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Industry Lifecycle

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What is industry lifecycle?
Like other living creatures, industry also has its circle of life. The industry lifecycle imitates the human lifecycle. The stages of industry lifecycle include fragmentation, shake-out, maturity and decline (Kotler 2003). These stages will be described in the followings section.

What are the main aspects of industry lifecycle?
Fragmentation Stage
Fragmentation is the first stage of the new industry. This is the stage when the new industry develops the business. At this stage, the new industry normally arises when an entrepreneur overcomes the twin problems of innovation and invention, and works out how to bring the new products or services into the market (Ayres et al., 2003). For example, air travel services of major airlines in Europe were sold to the target market at a high price. Therefore, the majority of airlines' customers in Europe were those people with high incomes who could afford premium prices for faster travel.

In 1985, Ryanair made a huge change in the European airline industry. Ryanair was the first airline to engage low-cost airlines in Europe. At that time, Ryanair's services were perceived as the innovation of the European airline industry (Le Bel, 2005). Ryanair tickets are half the price of British Airways. Some of its sales promotions were as low as 0.01. This made people think that air travel was not just made for the rich, but everybody (Haley & Tan 1999).

Ryanair overcame the twin problems of innovation and invention in the airline industry by inventing air travel services that could serve passengers with tight budgets and those who just wanted to reach their destination without breaking their bank savings. Ryanair achieved this goal by eliminating unnecessary services offered by traditional airlines (Kaynak & Kucukemiroglu, 1993). It does not offer free meals, uses paper-free air tickets, gets rid of mile collecting scheme, utilises secondary airports, and offers frequent flights. These techniques help Ryanair save time and costs spent in airline business operation (Haley & Tan 1999).

Shake-out
Shake-out is the second stage of the industry lifecycle. It is the stage at which a new industry emerges. During the shake-out stage, competitors start to realise business opportunities in the emerging industry. The value of the industry also quickly rises (Ayres et al., 2003). 

For example, many people die and suffer because of cigarettes every year. Thus, the UK government decided to launch a campaign to encourage people to quit smoking. Nicorette, one of the leading companies is producing several nicotine products to help people quit smoking. Some of its well-known products include Nicorette patches, Nicolette gums and Nicorette lozenges (Nicorette 2007).

Smokers began to see an easy way to quit smoking. The new industry started to attract brand recognition and brand awareness among its target market during the shake-out stage (Hendrickson et al., 2006). Nicorette's products began to gain popularity among those who wanted to quit smoking or those who wanted to reduce their daily cigarette consumption.

During this period, another company realised the opportunity in this market and decided to enter it by launching nicotine product ranges, including Nic Lite gum and patches. It recently went beyond UK boarder after the UK government introduced non-smoking policy in public places, including pubs and nightclubs. This business threat created a new business opportunity in the industry for Nic Lite to launch a new nicotine-related product called Nic Time (ABC News 2006).

Nic Time is a whole new way for smokers to "get a cigarette" – an eight-ounce bottle contains a lemon-flavoured drink laced with nicotine, the same amount of nicotine as two cigarettes (ABC News 2006). Nic Lite was first available at Los Angeles airports for smokers who got uneasy on flights, but now the nicotine soft drinks are available in some convenience stores (ABC News 2006). 

Maturity
Maturity is the third stage in the industry lifecycle. Maturity is a stage at which the efficiencies of the dominant business model give these organisations competitive advantage over competition (Kotler, 2003). The competition in the industry is rather aggressive because there are many competitors and product substitutes. Price, competition, and cooperation take on a complex form (Gottschalk & Saether, 2006). Some companies may shift some of the production overseas in order to gain competitive advantage.

For example, Toyota is one of the world's leading multinational companies, selling automobiles to customers worldwide. The export and import taxes mean that its cars lose competitiveness to the local competitors, especially in the European automobile industry. As a result, Toyota decided to open a factory in the UK in order to produce cars and sell them to customers in the European market (Toyota, 2007).

