According to raymond vernon, each product has a certain life cycle that begins with its development and. He theorized and later provided empirical proof that new products go through a life cycle of four stages. In the 1970s, raymond vernon introduced the notion of using a products life cycle to explain global trade patterns, in the field of marketing. It seems to be consistent with the realworld experience of at least some industries, for examples pocket calculators and televisions.
The product life cycle theory was propounded by economist raymond vernon in 1966. The product cycle hypothesis in a new international environment by raymond vernon the last decade has produced a flowering of hypotheses that purport to explain the international trade and direct investment activities of firms in terms of the socalled product cycle. Rink, college of business, northern illinois university, dekalb, illinois 60115. International product life cycle theory pankaj chauhan. The above diagram depicts a typical product life cycle. Vernon suggests that a product goes through three stages. Theproduct lifecycle theoryis an economic theory that was developed by raymond vernon the theory suggests that all the parts and labor associated with that product come from the area in which it was invented after the product becomes adopted and used in the world markets, production gradually moves away from the point of origin sometimes product becomes an item. Provenmodels international product life cycle raymond vernon. Product life cycle theory raymond vernon, a harvard business school professor, developed the product life cycle theory a modern, firmbased international trade theory that states that a product life cycle has three distinct stages. These phases exist and are applicable to all products or. An explanation of the former model leads to an understanding of its perceived shortcomings, and the reason for the takeup. The product lifecycle theory is based on the assumption that regions may be available for the production of a particular product based on its lifecycle and. The product is developed and introduced in an advanced country.
Provenmodels international product life cycle raymond. Vernon s theory of product life cycle plc of international trade is an alternate theory developed from the failure of hecksherohlin model in the pattern of trade. Products enter the market and gradually disappear again. This article contains application of vernons product life cycle on the case study of shanghai vision technology co. The product life cycle theory plc open textbooks for. Raymond vernon is especially known for his product life cycle stages theory, also know as the international product life cycle. The product life cycle theory proposed by raymond vernon. Just like everything else, product has its own life cycle too. A very simple explanation of the product life cycle theory. The product life cycle theory raymond vernon mid 1960s. Hufbauer, synthetic materials and the theory of international trade cambridge.
The product life cycle theory and product line management. Vernon s international product life cycle theory 1996 is based on the experience of the u. Product development, product introduction, product growth, product maturity and finally product decline. Product life cycle product life cycle is a normative and descriptive model for the life of products in general the plcs importance to marketing decision makers is to help identify appropriate strategies. In this lesson, well break down his product life cycle theory and what each stage means, from introduction to decline.
Product cycle theory financial definition of product cycle. Vernon argued that firms undertake fdi at particular stages in the lifecycle of a product they have pioneered. Raymond vernon biography, founder of the product life cycle. Vernons product life cycle theory can also be used to explain fdi. Product life cycle theory competition business economics. Raymond vernon s product life cycle theory free essays. Raymond vernon s theory of the product life cycle was based on the observation that for most of the 20th century, a very large proportion of the worlds new products were developed by foreign nations and sold first in the u. After reading you will understand the basics of this powerful marketing strategy tool history product life cycle. Product life cycle is defined as, the cycle through which every product goes through from introduction to withdrawal or eventual demise. What is the product life cycle stages theory by vernon. Product life cycle theory comprises analysis of a products life in the market from the time it has been launched to its withdrawal from the market. Vernon s theory has it that new products tend to follow a three part life cycle.
The product life cycle theory is an economic theory that was developed by raymond vernon in response to the failure of the heckscherohlin model to explain the observed pattern of international trade. According to theory, as the demand for a newly created product grows, the home country starts exporting it. That means that for many new continue reading criticisms of the. That means that for many new continue reading criticisms of the product life. The product life cycle model simplest explanation ever duration. Raymond vernon is especially known for his product life cycle stages theory, also know as the international product life cycle biography raymond vernon. Products of shanghai vision technology to be sold in new markets follow a specific life cycle pattern. International product life cycle theory is one of the leading explanations of international trade patterns. Answering the failure of ho theory by endang sih prapti summary abstract one of the hypotheses that were existed in the world about the trading of goods and service is called the ho. The product life cycle stages or international product life cycle, which was developed by the economist raymond vernon in 1966, is still a widely used model in economics and.
In 1817, ricardo came up with a simple economic experiment to explain the benefits to any country that was engaged in international trade even if it could produce all products at the. Raymond vernon september 1, 19 august 26, 1999 was an american economist. International product life cycle theory it explain the emergence of international trade pattern and diffusion of product from the parent country to the rest of the world. I initially recommend you to read the article on product life cycle and. Nov 05, 2015 the product life cycle theory was developed originally by raymond vernon in the sixties. International investment and international trade in the product cycle. Each stage has its costs, opportunities, and risks, and individual products differ in how long they remain at any of the life cycle stages. Following a failure by heckscherohlin model to adequately illustrate the pattern of international trade, raymond vernon came up with the product life cycle theory. Product life cycle should be studied with reference to the broad picture of demandtechnology life cycle.
