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The Industry Life Cycle
The industry life cycle refers to the different stages of growth that a business in a particular industry goes through over its life. Each stage has its varying characteristics and these are expected to shift with each change of stage.
The first stage in the industry life cycle is known as the startup. The startup stage is characterized by high expectations of a wide market, wide profit margins, and outstanding performance. The second stage in the life cycle is known as consolidation. This consolidation stage is characterized by growth stability, widening of markets, reduction of unit costs, and an improvement of the quality of goods and services offered in the markets.
The third stage in the industry life cycle is known as the maturity stage. The primary characteristics of the maturity stage include a deceleration in the growth rate owing to maturing markets and an increase in the number of products offered in the markets. The fourth stage in the industry life cycle is the relative decline of the business. This stage is characterized by declining sales and counterproductive costs per unit which may not be viable to continue with.
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The passenger car segment of Universal Auto is characterized by a decline in the growth of the business. As such, it is in the declining stage of the industry life cycle. On the other hand, the information processing segment of the company is in the startup stage of the business life cycle owing to short life span and high growth expectations.
Product pricing for the information processing services segment of the company and the car business segment is different owing to the different stages they occupy in the industry life cycle. For the information processing business, the pricing can be flexible due to increases in demand. On the other hand, for the car business, product pricing changes are not flexible due to the declining demand for the business in the declining stage.
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