Knowing how products evolve over time is crucial in the race for innovation. It helps determine a company’s growth and how it competes in the market.

Most products go through a big sales drop after an initial period of growth. This happens across different industries and types of products. Research from Yale explores the implications of the lifecycle of products across society.

“By examining the life cycle of a wide cross-section of products, we can see the role product performance plays in shaping firm and economic growth,” the researchers explain.

Product innovation

The researchers took a unique approach to their study. Instead of focusing on things like personal computers, they used a retail scanner to check out a wide variety of everyday products. This included stuff like cereals and drinks (which don’t last long), and things like razors and lamps (which last a bit longer).

They came up with a dynamic model that shows how innovation and obsolescence work together. Companies have to keep introducing new products to grow. If they don’t, their lineup becomes outdated as competitors bring in their own new stuff.

There are two main things causing this decline: “business-stealing,” where rival companies introduce similar but better products, and “cannibalization,” where companies make new versions of their own products and cut down on the sales of the older ones. The interaction between these two types of innovation shapes how companies and the economy grow.

Steady growth

Companies seem to have a steady and moderate growth of about 2% each year. However, this decline hides a big shift in products. New products add a positive 12% to this growth, but the slowing sales of existing products take away 10%.

“The conventional view is that product sales follow a bell-shaped curve,” the researchers explain. “Our research shows that product sales experience a steady decline throughout the greater part of the product life cycle, declining on average 30% per year between the first and fourth year of activity.”

This discussion underscores the vital importance of non-price strategies in shaping today’s competitive landscape. When there’s a lot of competition, it’s more profitable for companies to launch a new product than to lower the prices of their existing ones.