Also,the market is believed to exist for it in that country, and in other similar countries. There are some major product life cycle management techniques that can be used to. The theory of product life cycle plc was firstly brought forward and shaped by professor raymond vernon of harvard university in 1966 jain and vachani, 2006. The product life cycle theory was developed originally by raymond vernon in the sixties. This paper presents 3 empirical tests of the product life cycle theory based on u. It is very worth considering as an explanation of who produces what and why. Each stage of product life cycle can be characterized in terms of at least four aspects sales volume, amount of profits, level of promotional efforts and expenses, and degree of competition. In business terms, the product lifecycle, in a marketing context, is all the stages of a products life span that are related to its promotion and sales. Harpranata silangit 12327016ek18732 economics product life cycle plc theory. Theproduct lifecycle theoryis an economic theory that was developed by raymond vernon the theory suggests that all the parts and labor associated with that product come from the area in which it was invented after the product becomes adopted and used in the world markets, production gradually moves away from the point of origin sometimes product. The life of most products can be divided into five key stages. The product life cycle theory raymond vernon mid1960s proposed the product life cycle theory suggesting that as products mature, both the location of sales and the location of production will change, which affect the flow and direction of trade in the mid1960s, the wealth and size of the u. While the product life cycle model is a very helpful tool for helping to understand current and potential market conditions, in order to develop appropriate marketing and competitive strategies, there are some limitations and concerns with the usage of the plc. Vernons theory of product life cycle plc of international trade is an alternate theory developed from the failure of hecksherohlin model in the pattern of trade.
In this paper, the production life cycle theory is explained and find ways to adapt and use this theory related to regional development. Whereas akamatsu was concerned with leading sectors, which he saw as determining the development of national economies, raymond vernon in his product cycle theory focused on the behavior of individual firms. At that time, vernon observed and found that a large proportion of the worlds new products came from the u. This article dwells on the four stages of a product life cycle the product life cycle theory is used to comprehend and analyze various maturity stages of products and industries. The theory suggests that early in a product s life cycle all the parts and labor associated with that product come from the area where it was. Vernons international product life cycle theory 1996 is based on the experience of the u. A short product life cycle is one of the hallmarks of a fad. Doc the product life cycle theory elif gulfem urhan. Raymond vernon 19 1999 was professor emeritus at the kennedy school of government in the united states.
This article explains the product life cycle stages, developed by raymond vernon in a practical way. The product life cycle theory raymond vernon mid1960s proposed the product lifecycle theory suggesting that as products mature, both the location of sales and the location of production will change, which affect the flow and direction of trade in the mid1960s, the wealth and size of the u. Nov, 2014 this article contains application of vernons product life cycle on the case study of shanghai vision technology co. The life cycle of a product is associated with marketing and management decisions within businesses, and all products go through five primary stages. It is a readymade or expert prescription regarding what a marketing manager should do in different stages of the plc.
David ricardos theory of comparative advantage, raymond vernons product life cycle, john dunnings eclectic theory and all others are essentially ex. Product life cycle theory by vernon economics essay. Raymond vernon, international investment and international trade in the product cycle, quarterly journal of economics, vol. A reassessment and product policy implications introduction international product life cycle iplc theory, developed by vernon 1966, 1971, 1976 and his associatesparticularly wells 1968, 1969has become one of the leading explanations. The intent of his international product life cycle model iplc was to advance trade theory beyond david ricardos static framework of comparative advantages. This study examines the theory from the standpoint of a presumably follower country. Sep 24, 2014 the product life cycle stages or international product life cycle, which was developed by the economist raymond vernon in 1966, is still a widely used model in economics and marketing. The product life cycle is an excellent tool which can be used by business managers, strategists and marketing managers to come up with product strategies. The product life cycle theory plc open textbooks for hong.
Raymond vernon applies two methods in coming up with his theory, the model of laborsaving and capitalusing products that cater to highincome groups. International business has existed as a distinct field of study for the past three decades, but it does not have a widely accepted explanatory theory on which to base its uniqueness as a discipline. The case of mobile phones article pdf available in ieee transactions on engineering management 512. He was a member of the group that developed the marshall plan after world war ii and later played a role in the development of the international monetary fund and the general agreement on tariffs and trade. Product life cycle shivani bhambri1 abstract product life cycle plc is the cycle through which every product goes through from introduction to withdrawal or eventual demise. Raymond vernons theory of the product lifecycle was based on the observation that for most of the 20th century, a very large proportion of the worlds new products were developed by foreign nations and sold first in the u. Essentially, the vernon model is a view the full answer. The product lifecycle theory, proposed by raymond vernon 1960s, suggested that as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade vernon argued that the size and wealth of the u. About 30 years ago, vernon put forward the international product life cycle theory.
The product life cycle concept the plc represents the unit sales curve for some product, extending from the time it is first placed on the market until it is removed 10, p. Vernon s product life cycle theory can also be used to explain fdi. Such product strategies look at the various stages the product is in the life cycle and then come up with the appropriate strategies. The products life cycle period usually consists of five major steps or phases. Research and development capability is one reason why. Raymond vernon biography, founder of the product life.
My purpose in this paper is to suggest that the power of such. Benefits and limitations of product life cycle plc. With the help of this theory, raymond vernon sought to explain the various stages that a product goes through after it enters the market. The understanding of a products life cycle, can help a company to understand and realize when it is time to introduce and withdraw a product from a market, its position in the market compared to competitors, and the products success or failure. Scientific knowledge probability of applying scientific. Hirschs findings seem to have been accepted without reservations.