A typical life cycle of each industry consists mainly (though not necessarily) of five stages as follows:
a. Embryonic Stage. The embryonic stage is mainly marked by slow growth, low customer awareness, high prices and low volumes, significantly high initial investment, and a high risk of failure.
At this stage, the companies generally tend to be private companies that are angel or VC-financed.
b. Growth Stage. At this stage, the new customers enter the market increasing the demand. This results in improved profitability and rapid growth in sales. The increased volumes result in economies of scale, but still, there are low levels of competition. Thus the market share gains come from the industry growth and not from the competitors.
This stage is characterized by high threats of new entrants and the main focus is on the top-line revenue growth and reinvestment.
c. The Stakeout Stage. At this stage, the demand growth slows down and the competitive pressure begins to grow as the market share gains begin to realize at the expense of others. The total capacity of the industry begins to exceed the demand, thus putting downward pressure on the price.
The main focus of the companies here is on cost reduction and building brand loyalty.
d. Maturity Stage. This stage is characterized by little or no growth in demand. The industry is in a consolidation The companies become more price-strategic instead of price-competitive. There is a high barrier to entry into the industry are high and there is an efficient cost structure. The cash flows are positive and dividends are also paid as there is not much demand for reinvestment.
At this stage, the main focus of the industry is towards incremental innovations, and the industry is at risk due to any radical innovations, usually from outside.
e. Decline Stage. This stage is characterized by negative growth, excess capacity, price competition, and exit from the industry by some of the companies.
At this stage, the industry may also witness technological substitution, social changes, and global competition. And this could be one of the reasons for the decline.
These are the main five stages that an industry may witness during its lifetime. Though, some of the industries have also seen a turnaround after the decline phase.
1.1. Limitations of Lifecycle Model
Some of the limitations of the lifecycle model are as follows:
a. The industry may not always follow the strict lifecycle pattern. Some of the technological changes may accelerate the lifecycle of an industry, and thus, it may either skip some of the stages completely or go through them in a much-accelerated
b. The regulatory changes such as regulations and deregulation may result in deviation the pattern of the lifecycle in an industry. For example, deregulation may reverse the direction of a typical lifecycle from the mature phase to the growth
c. The social and demographic changes may also have a similar impact on the industry lifecycle.
d. It is more challenging to apply the lifecycle model to rapidly changing industries.
e. All the companies are not of a similar characteristic in nature. Thus, they may not follow the set lifecycle path.