product life cycle

Innovation in the Product Life Cycle

Posted on 04.08.21

I recently ran across notes I had taken while reading a book that summarized management skills. I no longer remember the title or author’s name, but the book was an overview of all the subjects covered in an MBA program 20 years ago. Of course, MBA programs have changed a lot in this time frame, yet a lot of the basic tools we use for decisions have not changed.

For instance, managers need to understand finance and accounting. Managers need to know how to create a strategic plan. And managers need to understand operations, distribution, and supply chain. Managers also need to understand the product development process, including aspects of technology and marketing.

The Product Life Cycle

The product life cycle (PLC) is not a new concept, yet it supports the work of a product manager today still. Just like every living thing has a life cycle – birth, growth, maturity, and death – so do products. The PLC covers the introduction of a new product to a market, growth of the product in both market share and market penetration, maturity to a commodity-like product, and decline.

Introduction

In the introductory stage of the PLC a product is first released for sale. Sometimes new products are new-to-the-world and sometimes they are only new-to-the-company. The decision to develop a new product, though, starts long before it is introduced to the market

Product managers are constantly on the lookout for new product ideas. They gather concept ideas from existing customers. Innovation managers also continually scan the horizon for new product opportunities. A new product might consist of a new technology applied to an existing market or a new market altogether.

I found a new product the other day – most likely an application of existing technology to a new market. My cats love gravy. They will drink the gravy out of the bowl and leave the particles of food behind. They really love a treat, called “Gravy-licious”. It is a crunchy treat with a “gravy” coating. At the store the other day , I found a 3-pound bag of regular food made entirely of gravy-coated particles. I knew it would be a hit – the bowl was empty in no time!

While gravy-covered treats and gravy-covered food are not radically different from my point of view (or apparently the cats’ view either), these are different products. Consider the scale of manufacturing for a treat versus that of a large volume food product. Also consider packaging, distribution, and promotion. Each element must be adequately addressed to introduce a new product to consumers.

Growth

During the growth stage, a new product is adopted by a majority of consumers in a market. Remember that adoption by a passionate few can then drive mainline purchases by your target market. In fact, product innovation leaders will gain insights to the quality, pricing, and feature sets of new products from the introduction and early growth stages.

Growth is characterized by extended promotion of the product. For a new-to-the-world product, profits begin to accumulate. Manufacturing is streamlined as are supply chain and distribution.

Maturity

As the product continues to grow in market penetration, competitors enter the market. The term market penetration means that existing customers are buying more of the product and as many customers that want the product can buy it. Market saturation occurs when every customer who wants a product can – and does – purchase it.

This maturation of a market means that the product is becoming commoditized. There is often little differentiation among competitors and profit margins decline due to pricing pressures. A lot of companies take the strategy of lowest cost during the maturity stage which, unfortunately, sinks the whole market.

Decline

Fighting for the lowest cost leads to overall decline of the product – or death in the product life cycle. Manufacturers do not want to make a product that has no profit margin as there is greater utility for equipment to make another product. In some cases, it is more cost effective to sell a factory rather than continue to produce goods that generate financial losses.

Yet, a lot of product managers fail to recognize the signs of decline. Heroic efforts will not save a dying product. Instead, innovation leaders must take a long, hard look at customers markets, technologies, brands, competitors, and products to generate a strategic plan. Do you sunset the product or reinvest to launch a next a next generation new product? Not an easy decision.

Innovating in the PLC

One word that repeats itself when describing the product life cycle is competition. Even with a new-to-the-world product, we do not operate in a vacuum. Competition is working on new technologies and new promotions in our target markets. We must be ready – at every stage of the PLC – to address competitive threats.

Do you know your competition? Do you have a formal strategy to address new product competition? Are your profit margins strong against all product competition?

If you answered “NO” to just one of these questions, it’s time for a tune-up in your PLC! Join the self-paced Competitive Analysis course here. You will earn 2 PDH and save 20% with discount code “Intro” through 15 April 2021.

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Four Stages of Competition

Posted on 03.25.21

According to Dictionary.com, the origin of the word “competition” is Latin, around 1600 AD. One definition is “a contest for some prize, honor, or advantage”. Another definition is “the act of competing; rivalry for supremacy”. In business, we often think of our competition as other organizations that compete with similar products in a marketplace.

It seems that the formal definitions of competition are stronger, harsher than what we experience in our day-to-day business lives. There is only one prize in sports, for example. Many teams compete each year, but only one is the “national champion”. Many individuals compete in the Olympics, but only one can win the gold medal. In business, only a single product or brand can be number one in a given category. And winning means the highest profit.

Competition and the Product Life Cycle

In sports, the “best” teams usually are sorted out early in the season. Unfortunately, players suffer injuries that can decrease the skill level and balance of a team. When Klay Thompson suffered back-to-back injuries, the chances dwindled for the Golden State Warriors to win an NBA championship this year. That injury on top of losing Kevin Durant to another team, reduced the skill and balance of the team from a position of “winner” to “needing to recruit”. While Golden State has been a perennial competitor in the NBA, their losses created space for stronger competition in the league by Utah and the LA Clippers, for instance. (Read more about Who is Your Competition here.)

In business, early market entrants might be the strongest competitors. Yet, over time, different companies produce and market products that offer competitive advantages. Just like NBA teams have an initial ranking that morphs and adjusts throughout the season, new products also have different competitors throughout the product life cycle (PLC).

The Product Life Cycle (PLC)

Most products go through a similar life cycle, though the speed of the life cycle varies. New-to-the-world products are launched into the introductory phase of the PLC. Often there is little direct competition at this stage. The new product is designed to meet a unique market need and the target customer might represent a small market.

