|PRODUCT LIFE CYCLE
Every day we see new products. Car manufacturers bring out new models every year. But is this year’s model really a NEW product? Some products have been around for a long time. Some die on the drawing board, some at intro stage. When a new product is introduced, is it really new? Only about 10% of new products are really “new”, those innovations that create entirely new market. Majority are products most likely at the end of the PLC, and were re-introduced to start another new cycle (new, improved). However, whether truly new, or new improved, most products (services) go through PLC.
Stages of PLC are intro, growth, maturity & decline. Different industries may have a different shape curve, and depending on product, a cycle may be shorter or longer.
During the time of horse pulled buggies, when first steam powered vehicles appeared, automobiles were in the intro stage – truly a new product. Steam powered engines went through the PLC, and went into decline, and died out, but the car cycle began again with the introduction of the gas powered vehicle.
Mass produced Model T propelled the industry into the growth phase.
By post WWII boom, into 50’s most families had a car and the car market had reached maturity. Turn of century, there were over 100 car companies in the US, and few buyers.
Today, there are a handful of companies, and the number is getting smaller every year. It’s a mass market, with repeat buying, and trade-ins are significant. Those are all sure signs of a mature market heading into the decline stage.
The auto market in general is in the mature stage, but part of the PLC challenge is to re-work the cycle by introducing new models, to extend or reinvigorate the cycle. Most sedans are in maturity.
SUV –going into maturity, but car companies are trying the hybrid smaller SUV type vehicles to have a line in the growth stage.
If you are one of the few driving Electric cars – they are intro stage. Company may have lots of products in different stages. Look at today’s manufacturers, mergers, buy outs so that they have a whole line and comprehensive Market segmentation.
What are some characteristics of each stage?
Intro: High expenses, low sales - may not be profitable.
Growth: Sales and profits take off.
Maturity: Sales still growing, but profits start to decline.
Decline: Profit decline greater than sales, but both are heading south.
To map out a good strategy, you need to know where in the PLC you are. Car companies know they are in the mature stage, and utilize the appropriate tactics. So what are some other characteristics of what stage you may be in?
INTRO: Customers: Early adaptors, high income, must be educated or convinced to buy
Intro, today with leapfrogging and easy to copy, how will you recoup R&D costs?
Product: High price, few product standards, continuing changes, may be poor quality, high production costs.
Promotion: Educational & recognition advertising, high promotional costs
GROWTH: Customers: Broader range of buyers
Product: Better quality, improvements, mass production, mass distribution
Promotion: Advertising still high, focus on differentiation and brand
Highest profits, can change prices, Marketing is key function, many mergers..
MATURITY: Customers: Mass market with repeat buyers
Product: More standard product with excellent quality, stable manufacturing costs
Promotion: Focused on service, packaging, new lines, product differentiation
Falling profits and prices, Private brands, working on increasing margins
At mature stage, segmentation is often needed. Buyers are experienced
DECLINE: Customers: Choosy and savvy
Product: May not be best quality, standard product
Promotion: Minimal to survive
Few competitors, low margins
Different products will go through these stages at different speeds. If you are in the clothing fashion business, your PLC cycles will be quite a bit different with some products never making it to the growth stage.
Car manufacturers are trying to reach all segments – small, sporty, trucks, SUV, luxury., and reinvigorate their industry and extend the PLC with new models, but for the most part, the PLC chart for major car manufacturers looks fairly similar for similar models. If you are driving a car that turned out to be in a mature stage of the PLC, as a consumer, there are advantages: excellent quality, good relative price, and good service.
PLC & STRATEGY: Companies focus on day to day operations. Don’t always know where they are going. What is your company strategy?
Prospectors – looking for gold
Analyzers – defends, but wants new territory
Defenders - fortifies
Forward Integration (outlets)
Backward integration (you outsource manufacturing)
Horizontal (diversify, sell related items)
DIFFERENT MARKET ENVIRONMENTS
Emerging – New or reformed industries and new technologies (Digital camera industry)
Fragmented – large number of small firms, no one has a strong market share or influence. (Doctor’s offices)
Transitional – changing from rapid growth to maturity (
Declining – Industry is fading away (typewriters
Global – compete all around the world
Knowing where your industry is, helps you to plan the strategy. Global markets also present an opportunity to have the same product in different stages on the PLC. If you have ever visited a hospital in a developing nation, you have seen x-ray machines and other equipment that would be considered outdated if not downright antique in the U.S hospital. Based on affordability, some products that are declining in the US may be in the intro or growth stage in overseas markets. On the other hand, products that have been around for a long time overseas, may catch on in the US and be in the intro or growth stage here. (Mineral water, clothing fashions)
This means you could have several strategies and be in several different stages on the PLC at the same time.
Every business should also have an exit strategy: Sometimes you can only reinvigorate for so long. Exit strategy helps you to better plan for the future.
Limitations of PLC and industry analysis: Duration of stages varies, sometimes stages are skipped. Not always clear where a company is. However, both of these classifications are time tested and helpful in laying out a strategy.
Have to understand where you are in the PLC and in your industry. How?
Some companies have lots of vision, but never get it down to strategy. Others may have great tactics, but do day to day – no long term plan. Need to have all of them and should be clearly defined. How many people know firms mission and strategy? Strategy is the task of the whole organization, not just a specific unit.