Rationale Behind PLC

The theory of diffusion and adoption of innovation provides the underlying rational. When a new product is introduced, the company has to stimulate awareness, interest, trial and purchase. This takes time, and at introduction stage only a few persons (innovators) will buy it. If the product is satisfying, larger number of buyer are drawn in. The entry of competitors into the market speeds up the adoption process by increasing the market’s awareness and by causing prices to fall. Eventually, the growth rate decreases as the number of potential new buyers approaches zero. Sales become steady at the replacement purchase rate. Eventually sales decline as new –product classes, forms and brands appear and divert buyers interest from the existing product. Thus, the product life cycle is explained by normal developments in the diffusion and adoption of new products.