Post on 23-Dec-2015
Product Life Cycle
Ken Homa
© K.E. Homa 2000
Time
Introduction
Growth
Maturity
Decline
Product Life Cycle
Introduction
Growth
Maturity
Decline
Product Life Cycle
• 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
InitialInnovators
InitialPotential
InnovationRate
InitialBuyers
Simplified Diffusion Model
TotalMarket
Potential
NewInnovators
RemainingPotential
AlreadyBought
InnovationRate
NewBuyers
Simplified Diffusion Model
TotalMarket
Potential
NewInnovators
RemainingPotential
AlreadyBought
InnovationRate
NewImitators
ImitationRate
NewBuyers
Simplified Diffusion Model
TotalMarket
Potential
NewInnovators
RemainingPotential
AlreadyBought
InnovationRate
NewImitators
ImitationRate
NewBuyers
TotalMarket
Potential
ImitationRate
AlreadyBought
MomentumFactor
TotalMarket
Potential
InnovationRate
CurrentImitation
RateNew
BuyersRate
RemainingPotential
NewBuyers
Bass Diffusion Model
Bass Diffusion ModelIllustrative Penetration Pattern
0.%
10.%
20.%
30.%
40.%
50.%
60.%
70.%
80.%
90.%
100.%
0 1 2 3 4 5 6 7 8 9 10
ASSUMPTIONS
Market Potential = 1000
Innovation Rate = 10%
Imitation Rate = 33%
Illustrative Buying Pattern
ASSUMPTIONS
Market Potential = 1000
Innovation Rate = 10%
Imitation Rate = 33%
0
50
100
150
1 2 3 4 5 6 7 8 9 10
TOTAL BUYERS
IMITATORS
INNOVATORS
Bass Diffusion Model
Technology Adoption Life Cycle
34%
Earlymajority
Time of adoption of innovations
34%
Latemajority
16%Laggards
2.5%Innovators Early
adopters
13.5%
Adapted from Geoffrey Moore, Crossing the Chasm
Introduction
Growth
Maturity
Decline
Product Life Cycle
• Typical pattern, conceptually based
• Cash flow critical…Mature ‘lend’, growing ‘borrow’…Direct link to portfolio strategy
Introduction
Decline
Maturity
GrowthSales
Product Life Cycle
Loss Loss
Profit
Introduction
Decline
Maturity
GrowthSales
Loss
Profit
Product Life Cycle
Loss
Product Life CycleCash Flow Summary
Intro-duction
Growth Maturity Decline
Net Income
Investment
Intro-duction
Growth Maturity Decline
Intro-duction
Maturity DeclineGrowth
Cash Flow from Operations and Investments
Business Portfolio => Cash Flow
Growth Businesses
Mature Businesses
Intro Businesses
Declining Businesses
External FinancingExternal Financing CASH
Linking PLC & Business Portfolio
Low High
Low
High
Relative Business Strength
Mar
ket A
ttrac
tiven
ess
Invest/GrowDevelop or Withdraw
Earn/ProtectHarvest/Divest
High Cost Low CostCompetitive Cost Position
Cas
h Fl
ow P
ositi
on
Out
flow
Inflo
w
GrowthIntroduction
MatureDecline
Introduction
Growth
Maturity
Decline
Product Life Cycle
• Typical pattern, diffusion based
• Cash flow critical, portfolio linked
• Manageable …
Introduction
Growth
Maturity
Decline
PLC Management
Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
HigherHigher
Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
LongerLonger
HigherHigher
Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
More profitably …More profitably …
LongerLonger
HigherHigher
Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
LongerLonger
HigherHigher
Tactical differentiationCompetitive positioningStrategic regenerationCrossing 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 position or cut losses
Market position1st Mover ?
Growth Aggressive Provide future cash flow base
Sales/ShareInstalled base
Maturity As needed to protect profits (cost reduction, line extensions, etc.)
Generate current cash needs
Profitable Share
Decline Highly Restrictive Maximize short-term profits; contain losses
Profits/CashLast in ?
Industry
Weak Competitor
Product Life CycleCompetitive Positioning
Strong Competitor
First Mover, orPredatory Follower
Last In …
Product Life CycleRegeneration
“Natural”Evolution
Product Life CycleRegeneration
“Natural”Evolution
“Induced”Regeneration
Mkt AMkt B
Mkt C
Mkt D
Product Life CycleRegeneration
Mkt AMkt B
Mkt C
Mkt D
Product Life CycleRegeneration
Product Life CycleRegeneration - Intel
386
Product Life CycleRegeneration - Intel
386
486
Product Life CycleRegeneration - Intel
386
486
Pentium
Product Life CycleRegeneration - Intel
386
486
Pentium
Innovator’s Dilemma
EstablishedTechnology
Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
Why upstarts and not established players?
Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
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”
34%
Earlymajority
Time of adoption of innovations
Earlyadopters
2.5%Innovators
34%
Latemajority
16%Laggards
13.5%
Chasm
“Immature” solution No “killer application”
Time
Introduction
Growth
Maturity
Decline
Product Life Cycle
• Typical pattern, highly varied…broadly representative…product, brand,geography…not necessarily predictive… instructive, not definitive…conceptually based:
diffusion, tech adoption
• Cash flow critical…Mature ‘lend’, growing ‘borrow’…Direct link to portfolio strategy
• Manageable ……Differentiated tactics…Competitive positioning…Strategic regeneration…Crossing the Chasm