As more customers adopt the product and via intensive product promotion, the market share grows. This is, of course, called the growth stage of the PLC. Companies focus on building brand awareness and increasing distribution during this phase. However, as more firms view the success of the product in meeting customer needs, competition also grows.

As a market becomes saturated with the availability of a high number of like products, a product enters the maturity phase. In this stage of the PLC, companies face price pressures and begin to focus on cost-cutting. Products with differentiation can maintain profit margins but, in general, the product faces commoditization.

Finally, an organization must make the tough decision to abandon the product or reinvest. This decision occurs in the decline phase of the PLC. Competition actually dries up because profit margins are so low. Unfortunately, paying customers also dry up.

Your Product, Your Competition

Knowing where the product is at on the PLC is a starting point to analyzing its competitiveness. You have to understand if the market presents an opportunity for growth in market share or in market penetration. It is also crucial for firms to make the (sometimes unpleasant) decision to abandon a product when it is in decline.

Analyzing the number and type of competitors (direct or indirect) can help organizational leaders make the best, most profitable decisions. These decisions also must include alignment of new product innovation programs, business acquisition strategies, and overall growth goals and objectives. Economic and regulatory factors, external to the firm, impact markets and innovation as well.

Next Steps

Do you know your strategy to address competitive threats? If not, learn to Analyze the Competition in a self-paced, online course. Register here and earn 2PDUs.

image of computer with key for competitive analysis

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Study. Learn. Earn. Simple.

Forecasting for Product Management

Posted on 02.18.21

I live in Texas, so this past week has been interesting. Normally our winters have low temperatures around 40°F. A couple of times each winter, we will experience a “hard freeze” of less than 32°F for more than a couple of hours. Often, the weather forecasters predict lower temperatures and harsher conditions and materialize.

Snow covered palm tree — Image from Flickr (The_Doodler)

This winter, we had a storm of a lifetime. Instead of over-predicting, the weather forecast gave low temperatures 5 to 10°F higher than observed. There was snow and ice in the Corpus Christi area, right on the Gulf of Mexico with low temperatures dipping to just 19°F (-7°C). Thick ice covered every surface, including the wind turbines which were providing about 40% of power to the state. Iced up, they could turn no more, so the state has been gripped in massive power outages, leading to loss of water supply in many places as well.

What is Forecasting?

While we often think of the weather when we hear the term “forecast,” we also make business predictions. A business forecast allows us to plan production, distribution, and resources. These forecasts are usually based on sales projections into the future, sometimes called a “demand forecast”.

Time Frames for Forecasting

Business forecasting covers a wide range of time periods. We use short-term forecasts for immediate job assignments, shipping, and purchasing. Medium-term forecasts also include plans for inventory, warehousing, and raw material supplies. Finally, long-term forecasts involve strategic product planning with potential capital investments.

Role of the Product Manager

A product manager has a broad role, including new product development (NPD) and brand management. Understanding and predicting customer needs means a product manager must be proficient in making demand forecasts. Functional departments look to the product manager for guidance in production, logistics, and purchasing.

Market trends often dictate which products will experience growth and which will experience decline. Additionally, the stage of the product in the overall product life cycle (PLC) also contributes to expected consumer demand. (Recall that the stages in the product life cycle are introduction, growth, maturity, and decline. Read more here.)

Other factors that influence the demand for a new product include competition, technology, and regulatory factors. When the US government banned incandescent light bulbs, demand initially spiked as consumers hoarded a product that was inexpensive and efficient for use. Suppliers, however, ramped up production of fluorescent bulbs. The forecast was tricky to manage – fluorescent bulbs are more expensive, tend to have a longer life, but are far more damaging to the environment if broken. In this case, the product manager’s job is to make an educated guess for light bulbs sales and where to invest product innovation dollars. New technologies, such as LED bulbs, are an optional replacement product.

Types of Forecasts

There are two main categories of forecasting: qualitative and quantitative. Qualitative forecasts use the opinions and intuition of a group of experts. Often the sales team provides valuable input to predict new product sales because they know how their customers feel about existing and competitive products, features, and needs. It is qualitative approach because no mathematical models are explicitly applied to the prediction.

A quantitative forecast, on the other hand, normally relies on historical data to predict future sales. In product innovation, we may use data from similar products or use adoption rates in similar markets. Customer surveys yield data ranges for selling price and volume. We use mathematical models and statistical analysis to predict future product sales.

It’s important to check your assumptions frequently, especially during the product introduction phase. Assumptions and risks are built into any qualitative or quantitative forecast. You’ll also want to validate your predictions with an evaluation of their accuracy to improve all future forecasts.

Forecasting for Product Managers

Because a forecast is a prediction of the future, it will most definitely be wrong. However, product managers need to master the skills of forecasting to manage product development efforts, strategic initiatives, and customer needs. If you under-predict production, customers can be left without products they want to purchase. If you over-predict demand, you might be stuck with a warehouse full of useless products (a situation one client described to me). Balancing customer needs and profitability efficiently is the definition of a successful product manager.

image from 123rf.com license, author kebox.

Learn more about Forecasting for Product Managers in our upcoming online class on Tuesday, 6 April 2021. Check out the full course calendar here and catalog of facilitated and online courses here. Contact me at info@globalnpsolutions.com for more information about Forecasting for Product Managers or any other innovation topic – I love to learn and share!

A Division of Global NP Solutions, LLC

Study. Learn. Earn. Simple.