3. LITERATURE REVIEW
3.13. Industry life cycle
Like in nature industry also has a life cycle. Investopedia (Investopedia, 2015, pp. Definition of 'Industry Lifecycle', Para 1) defines industry life cycle as a concept describing the various phases an industry would go through from the introduction of a new product to the decline of the industry. The industry life cycle includes the introduction phase, the growth phase, the maturity phase and the decline phase. Some researchers break these phases down even further e.g. the introduction phase is broken down into another phase called the embryonic phase before the introduction phase. Table 3.1 below outlines the various factors of business and how they are affected during the industry life cycle.
Table 3.1: Factors affected during the industry life cycle
Factor Introduction Growth Maturity Decline
Demand Early adopters of the product High income
Increasing market penetration
Mass market,
replacement/repeat buying
Price-sensitive customers
Obsolescence of products
Technology Competing technologies Rapid product innovation
Standardisation around
dominant technology Rapid process innovation
Well-diffused technical knowledge
Quest for
technological improvements
Little product or process
innovation
Products Poor quality Wide variety of features and technologies Frequent design changes
Design and quality
improvement Emergence of dominant design
Attempts to
differentiate by branding, quality, bundling
Commodities the norm
Differentiation difficult and unprofitable Competition Few companies Entry, mergers
and exits
Shake-out
Price competition increases
Price wars Exits Key success
factors
Product innovation
Design for manufacture
Access to
distribution
Cost efficiency through capital intensity, scale
Low overheads Buyer selection signalling
commitment
Factor Introduction Growth Maturity Decline Establishing
credible image of firm and product
Building strong brand
Fast product development Process innovation
efficiency and low input costs
High quality
Rationalising capacity
Source: (Du Toit, Erasmus, Strydom, Badenhorst and Cohen, 2010, pp. 395-400) 3.13.1. Introduction phase
Industries often start out as individual entrepreneurial ventures and become emerging industries due to new technologies or patents becoming available or unique ideas being created. This is called the introduction phase and, as these firms become established, they start to grow into an industry. At the introduction phase a single company could make up the industry. Marketers often refer to the products developed in these kinds of ventures as
“questionable” as the life of the industry and the product is untested (Maksimovic and Phillips, 2008, pp. 673-708).
During the introduction phase the firm may adopt a focussed strategy and the marketing technique used would be one that educates potential consumers of the product or service.
Due to the fact that a large amount of product development and marketing is required, the capital required is also large. At this stage growth is fast as the individual venture has first mover advantage and revenues could be realised quickly (Maksimovic and Phillips, 2008, pp. 673-708).
3.13.2. Growth phase
Once the company has been operating for a period, other companies or individuals set up similar ventures thus creating an industry. This is the growth phase of the industry. During the introduction phase the firm was the only provider in the industry. At this stage there are commonly more competitors and the firm would have to differentiate its product/service offering in order to retain its clientele and two grow its business (Pearce and Robinson, 2013, pp. 233-240).
Capital is required at this stage for property, plant and equipment to improve production to meet the growing demand of the industry. At this stage product standardisation may have occurred in the industry and marketing would need to focus on advertising the differentiation
of the product including changes to quality or enhancements to products. Further challenges could include large firms being attracted by the new demand and they could pose a big threat with their access to much larger resources (Pearce and Robinson, 2013, pp. 233-240).
Investment is required in research and development to improve quality and to make enhancements to the product/service.
If the firm is successful at this stage then growth could be very high and further investment may be required to meet market demands. This success could have drawbacks as it could attract more entrants into the market. Figure1 shows that demand at this stage increases sharply so care would have to be taken not to over invest as the steep growth does taper off.
3.13.3. Maturity stage
As the industry becomes accustomed to the products, growth starts to taper off and the industry life cycle curve becomes less steep (
Figure 3.1: Stages in the industry life cycle.). Although sales increase and earnings expand the growth rate starts to mirror that of the economy of the country. The threat of late entrants into the industry is still evident and marketing has to continue in order to maintain market share. At this stage product differentiation is critical to ensure continued growth or else any competitor who enters the market will take market share (Pearce and Robinson, 2013, pp.
233-240).
3.13.4. Decline phase
The decline phase in most industries is inevitable as new innovations take over and the industry becomes saturated with competitors. Sales decline radically as shown in
Figure 3.1: Stages in the industry life cycle. above. It is at this stage of the industry life cycle that many mergers and acquisitions take place to take advantage of efficiencies and to grow through diversification. This happens through the process of integration i.e. horizontal integration which refers to the acquisition or amalgamation of competitors of the firm or through vertical integration by the acquisition or amalgamation of the firm’s suppliers or distributors (Pearce and Robinson, 2013, pp. 233-240).