Product Life Cycle

Ken Homa

© K.E. Homa 2000

 Product Life Cycle

Maturity

Growth Decline

Introduction

Time
 Product Life Cycle
Maturity

Growth Decline

Introduction

• Typical pattern, highly varied

…broadly representative
…product, brand, geography
…not necessarily predictive
…instructive, not definitive
…conceptually based:
diffusion, tech adoption
Diffusion Models
 Diffusion Models

• Innovators (First in)

…Motivated by market knowledge

• Imitators (Followers)
…Motivated by interpersonal influences
Simplified Diffusion Model

Innovation
Rate

Initial
Innovators
Initial
Potential
Initial
Buyers
Simplified Diffusion Model

Innovation
Rate
Total
New
Market
Innovators
Potential
Remaining
Potential
New
Already Buyers
Bought
Simplified Diffusion Model

Innovation
Rate
Total
New
Market
Innovators
Potential
Remaining
Potential
New
Already Buyers
Bought
New
Imitators
Imitation
Rate
Simplified Diffusion Model

Innovation
Rate
Total
New
Market
Innovators
Potential
Remaining
Potential
New
Already Buyers
Bought
New
Imitators
Imitation
Rate
 Bass Diffusion Model

Total
Market
Potential
Remaining
Potential
Already
Bought
Momentum New
Factor Buyers
Total Current
Market Imitation
Potential Rate
New
Imitation Buyers
Rate Rate
Innovation
Rate
 Bass Diffusion Model
Illustrative Penetration Pattern

100.%

90.%

80.%

70.%

60.% ASSUMPTIONS

50.% Market Potential = 1000

40.% Innovation Rate = 10%

30.% Imitation Rate = 33%

20.%

10.%

0.%
0 1 2 3 4 5 6 7 8 9 10
 Bass Diffusion Model
Illustrative Buying Pattern

150 TOTAL BUYERS

ASSUMPTIONS

Market Potential = 1000

100 Innovation Rate = 10%

IMITATORS
Imitation Rate = 33%

50

INNOVATORS

0
1 2 3 4 5 6 7 8 9 10
 Technology Adoption Life Cycle

34% 34%
2.5% 13.5%
Innovators Early Early Late 16%
adopters majority majority Laggards

Time of adoption of innovations

Adapted from Geoffrey Moore, Crossing the Chasm

 Product Life Cycle
Maturity

Growth Decline

Introduction

• Typical pattern, conceptually based

• Cash flow critical

…Mature ‘lend’, growing ‘borrow’
…Direct link to portfolio strategy
 Product Life Cycle

Maturity

Growth
Sales Decline

Introduction

Profit
Loss Loss
 Product Life Cycle

Maturity

Growth
Sales Decline

Introduction

Profit
Loss Loss
 Product Life Cycle
Cash Flow Summary

Net Income

Cash Flow from Operations

and Investments

Intro-
Growth Maturity Decline
duction

Investment Intro-
Maturity Decline
duction Growth

Intro-
Growth Maturity Decline
duction
Business Portfolio => Cash Flow

Growth
Businesses
Intro
Businesses

External Financing CASH

Declining
Businesses
Mature
Businesses
Linking PLC & Business Portfolio
Introduction Growth

High
Market Attractiveness
Inflow Develop or
Invest/Grow
Cash Flow Position

Withdraw
Outflow

Harvest/
Earn/Protect
Low Divest
Decline Mature

Low High

Relative Business Strength

High Cost Low Cost

Competitive Cost Position
 Product Life Cycle
Maturity

Growth Decline

Introduction

• Typical pattern, diffusion based

• Cash flow critical, portfolio linked

• Manageable …
 PLC Management

Maturity

Growth

Decline

Introduction
 PLC Management

Maturity

Growth

Decline

Introduction

Faster
 PLC Management

Maturity

Growth

Higher Decline

Introduction

Faster
 PLC Management

Maturity Longer

Growth

Higher Decline

Introduction

Faster
 PLC Management

Maturity Longer

Growth

Higher Decline

Introduction

Faster

More profitably …
 PLC Management
Maturity Longer

Growth

Higher Decline

Introduction

Faster

Tactical differentiation
Competitive positioning
Strategic regeneration
Crossing the Chasm
 Managing the PLC

• Tactical differentiation

• Competitive positioning

• Strategic regeneration

• Crossing the Chasm

 Differentiated PLC Management

Strategy Class Investment Policy Strategic Role Management Focus

Introduction Phased/Selective Establish a profitable Market position

position or cut losses 1st Mover ?

Growth Aggressive Provide future cash Sales/Share

flow base Installed base

Maturity As needed to protect Generate current Profitable Share

profits (cost reduction, cash needs
line extensions, etc.)
Decline Highly Restrictive Maximize short-term Profits/Cash
profits; contain losses Last in ?
Product Life Cycle
Competitive Positioning

Industry

Strong
First Mover, or
Competitor Predatory Follower

Last In …
Weak
Competitor
Product Life Cycle
Regeneration

“Natural”
Evolution
Product Life Cycle
Regeneration

“Induced”
Regeneration

“Natural”
Evolution
 Product Life Cycle
Regeneration

Mkt A
Mkt B

Mkt D

Mkt C
 Product Life Cycle
Regeneration

Mkt A
Mkt B

Mkt D

Mkt C
Product Life Cycle
Regeneration - Intel

386
Product Life Cycle
Regeneration - Intel

486

386
Product Life Cycle
Regeneration - Intel

Pentium

486

386
Product Life Cycle
Regeneration - Intel

Pentium

486

386
Innovator’s Dilemma

Established
Technology
Innovator’s Dilemma

Disruptive
Technology

Established
Technology
Innovator’s Dilemma

Disruptive
Technology

Established
Technology
Innovator’s Dilemma

Disruptive
Technology

Established
Technology
Innovator’s Dilemma

Disruptive
Technology

Established
Technology

Why upstarts and not established players?

Innovator’s Dilemma

Disruptive
Technology

Established
Technology

Why upstarts and not established players?

High dependency on existing customers

Initial market too small (relative to current)

Uncertain potential, certain consequences

 “Crossing the Chasm”

“Immature” solution
No “killer application”

C
h 34% 34%
2.5% 13.5% a
Innovators Early s Early Late 16%
adopters m majority majority Laggards

Time of adoption of innovations

 Product Life Cycle
• Typical pattern, highly varied
… broadly representative
… product, brand,geography
… not necessarily predictive
Maturity
… instructive, not definitive
Growth Decline … conceptually based:
diffusion, tech adoption
Introduction

• Cash flow critical

Time … Mature ‘lend’, growing ‘borrow’
… Direct link to portfolio strategy

• Manageable …
… Differentiated tactics
… Competitive positioning
… Strategic regeneration
… Crossing the Chasm