Every business owner should be aware of the product life cycle. They should be aware of the standard model of the PLC and where each of their products exist in their life cycle. they should also know if products in their mix have the ability to deviate from the standard model.
In the standard model of the product life cycle, there are four stages:
- Introduction: It takes time for a new product to be accepted by consumers. When a product is first introduced sales may be slow and the costs of promotion and distribution may be high. It is highly likely that new products will be loss-making. The role of marketing is to increase sales and build the market. Price skimming or penetration strategies predominate.
- Growth: Sales rise. The rise in sales may be rapid; which may cause issues with having sufficient manufacturing capacity to meet demand. This is currently an issue with Elon Musk’s Tesla model 3. Marketing’s focus shifts to brand building and creating offers which result in customer retention and brand loyalty. The business looks to new customer acquisition and expanding its base.
- Maturity: This is the longest stage of the product life cycle. Sales plateau. Profits may fall as efforts are made to defending and maintaining your market position. Products are innovated and reformulated.
- Decline: At this stage sales fall. It could be that a product is no longer seen as fashionable. New products in the market may be seen as a better option. Advances in technology may make existing products obsolete. Marketing activity on products at this stage may be minimal. Products may be abandoned, replaced or harvested for cash.
Of course not all products follow the standard model of the product life cycle. Some products become staples. Others may have cyclical or seasonal appeal. Often new uses can be found for old products. Lucozade was a brand of soft drink for invalids but it was reformulated and is now sold as a sports energy drink. Listerine began life as a household detergent but is now sold as mouth wash. Lyle’s Golden Syrup has been sold under the same branding for over 200 years.
The product life cycle is a critical analytical tool for product portfolio and product mix management.
It isn’t just individual products that have a life cycle. Brands have a lifespan and so do industries.
In 1973, Arthur D. Little created his Strategic Condition Matrix. This measured industry maturity and a companies position in its chosen market.
Little defined four stages of industry maturity:
Note that these stages mirror those of the product life cycle.
Little also defined five categories of competitive position:
- Dominant: It is rare for a company to find itself in this position. It often relies on having a monopoly or having protected technological leadership. A firm in a dominant industry position can exert significant influence on the behaviour of others in the industry and therefore has a vast range of strategic options.
- Strong: A firm is not as dominant but still has a significant level of strategic choice. A firm can act without its market position being unduly threatened by competitors.
- Favourable: The industry is fragmented but there is a clear market leader. Firms can exploit particular strengths through the use of appropriate strategies.
- Tenable: Firms are vulnerable to increased competition in the market. Few options exist for a firm to strengthen its position. Profitability is driven through specialisation.
- Weak: Firms struggle to compete and possibly have unsatisfactory performance. If you cannot improve your situation, you will be forced out of the market. This position may be the home of inefficient firms and small traders who fight every day to make ends meet.
Other academics have added a further category of competitive position, Non-viable, where withdrawal from the industry sector is the only strategic option.
For each combination of competitive position and industry life stage, Little suggests the following strategy options:
- Dominant Market Position:
- Embryonic: Here the aim is to grow fast and to build barriers to market entry by potential competitors. Firms should act with offensive strategies in mind.
- Growth: Again you look to grow fast through cost leadership. You balance strategies between defence and attack.
- Mature: The aim is to defend your existing market position. Cost minimisation is increasingly important. You attack weaker competitors.
- Ageing: You again defend your market position and focus on profitable sectors. You consider abandoning unprofitable parts of the market.
- Strong Market Position:
- Embryonic: Grow fast and differentiate you offer from those of competitors.
- Growth: Lower costs and differentiate your offer. Attack smaller and weaker firms
- Mature: Lower your cost base, differentiate or focus your offer. Note these are Porter’s generic marketing strategies.
- Ageing: Harvest the market for cash.
- Favourable Market Position:
- Embryonic: You grow fast through differentiation
- Growth: Lower your cost base, differentiate your offer, attack smaller and weaker firms.
- Mature: Focus on particular market sectors and differentiate your offer. Hit smaller and weaker firms hard. Create barriers to entry.
- Ageing: Harvest the market for cash
- Embryonic: Look to grow the industry and focus on profitable sectors
- Growth: This position is that of a problem child in the BCG matrix. You have the choice of holding onto your existing market position, you can look to a profitable niche or you can aim to grow the market. You may want to harvest the market for cash.
- Mature: You either hold on to your existing position in the market of you withdraw from the industry
- Ageing: A managed withdrawal from the market is required.
- Embryonic: Search for a profitable niche and attempt to catch others in the market.
- Growth: Find a profitable niche or withdraw from the market
- Mature: A managed withdrawal from the market
- Ageing: Withdraw from the industry
Most western economies, USA, Europe, etc. are mature. As a result, for many small firms, the most profitable strategy is one of niche marketing.