Industry Life Cycle

The industry life cycle refers to the life cycle portraying different stages an industry experiences during its life. The four common phases are introduction, growth, maturity, and decline.

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.

• 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.

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.

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 revenue 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 market 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 industry
• Competitors, substitute products, or complementary goods are less
• The industry works to reach out to as many people as possible
• Marketing and advertising are done aggressively to create awareness
• Discounts 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 share.

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 development
• Producers try to optimize the existing offerings
• Focus on organic growth & geographical growth
• Complementary and supplementary goods emerge
• Investment increases
• Profit starts rising

Maturity

The maturity phase follows the growth phase. The focus shifted from growth to increasing the cash flow 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 acquisitions, economies of scale, cost reduction, competitive pricing, etc.

• The industry is leading and enjoys maximum profit
• Rate of growth slowdown representing the shakeout stage
• Intense competitive pressure and resources are constrained
• Dominant designs or improvisations occurs, adding more stress to compete
• Competitively 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 market
• May witness a steep fall in income 
• The negative impact of factors like market competition, substitutes, consumer behavior, consumer psychology signifies
• The decline phase can be delayed using rebranding techniques, large-scale improvements, and attractive rewards

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 –

• Business Life Cycle
• Product Life Cycle
• Life Cycle Cost Analysis