The stages of the industry life cycle are similar to a Product Life Cycle. The industry life cycle refers to the evolution of an industry or business through five stages based on the business characteristics commonly displayed in each phase. The concept of life cycle analysis is popular in strategic management. Life cycle analysis will be used to describe the stages products pass through from their first introduction to the market through to their withdrawal and replacement. The present section considers the application of life cycles at a higher level, that of the industry as a whole.
Different Stages of Industry Life Cycle
The stages of the industry life cycle are similar to a Product Life Cycle. Management must pursue different strategies at each stage:
Introduction – newly invented product or service is made available for purchase
Growth – a period of rapid expansion of demand or activity as the industry finds a market
Maturity – a relatively stable period of time where there is little change in sales volumes year to year but competition between firms intensifies
Decline – a falling off in activity levels as firms leave the industry and the industry ceases to exist or is absorbed into some other industry.
Characteristics of Industry Life Cycle
The industry life cycle has been characterized by:
Accelerating pace of change. The CD had only 15 years of dominance compared to 40 years for gramophone records.
Meta-technology waves. The replacement of analogue gramophone by digital CD was part of the metatechnology wave that also replaced typewriter with PCs and fixed line telephone with digital mobiles.
Consequent industrial restructuring following technological convergence. Sony the electronics manufacturer bought CBS records, the ISP firm America On Line merged with Time-Warner, Virgin Media combined with cable provider NTC.
Span of Industry life cycle
Industry life cycles varies form business to business. Some industry life cycles are identical in pattern and timing to that of their product (e.g. in the hat industry, or steel industry). Others have longer life cycles than the particular products, e.g. the music industry which has endured from sheet music till MP3, merely releasing (and re-releasing) its music as new products as the format changes.
Business Strategies in Different Stages of Industry Life Cycle
1. Introduction stage of Industry life cycle
Support product despite poor current financial results
Review investment programme periodically in light of success of launch (e.g. delay or bring forward capacity increases)
Monitor success of rival technologies and competitor products
2. Growth stage of Industry life cycle
Ensure capacity expands sufficiently to meet firm’s target market share objectives
Maintain barriers to entry (e.g. fight patent infringements, keep price competitive)
Ensure investors are aware of potential of new products to ensure support for financial strategy
Search for additional markets and product refinements
Consider methods of expanding and reducing costs of production (e.g. contract manufacturing
overseas, building own factory in a low cost location)
3. Shakeout phase of Industry life cycle
Monitor industry for potential mergers and rationalization behavior
Seek potential merger candidates
Periodic review of production and financial forecasts in light of sales growth rates
Shift business model from customer acquisition to extracting revenue from existing customers
Seek to extend growth by finding new markets or technologies
4. Maturity phase of Industry life cycle
Maximize current financial returns from product
Leverage the existing customer database to gain additional incomes (e.g. mobile phone operators seeking to earn from content management)
Engage in integration activities with rivals (e.g. mergers, mutual agreements on competition)
Ensure successor industries are ready for launch to pick up market
5. Decline phase of Industry life cycle
Evaluate exit barriers and identify the optimum time to leave the industry (e.g. leases ending, need for
Seek potential exit strategy (e.g. buyer for business, firms willing to buy licenses etc.)