Product Life Cycle

(Financial Products)
Product life cycle is the course of a products sales and
profits over time.
Product life cycle(PLC) deals with the life of a product
in the market with respect to business or commercial
costs and sales measures.
The four stages of each product lifecycle are introduction,
growth, maturity and decline.
 Some financial and investment products have been around since decades.
The most successful ones have attracted investor attention by providing
consistent returns or maintaining a favourable balance between risk and
reward. There are a host of financial products available in the market, issued
and guaranteed by government / quasi-government institutions or corporate
entities.
All products, including financial ones, go through a lifecycle; however, the
stages of a financial product lifecycle are slightly longer because they mirror
the life stages of their users. Each investor tries to achieve the right mix of
products in his portfolio - by picking those that are designed to fulfill his
specific needs - from a wide range of options including, but not limited to,
savings bank accounts, fixed term deposits, mutual funds, equities, fixed
income securities, derivatives, structured deposits and hedge funds.
 Traditionally, the product lifecycle has been categorized
into the following four stages:
Development and Introduction
Growth
Maturity or Stagnation
Decline or Death
Sales & Profit Life Cycles

Sales & profits ($)

Introduction Growth Maturity Decline

Time
 Introduction Stage of the
PLC
Summary of Characteristics, Objectives, &
Strategies
Sales
Sales Low
Low

Costs
Costs High
High cost
cost per
per customer
customer

Profits
Profits Negative
Negative

Marketing
Marketing Objectives
Objectives Create
Create product
product awareness
awareness and
and trial
trial

Product
Product Offer
Offer aa basic
basic product
product

Price
Price Use
Use cost-plus
cost-plus formula
formula

Distribution
Distribution Build
Build selective
selective distribution
distribution

Promotion
Promotion Heavy
Heavy to
to induce
induce product
product trial
trial
 Growth Stage of the
PLC
Summary of Characteristics, Objectives, &
Strategies
Sales
Sales Rapidly
Rapidly rising
rising

Costs
Costs Average
Average cost
cost per
per customer
customer

Profits
Profits Rising
Rising

Marketing
Marketing Objectives
Objectives Maximize
Maximize market
market share
share

Product
Product Offer
Offer extension,
extension, service,
service, warranty
warranty

Price
Price Penetration
Penetration strategy
strategy

Distribution
Distribution Build
Build intensive
intensive distribution
distribution

Promotion
Promotion Reduce
Reduce to
to take
take advantage
advantage of
of demand
demand
 Maturity Stage of the PLC
Summary of Characteristics, Objectives, &
Strategies
Sales Peak
Sales Peak

Costs
Costs Low
Low cost
cost per
per customer
customer

Profits
Profits
High
High
Marketing Maximize
Maximize profits
profits while
while defending
defending market
market
Marketing Objectives
Objectives share
share
Product
Product Diversify
Diversify brand
brand and
and models
models

Price
Price Match
Match or
or best
best competitors
competitors

Distribution
Distribution Build
Build more
more intensive
intensive distribution
distribution

Promotion
Promotion Increase
Increase to
to encourage
encourage brand
brand switching
switching
Decline Stage of the PLC
Summary of Characteristics, Objectives, &
Strategies
Sales Declining
Sales Declining

Costs
Costs Low
Low cost
cost per
per customer
customer

Profits
Profits Declining
Declining

Marketing
Marketing Objectives
Objectives Reduce
Reduce expenditures
expenditures and
and milk
milk the
the brand
brand

Product
Product Phase
Phase out
out weak
weak items
items

Price
Price Cut
Cut price
price

Distribution
Distribution Selective:
Selective: phase
phase out
out unprofitable
unprofitable outlets
outlets

