Growing, Growing, Gone: Cascades, Diffusion, and Turning Points in the Product Life Cycle

Abstract

Research on the product life cycle (PLC) has focused primarily on the role of diffusion. This study takes a broader theoretical perspective on the PLC by incorporating informational cascades and developing and testing many new hypotheses based on this theory. On average, across 30 product categories, the authors find that: (i) New consumer durables have a typical pattern of rapid growth of 45% per year over 8 years. (ii) This period of growth is followed by a slowdown when sales decline by 15% and stay below those of the previous peak for 5 years. (iii) Slowdown occurs at 34% population penetration and about 50% of ultimate market penetration. (iv) Products with large sales increases at takeoff tend to have larger sales declines at slowdown. (v) Leisure-enhancing products tend to have higher growth rates and shorter growth stages than nonleisure-enhancing products. Time-saving products tend to have lower growth rates and longer growth stages than nontime-saving products. (vi) Lower probability of slowdown is associated with steeper price reductions, lower penetration, and higher economic growth. (vii) A hazard model can provide reasonable predictions of the slowdown as early as the takeoff. The authors discuss the implications of these findings.