LOS b: Illustrate the life cycle of a typical industry.

The typical stages of the industrial life cycle are pioneer, growth, maturity, and decline.

These are the different phases of industry life cycle. Other answers include business cycle reactions by a firm.

Government regulation can have a huge effect on industry, but the government is not likely to regulate a new industry that has not yet achieved any market power. Pioneer industries are often worried about technology because their products have not yet gained popular acceptance. They must be concerned not only about the acceptance of their technology, but also the chance that someone else could come up with a better way to accomplish the same goal and kill their industry before it even gets started. Social and demographic changes affect what people purchase, and are key elements to determining the success of unproven products.

While industries in the growth cycle can perform well even in weak economies, mature industries generally grow in accordance with the economy, which means that when the economy is weak, most companies will also be weak. However, there can be one or more growth companies in a mature industry, and growth companies are capable of performing well when the economy is weak. Dresdler’s statement is correct. Aaronson is incorrect because mature industries tend to have a growth rate equivalent to that of the broader economy. Blisterman’s statement is incorrect because mature industries by definition don’t have a lot of expansion potential. If there were large chunks of the market not yet penetrated, the industry would be able to grow faster than the economy. Most growth in mature industries stems from market-share gains and acquisitions. Clendenning is describing an industry in the decline stage.

The competitive advantages enjoyed by Lightnight could apply to companies in both growth and mature industries. But Lightnight’s industry grew sales at less than 9 percent and profits at less than 13 percent, numbers that don’t suggest a growth industry. Quicklag’s lack of profits and concern about technology could apply to companies in both pioneer and declining industries. And differentiating oneself through marketing is important in both stages. However, the fact that Quicklag is willing to boost marketing and research spending in the teeth of an economic downturn suggests it is not on the decline. Companies on the decline can consolidate, reinvent themselves, or fail. Thus, a company willing to invest heavily in marketing and research is more likely to be a pioneer.

Mature industries tend to follow the economy. As such, they are highly sensitive to changes in the business cycle. Cyclical industries are by definition beholden to economic forces, but industries in the pioneer stage are still struggling for acceptance in the market. Such companies are likely to live and die with technical advancements rather than economic moves, if only because many of the companies don’t have much of a market for their products and are likely to lose money regardless of the economic conditions. Industries in the decline stage are likely to lose ground even if the economy does well, and defensive industries tend to be fairly insulated from economic forces anyway. Growth industries can prosper even when the economy is weak, and as such are not likely to be affected by economic forces as much as would a mature industry.

In addition to the factors Cole mentioned, a crucial piece of any industry-analysis model is the profitability analysis.

Quicklag is a pioneer company, and in that stage, there are probably a number of competitors trying different strategies. At that stage, the ability to make your product seem special or superior could be the difference between creating a market for yourself or going bankrupt. Because Quicklag spends so much of its money on salaries, it seems likely the company is in an information-related business. Because they have lower fixed costs, information businesses tend to have lower barriers to entry than industries like retailing, manufacturing, or telecommunications. Input prices generally take away pricing power, as companies cannot control those prices. Capacity utilization is not likely to be a company-specific issue in a pioneer industry, which usually sees minimal demand for its products.