The haute couture fashion industry is another good example. There are many western-branded fashion labels that manufacture their products overseas by cooperating with overseas partners, or they could seek foreign suppliers who specialise in particular materials or items. For instance, Nike has factories in China and Thailand as both countries have cheap labour costs and cheap, quality materials, particularly rubber and fabric. However, their overseas partners are not allowed to sell shoes produced for Adidas and Nike (Harrison & Boyle, 2006). The items have to be shipped back to the US, and then will be exported to countries worldwide, including China and Thailand.

Decline
Decline is the final stage of the industry lifecycle. Decline is a stage during which a war of slow destruction between businesses may develop and those with heavy bureaucracies may fail (Segil, 2005). In addition, the demand in the market may be fully satisfied or suppliers may be running out (Ayres et al., 2003).

In the stage of decline, some companies may leave the industry if there is no demand for the products or services they provide, or they may develop new products or services that meet the demand in the market. In such cases, this will create a new industry (Francis & Desai, 2005).

For example, at the beginning of the communication industry, pagers were used as the main communication method among people working in the same organisation, such as doctors and nurses. Then, the cutting edge of the communication industry emerged in the form of the mobile phone. The communication process of pagers could not be accomplished without telephones. To send a message to another pager, the user had to phone the call-centre staff who would type and send the message to another pager. On the other hand, people who use mobile phones can make a phone-call and send messages to other mobiles without going through call-centre staff (Hui et al., 2002).

In recent years, the features of mobile phones have been developing rapidly and continually. Now people can use mobiles to send multimedia messages, take pictures, check email, surf the internet, read news and listen to music (Hui et al., 2002). As mobile phone feature development has reached saturation, thus the new innovation of mobile phone technology has incorporated the use of computers.

The launch of personal digital assistants (PDA) is a good example of the decline stage of the mobile phone industry as the features of most mobiles are similar. PDAs are hand-held computers that were originally designed as a personal organiser but it become much more multi-faceted in recent years. PDAs are known as pocket computers or palmtop computers (Wikipedia, 2007). They have many uses for both mobile phones and computers such as computer games, global positioning system, video recording, typewriting and wireless wide-area network (Wikipedia, 2007).

How do you use industry lifecycle analysis?
It is important for companies to understand the use of the industry lifecycle because it is a survival tool for businesses to compete in the industry effectively and successfully (Baum & McGahan, 2004). The main aspects in terms of strategic issues of the industry lifecycle are described below:

Competing over emerging industries

  • The game rules in industry competition can be undetermined and the resources may be constrained. Thus, it is vital for firms to identify market segments that will allow them to secure and sustain a strong position within the industry (Ayres et al., 2003).
  • The product in the industry may not be standardised so it is necessary for companies to obtain resources needed to support new product development and rapid company expansion (Ayres et al., 2003).
  • The entry barriers may be low and the potential competition may be high, thus companies must adapt to shift the mobility barriers (Ayres et al., 2003).
  • Consumers may be uncertain in terms of demand. As a result, determining the time of entry to the industry can help companies to take business opportunities before their rivals (Ayres et al., 2003).

Competing during the transition to industry maturity

  • When competition in the industry increases, firms can have a sustainable competitive advantage that will provide a basis for competing against other companies (Baum & McGahan, 2004).
  • The new products and applications are harder to come by, while buyers become more sophisticated and difficult to understand in the maturity stage of the industry lifecycle. Thus, consumer research should be carried out and this could help companies in building up new product lines (Baum & McGahan, 2004).
  • Slower industry growth constrains capacity growth and often leads to reduced industry profitability and some consolidation. Therefore, companies can focus greater attention on costs through strategic cost analysis (Baum & McGahan, 2004).
  • The change in the industry is rather dynamic, and an understanding of the industry lifecycle can help companies to monitor and tackle these changes effectively (Baum & McGahan, 2004). Firms can develop organisational structures and systems that can facilitate the transition (Baum & McGahan, 2004).
  • Some companies may seek business opportunities overseas when the industries reach the maturity stage because during this stage, the demand in the market starts to decline (Baum & McGahan, 2004).

