry.
What can extend the life cycle of the industry?
Production efficiencies, new developments that position the industry/business for greater outcomes, effective management, properly leveraged new technologies, and continued customer base and relationship building all sustain the stage of growth and maturity. Helpful.
Why is industry lifecycle important?
Lifecycle stages are important to businesses because they can drive strategies and actions related to sales, research, expenses, competition, and more. For investors, understanding the lifecycle and stages of an industry or business helps them decide whether to enter or exit an investment.
conclusion
Industry life cycle refers to the stages of existence that an industry or business goes through from its inception to its termination. The four phases are introduction, growth, maturity, and decline.
Understanding the life cycle helps companies manage operational and financial decisions and activities and enable them to achieve important goals. These goals include product research and development, increasing profitability, introducing innovative technology, and expanding our customer base.
