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The industry life cycle is made up of the following stages:

Pioneering Phase
Growth Phase
Mature Growth Phase
Stabilization/Maturity Phase
Deceleration/Decline Phase

1)Pioneering Phase
This phase is characterized by low demand for the industry's product and large
upstart costs. Industries in this phase are typically start-up firms, with large upfront
costs and few sales.

2) Growth Phase
After the pioneering phase, an industry can transfer into the growth phase. The
growth phase is characterized by little competition and accelerated sales. Industries
in this phase have typically survived the pioneering phase and are beginning to
recognize sales growth.

3) Mature Growth Phase


After the growth phase, an industry will reach the mature growth phase. The mature
growth phase is characterized above average growth, but no longer accelerating
growth. Industries in this phase now face increasing competition and, as a result,
profit margins begin to erode.

4) Stabilization/Maturity Phase
After the growth phases, an industry will enter in the stabilization/maturity phase.
The stabilization/maturity phase is characterized by growth that is now average.
Industries in this phase have significant competition and the return on equity is now
more normalized. This is typically the longest phase an industry will go through.

5) Deceleration/Decline Phase

The deceleration follows the growth and maturity phases. The deceleration/decline
phase is characterized by declining growth as demand shifts to other substitute
(new) products.

The industry life cycle is a cycle that most products go through. This cycle starts
with the products entry into the market and ends with the decline of that product.
Products typically go through all of these stages eventually, but they do not do so at
the same pace. There are five stages that are generally said to be part of this cycle.

The first stage can be called the introductory stage. During this stage, the product
is just coming on the market. Companies are figuring out how much of a market
there will be for the product. For example, in the personal computer industry, this
stage would have been in the early-to-mid 1980s as companies explored the
possibilities of selling these devices.

The next stage is the stage of early growth. Here, the industry starts to shake out.
A dominant design for the product starts to emerge. With the PC market, this might
have occurred as graphic user interfaces came to dominate in the late 80s.

After this comes a stage of late growth. In this stage, companies have essentially
figured out how they will design and market their product. They now seek
economies of scale and other ways to reduce the costs of production. This typically
results in a number of competitors being driven out of the market.

The next stage is maturity. This is when the product has penetrated essentially all
parts of the market. Profitability declines as there are fewer possibilities for growth.
Further consolidation of the market may occur.

Finally, we see decline. In this stage, the revenues and profits of the industry
decline. This may be caused by the rise of a new technology. It appears that the
market for desktop PCs, at the very least, is in this stage. We see these computers
being replaced by laptops and, more and more, by tablets and smart phones.

These are the five stages of the industry life cycle. Please note that different
commentators use different terms for these stages.

The four stages of industry life cycle

Yesterday we said that the stage in the Industry Life Cycle is an important
parameter in determining the profitability of companies in a given industry. Let us
look at the different stages of the cycle, before we see the implications to the
profitability of the companies.

Introduction stage: In this stage of the cycle, the industry is in its infancy. It mainly
concerns the development of a new product, from the time it is initially
conceptualized to the point it is introduced in the market. The firm having an
innovative idea first, will often have a period of monopoly, until competitors start to
copy and / or improve on the product.

There is significant risk to investors during the introduction stage as the companies
will need a significant amount of cash to promote their products.

The principal points of risk at this stage are: technical problems in manufacture,
packaging, storage, etc., insufficient production capacity inability to meet
demand, obstacles in distribution and inadequate display at the point of sale,
customer resistance to new products and reluctance to change consumption habits.

Growth stage: If the new product is successful, sales will start to grow and new
competitors will enter the market, slowly eroding the market share of the innovating
firm. The product may begin to be exported to other markets and substantial efforts
are made to improve its distribution. During this phase competition mainly takes
place on the basis of product innovations rather than on the basis of price.

In the growth stage, there are multiple companies in the industry seeking to
differentiate themselves and earn market share. Like the introduction stage, the
growth stage requires a significant cash outlay from the companies, but the funding
is used toward more focused marketing efforts and expansion. It is during this phase
that companies may start to benefit from economies of scale in production. This
stage of industry growth, while still presenting risk to investors, demonstrates the
viability of the industry.

Maturity Stage: At this stage, the product has been standardized, is widely available
on the market and its distribution is well established. Competition increasingly takes
place over cost and a growing share of the production takes place in low cost
locations. This is the stage where the industry will start to see slowed growth with
the rate of sales growth often slowing to the rate of overall economic growth. Late
entrants appear in this stage seeking to capture market share through lower-cost
offerings, thus requiring the existing companies to continue their marketing efforts.
For investors, maturity of an industry can mean relatively stable stock investments
with the possibility of income through dividends.

Decline stage: As the product begins to become obsolete, production essentially


takes place in low costs locations. Production and distribution economies are
actively sought as profit margins decline. Eventually, the product will be retired, an
event that marks the end of its life cycle. A decline is inevitable in any industry as
technological innovations and changing consumer tastes adversely affect sales. At
this stage, some companies may exit the industry or merge and consolidate. An
investor should approach stocks in declining industries with caution.

Industry Analysis Definition

An industry analysis helps inform business managers about the viability of their
current strategy and on where to focus a business among its competitors in an
industry. The analysis examines factors such as competition and the external
business environment, substitute products, management preferences, buyers and
suppliers.

Analysis of conditions in an industry at a particular time, including the behaviour of


and relations between competitors, suppliers, and customers

A market assessment tool designed to provide a business with an idea of the


complexity of a particular industry. Industry analysis involves reviewing the
economic, political and market factors that influence the way the industry develops.

Major factors can include the power wielded by suppliers and buyers, the condition
of competitors, and the likelihood of new market entrants.

The Fundamental analysis and investment decision is to buy or sell a share is based
on comparison between the intrinsic value of a share than its market price.

If Market price < intrinsic value : Purchase the share


(Under Price Consideration)
If Market Price > intrinsic value : sell the share
(Over Price Consideration)

Time Value of Money (TVM) concept that a rupee received now is worth more than a
rupee to be receive after one years, TVM suggests that earlier receipts is more
desirable than later receipt, because it can be reinvested to generate additional
return..

F is the amount to be received after n period


N is the number of years
K is the discount rate
PV is the present value
For example if Rs.500 would received after 2 years and discount rate is 10% the PV
can be calculated: P= 500/(1.10)2
=413.22