Competing in declining industries
The characteristics of declining industries include the following:

  • Declining demand for products
  • Pruning of product lines
  • Shrinking profit margins
  • Falling research and development advertisement expenditure
  • Declining number of rivals as many are forced to leave the industry

For companies to survive the dynamic environment, it is necessary for them to:

  • Measure the intensity of competition (Baum & McGahan, 2004)
  • Assess the causes of decline (Baum & McGahan, 2004)
  • Single out a viable strategy for decline such as leadership, liquidation and harvest (Baum & McGahan, 2004).

Where do you find information on the industry lifecycle?
The information, model and theory for the industry lifecycle can be found in many business management books. Several variations of lifecycle model have been developed to address the development and transition of products, market and industry. The models are similar but the number and names of each stage can be different (Baum & McGahan, 2004). The following are some of the major models:

  • Fox, 1973: Pre-commercialisation – introduction, growth, maturity and decline
  • Wasson, 1974: Market Development – rapid growth, competitive turbulence, saturation/maturity and decline
  • Anderson & Zeithaml, 1984: introduction, growth, maturity and decline
  • Hill & Jones, 1998: fragmentation, growth, shake-out, maturity and decline

Conclusion
The industry lifecycle imitates the cycle of human being. Industry lifecycle comprises four stages including fragmentation, growth, maturity and decline. An understanding of the industry lifecycle can help competing companies survive during periods of transition. Information on the industry lifecycle can be found in most business management books. Several variations of the lifecycle model have been developed to address the development and transition of products, market and industry. The models are similar but the number of stages and names of each may differ. Major models include those developed by Fox (1973), Wasson (1974), Anderson & Zeithaml (1984), and Hill & Jones (1998).

References
Books
Ayres, R., Ayres, L. & Rade, I. (2003), The Life Cycle of Copper, Its Co-products and
            Byproducts
, Kluwer Academic Publishers, Massachusetts.

Baum, J. & McGahan, A. (2004), Business Strategy over the Industry Lifecycle, JAI
            Press, Oxford.

Hendrickson, C., Lave, L. & Matthews, S. (2006), Environmental Life Cycle
            Assessment of Goods and Services: An Input-output Approach
, Future Press,
            Washington DC.

Kotler, P. (2003), Marketing Management, Prentice Hall, New Jersey.

Journal Articles
Gottschalk, P. & Saether, H. (2006), 'Maturity model of IT outsourcing relationship', Industrial Management & Data System, vol. 106, no. 2, pp.200–212.

Haley, G. & Tan, C. (1999), 'East vs West strategic marketing management meets',
            Journal of Business & Industrial Marketing, vol. 14, no. 2, pp.91–104

Harrison, J. & Boyle, E. (2006), 'Falling into capability learning traps: The role of the
            firm's predominant managerial mental models', Management Decision, vol.
            44, no. 1, pp. 31–43.

Hui, S., Lau, S. & Fong, C. (2002), 'Unified personal mobile communication services
            for a wireless campus', Campus-Wide Information Systems, vol. 19, no. 1, pp.     27–35.

Kaynak, E. & Kucukemiroglu, O. (1993), 'Successful Marketing for Survival: The
            Airline Industry', Management Decision, vol. 31, no. 5, pp.108–120.

Le Bel, J. (2005), 'Beyond the friendly skies: an integrative framework for managing
 the air travel experience', Managing Service Quality, vol. 15, no. 5, pp.437–451.
Segil, L. (2005), 'Metrics to successfully manage alliances', Strategy & Leadership, vol. 33, no. 5, pp.46–52.

Yen, D. & Chou, D. (2000), 'Wireless communications: applications and managerial
            issues', Industrial Management & Data Systems, vol. 100, no. 9, pp.436–443.

World Wide Web
ABC News (2006), Nicotine Drink Touts Alternative to Smoking. Retrieved: August 20, 2007, from http://abcnews.go.com/GMA/Health/story?id=2114263

Nicorette (2007), My quit place. Retrieved: August 20, from
            http://www.nicorette.com/

Toyota (2007), About Operation. Retrieved: August 20, 2007,
            from http://www.toyota.com/about/operations/index.html?s_van=GM_TN_
ABOUT_OPERATIONS

Wikipedia (2007), Personal digital assistant. Retrieved: August 20, 2007, from
            http://en.wikipedia.org/wiki/Personal_digital_assistant

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