Promotion
Promotion Reduce
Reduce to
to minimum
minimum level
level
 The financial services industry saw the development
and introduction of many products in the last quarter of
the twentieth century due to a number of reasons
including market globalization, changing investment
trends, etc. A more detailed look into each stage would
provide insight into the various factors influencing the
financial product lifecycle.
Factors Leading to Development of
New Financial Products
Risk diversity is the most important reason for the development of different
financial products. If every individual had the same attitude towards risk or a
similar appetite for it, there would be only one financial product in the entire
market. Return on Investment is the underlying principle of any financial
product and since the rate of return is always linked to inherent risk, financial
products available in the global market can be differentiated on the basis of
risk-reward ratio.
Because risk is linked to a number of dynamic environmental factors arising
from geopolitical and economic conditions, financial products are continuously
evolving with changing risk characteristics. Over the last fifty years, individual
risk capacity, and even the definition of risk, has changed drastically. Each of
these changes has provided an opportunity to design a new financial product,
which in the present day, is achieved through financial engineering.
 Another major reason for the introduction of new
financial products is economic reform. For example,
liberalization initiated in 1992 took the Indian mutual
fund industry to a different level. The number of mutual
fund companies grew steadily to its present count.
 Although knowledge is vital to the enhancement of a financial
product in the growth stage, it also plays a definite role when the
product is being introduced. As investors become financially savvy
and begin to appreciate the different product models, banks must
seize this opportunity by designing improved complex products, using
all the knowledge at their disposal.
Channel proliferation has encouraged the development of new
products by improving banks access to customers and consequently,
customers access to products. This has triggered the introduction of
many innovative financial products like structured deposits and
bancassurance, to name a couple, which are sold as bundled
products.
Technology advancement has also played a vital role in product development
by creating a robust backend platform that not only facilitates product design
but also reduces time to market for new launches. From a financial
institutions perspective, the factors giving rise to a new financial product are:
Customers 'need to invest disposable income
Customers desire for a higher return than that offered by traditional
investments
Customers 'need to achieve financial milestones at different life stages
Their own need to stay competitive
Their need for higher revenue
Their desire to be a complete service provider to their customers.
 Typically, the birth phase of a new product sees
consumer awareness take off slowly. In this phase, the
organization incurs high costs, especially towards selling
and advertising, but earns low revenue. Structured
products and deposits relatively new to the Indian
markets and still undergoing evolution fall into this
category. Although several institutions are promoting
these products, they havent yet attracted mass
participation on account of insufficient awareness.
Factors Influencing Growth of
Financial Products
Once a product has been launched in the open market,
its growth depends upon multiple factors. Although
return is the most important of these, other factors can
also propel or hinder its progress. That being said, a
product that provides consistent return at reasonable
risk (in relation to return) is likely to succeed quickly.
Reach / accessibility is one of the other factors
impacting growth. Globalization has made it both easy
and necessary to take products originating in one part
of the world to other corners. Therefore, in order to
succeed, a financial product must be designed to satisfy
 Transparency is important too, although it takes a back
seat in the case of complex, high-risk high-return
products like hedge funds. But, when two products offer
the same return, investors will always prefer the one
that is more transparent, regulated and controlled. And
while promotion plays a role, too much of it might lead
to overkill. In fact, financial products respond less to
advertising than do many others, the main reason being
that their purchase is influenced more by the risk-return
equation than any other consideration. This is illustrated
by Systematic Investment Plans (SIPs), which owe their
Factors Precipitating Maturity of
Financial Products
As mentioned at the outset, the stages of a financial
product lifecycle are longer compared to those of other
products, which means that there could be a long
growth phase before the product enters maturity. Since
a mature product is well established in the market,
there is no longer a need for financial service providers
to promote it actively. While a mature product is likely to
be part of every investor portfolio, it is equally likely to
have a small or declining share in it. There are many
reasons for this, the foremost being the risk-return ratio.
When a new product promises similar or higher return
 Take endowment insurance plans for instance, which have been part
of almost every investor portfolio in India in the last three to four
decades. But, the last five years have seen a decline in asset
allocation due to the rising popularity of mutual funds combined with
life insurance, which provide higher returns.
The evolution of new products with huge reach also forces some old
products into maturity. For example, economic progress and
liberalization combined with the adoption of technology by stock
exchanges and active distribution by banks enabled Indian equities
and mutual funds to grow strongly in the last twenty years, mainly at
the cost of fixed deposits. In particular, when interest rates hit a low at
the start of this century, the demand for fixed deposits started to flag.
Factors Leading to Death of
Financial Products
Regulation is the leading cause of death of financial
products. Should a product be found to have significant
negative impact on the investor community, it is likely
that the regulator will ask financial service providers to
desist from offering it to customers. In other cases,
regulation does not allow certain products to take birth.
For example, some countries prohibit short selling,
thereby preventing the introduction of a number of
related products; and then there are others, which dont
allow products that do not comply with Islamic banking
laws.
 At times, a financial product may die a natural death
when it finds no takers. This might be due to a less
favorable risk-return equation or lack of push by
intermediaries (brokers, distributors). Faced with a
declining client base and high maintenance costs, the
financial service provider Factors Leading to Death of
Financial Products may have no option but to
discontinue the product. Existing customers might stay
invested in the product, but it is not sold to new
investors. For example, recurring deposits are being
eased out of the product suite, because there are many
 Several factors positively or negatively influence a
financial product during every stage of its lifecycle. As
in the case of other product lifecycles, the stages of a
financial product lifecycle too do not occur in silos, but
rather, overlap to a certain extent. Financial service
providers must closely monitor changing investor need
and economic trends, as well as the lifecycle of their
products in order to take timely decisions to develop a
new product, promote a fledgling one, or nurse an
established product through maturity. They should also
know which products are on the verge of death and be