Page 9 - Portfolio Analysis

Growth

In this stage demand for the product develops as new customers try the
product and early adopters repeat their purchases. This increased
demand and profitability will attract new entrants into the market as market
share may be increased at relatively low cost. Advertising and distribution
will increase as attempts are made to build market share through product
differentiation and market segmentation. However, there is often an
industry shake-out which signals the end of the rapid growth stage.

Maturity

In this stage the rate of growth diminishes and market share relationships
stabilize. The product is well established with distribution patterns set and
little incentive to change. However, the market is approaching saturation
point. Competition is based on maintaining market share rather than
increasing it. Sales are based almost exclusively on replacement demand
with advertising aimed at both retaining customer loyalty and attracting
competitors’ customers.

Decline

This stage is characterised by a general fall in overall market sales. Some
firms will withdraw from the market. Others will withdraw from less
profitable market segments. There is also likely to be a tendency by some
firms to reduce price to try to maintain or increase their market share. In
these circumstances those firms with extensive accumulated experience
may be able to generate profits even whilst price cutting.

A further feature of the decline stage is that some firms will, rather than
replace these products, revamp them in an attempt to extend their life.
(see Figure 4)