industry life cycle

The industry life cycle is the series of stages that an industry or company goes through in the market.

This cycle is composed of four stages, from introduction to decline. Their duration is not defined and can vary considerably between industries, even within the same sector.

Each of these phases has unique characteristics that allow us to describe the panorama of the sector or the company. Likewise, it allows identifying strategies to take advantage of their benefits and potentialities. The stages of the industry life cycle are as follows:

Industry Life Cycle 1

1. Introduction

This stage creates some debate since some authors separate the introductory stage with the embryonic stage. Meanwhile, others indicate that the embryo is part of the introduction. However, the description, basically, is the same.

This first phase is the beginning of the company or industry. In the case of a new industry, a company could be the only one with its characteristics without any competition in the market. Therefore, we would be talking about proof of technological development and innovations. The demand for the products may not be defined and the general panorama of the sector is hardly blurred.

Also, in the beginning, it is most likely that it will not be a profitable business yet, with difficulties to sustain itself while it makes room in the market. In addition, technological development and marketing costs are incurred. In case of being profitable at an early age, the profits are usually reinvested to expand the activity.

2. Growth

In the growth stage, the main objective is to capture the market niche or differentiate itself from competitors. Likewise, the outlay of capital to finance the expansion is significant.

Companies seeking long-term goals continue to reinvest profits generated at this stage to gain market share. Also, this stage is essential to make the necessary adjustments and thus obtain a finished product that meets the needs of customers.

The stage in which the potential for economies of scale is best evidenced can also be considered. If this condition is achieved, the growth stage could be extended for a longer time and practically merge with a high-yielding maturity.

However, some authors call another intermediate stage called expansion. In this sense, if the company is successful, it may experience a pronounced growth stage at the sales level. In this case, investment in marketing and promotion is essential for customer loyalty.

3. Maturity

The third stage is the consolidation stage. In this case, sales and demand slow down, obtaining diminishing marginal returns. Therefore, there is evidence of greater competitiveness in the sector since it is considered a successful business. The strategy focuses on making the validity of the product prevail and rescuing the values ​​that differentiate it.

Finally, in this phase the investors enjoy the benefits of the expansion with the payment of dividends. Likewise, the maximum market cap is reached, until reaching a growth rate equal to zero.

4. Decline or decrease

The final phase of decline involves a drop in sales that can be due to several factors. For example, new innovations, obsolescence or restrictive regulations.

Likewise, the fall in profits discourages investment and capital replacement, multiplying the external effect of the market. Finally, there is a decrease in the size of the market in which there will be few companies left to compete.

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