During the life of any small business, it will go through five stages of the life cycle and encounter different challenges. For example, the business will require a different strategy when it comes to market penetration, business development and retaining market share. As the business matures, operations and priorities will change resulting business financing to change as well.
Understanding the different stages of the business life cycle will help you prepare for the obstacles that your business will need to conquer in order to succeed.
1. Development/seed stage
This stage is when one of your business ideas will require a round of testing in its seed stage. You may conduct research regarding the industry, gather feedbacks from your friends, family, colleagues or other specialists. If you decide that your idea is worth pursuing, you must make your business entity legal.
In this stage, you’ve finished developing the products or services that your business has to offer and will begin marketing and selling. You will need to learn and adjust your business model to ensure profitability and that it meets your customer’s expectations. By adjusting your business model, you’ll be able to set your business on the right track.
In this stage, it is your task to create primary demand for your new product offering. Creating demand is an educational process that involves activating people’s needs and focusing them on your product. Initially, keep the product mix small to provide a clear focus and keep costs under control. Also, confine the mix to just a few variations that reflect the underlying concept of the entire category.
Try to lock your firm into long-term commitments to a selected group of middlemen. The degree to which you know how to secure maximum availability of your product in the right outlets can make or break your participation in the ongoing growth of a new market.
Also essential is the support you give to your product in the form of advertising. Providing a new product with lukewarm advertising support is generally tantamount to dismal, if not failed, sales performance. As for price, there are two choices: (1) choose penetration pricing, which aims at creating a mass market and discouraging competitive entry through low introductory prices; (2) consider a skim strategy that starts out with a comparatively high price and attempts to recover the initial outlays for product development and marketing, before competitive pressures erode your initial advantage.
2. Growth and expansion stage
In this second stage, you try to modify your basic product with value-added features and services, as well as solve any problems discovered through early consumer reactions. However, if the product is selling well, the product mix can remain small. With the supply chain, your goal is to expand market coverage by signing up new channel members.
As for advertising, your emphasis is likely to shift from creating product awareness to expanding market volume. Also, prices soften as price-cutting competitors enter the market.
3. Maturity stage
The third stage turns into a fight for market share against other competitors. At this time, it pays to redesign your product to make it more distinctive and easier to differentiate from competitive offerings. It is also advisable to adopt a strategy of market segmentation to satisfy the unique needs of these fairly uniform groups within the market.
Look at your supply chain as it relates to effective market coverage, costs and control. If you employed the services of wholesalers in your introductory thrust, think about shifting support to the primary ones that are pushing your product harder.
Your advertising has to communicate and enhance your drive to differentiate your product. It should emphasize brand appeal, so that the prospect recognizes and prefers your product even in a competitive environment. The effectiveness of your promotional efforts, however, is likely to decrease sharply as demand becomes less responsive to promotion because of growing brand loyalty and resultant market resistance.
Since actual differences between substitute products are very slight and price sensitivity of demand is high, price variations between your firm’s products and those of your competitors gain in importance. Prices will tend to drop further, but stabilize toward the end of the stage as a result of cost pressures.
4. Saturation stage
As your product enters the next stage of its sales cycle, typically a no-holds-barred fight develops for market share. Because market volume has ceased to improve, the growth of your sales volume is achieved at the expense of competitors.
In your product strategy attempt to differentiate your offering by adding value choices. Because of the limited growth potential, it will pay to pursue a strategy of diversification. For instance, it might be worth moving into other geographic markets where your product could be at the introduction or growth stages of a new
Your channel strategy remains unaltered in the saturation phase. You should attempt to gain even more intensive distribution and, thereby, maximize availability and exposure.
Your advertising strategy at this point is to maintain the status quo. Little new ground can be broken, so advertising of the reminder or reinforcement type is needed.
5. Decline stage
With consumer interest on the decline, competitors drop out of the market in droves. If you are still in the market, you will trim your product offerings, vigorously weed out weak products and concentrate on a few profitable ones.
Similarly, you will attempt to reduce the distribution cost, such as establishing minimum orders to discourage small shipments. Your sales effort will tend to be low key, with emphasis on retaining as much of your market as you can. Advertising support will diminish to the low-budget, infrequent-reminder type. Your prices will stay right about where they are.
(Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at [email protected])