Every product has a life cycle and the various stages of this can produce different profit margins and as such it is best to be aware of the product life cycle when looking at your selling margins going forward, first lets define the Product Life Cycle:

The timescale within which a product is introduced leading to a growth in sales, before sales mature and begin to decline, possibly even ending in the product being withdrawn.

So as can be seen there are four clear sections which I will discuss further using the pending launch of the Sony Playstation 3 as a working example, we all know the Playstation 3 is coming, developer releases and games conferences have seen examples and demos which has meant that the press have latched on and the hype is starting to grow. So much so that to say it is going to be a hot product is an understatement. As such this gives a great working example to illustrate the product life cycle on your product selection choices.

Stage 1 - Introduction Phase

With all consoles at launch the demand well outstrips the supply which ensures that the market price of the product will be artificially high, the reason being that there will be relatively few suppliers with stock and basically people will pay anything for the product. From your perspective you have no competition in the marketplace and you are guaranteed to sell them at a large mark up. This is one of the best times to sell and your margin will be through the roof.

Stage 2 - Growth

The supply is starting to catch up with demand, which in turn means that there are going to be more people with the product and hence the price will start to fall. Increased advertising by Sony and increased press coverage will ensure that the demand rises and as such you can make a continued profit (albeit at a lower rate). Early growth stage is the key are as you approach the latter end the market starts to get saturated with sellers. A good part of the cycle to be selling in as the volume sales counter the reduced margins and provide a great selling base.

Stage 3 - Maturity

This is probably the hardest stage of the cycle to operate in and unfortunately the point where most sellers start to sell, product supply is normal and lots of sellers that have seen the previous profits made jump on the band wagon to get a slice of the action. Sales start to stabalise and then Sony will start to introduce differentiated product into the marketplace to maintain sales such as a limited edition designed Playstation 3.

The effect of all these sellers coming into the marketplace means that price wars and intense competition occur, the market is basically becoming saturated and this is where you see the bigger players leaving the marketplace as the margin produced by the product sale is no longer