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How product life cycle analysis helps businesses

Why is it that those familiar green and gold cans of Lyle’s Golden Syrup are still found in kitchen cupboards across the UK nearly 150 years after the product was launched, while Nestle’s Toffo sweets were on the market for only a couple of decades? In part, it’s down to their different product life cycles. Sarah Harrop explains how analysing and managing the product life cycle can benefit a business.

In a similar way that the life cycle of an animal or plant describes its stages of development from birth all the way through to producing the next generation, in business the product life cycle is the stages that a product moves through as it enters and exits the marketplace.

In the product life cycle, a product is launched onto the market. It then becomes established and ultimately leaves the market and is superseded. The product life cycle describes the experience at each of these stages.

Product life cycle stages

 There are generally said to be four life cycle stages of a product:

1. Introduction

As a new product enters the market, sales are usually slow. Company profits are small or even non-existent, and a lot of energy needs to be put into market research and marketing an unknown and untested prototype product to customers who may have little inclination to try it. The main thrust of this stage is to get the product recognised and get consumers to start using it.  

The Corporate Finance Institute describes two pricing strategies at the product launch or introduction stage: firstly, price skimming – starting a product’s price high and then gradually reducing it as the market grows – and secondly, price penetration: putting the product out there at a low price to rapidly gain a market share, then raising prices as the market expands.

Some examples of products that are currently in the introduction stage are virtual reality headsets and electric cars.

2. Growth

Provided that the product is meeting the needs of the market and selling well, a successful product will enter the growth stage. Here, the number of customers grows, revenues climb and economies of scale begin to kick in as sales revenues outstrip costs and production reaches full capacity. There’s often fierce competition during this stage, with rival companies launching similar products.

Today’s growth-stage products include the Apple iPhone and the Netflix streaming service.

3. Maturity

No product can keep growing forever. Eventually, a product will reach the maturity stage as the market reaches saturation and sales growth starts to drop off. Competitors begin to undercut one another on price to chase a bigger market share. The ‘shake-out’ begins, with weaker competitors leaving the market and strongest players dominating a stable market. 

Customer loyalty is critical at this stage to prevent declining sales and keep making profits. But with product development, product design optimization and innovation to build in new features while maintaining a loyal customer base, it’s possible to hold onto success for longer.

Coca Cola soft drink and Dell laptop computers are examples of mature products.

4. Decline

Ultimately, sales of the existing product will begin to slump as it is superseded by newer innovations that better satisfy customer needs. In the decline phase, strategies might include:

  • ‘Milking’ or ‘harvesting’, where the life of the product is maximised for as long as possible;
  • Cutting down distribution channels gradually, particularly in areas where sales are slower, so that replacement products can be introduced; or
  • Disposing of the product by selling it on to a subcontractor or niche company.

However, decline is not always inevitable.

“Not all products need to face the decline stage,” says Hubspot’s Rebecca Riserbato. “Companies can extend the product life cycle with new iterations and stay afloat as long as they have several products at various points of the product life cycle.”

Product life cycle extension

Some companies manage to stave off the decline stage for many years or decades – perhaps even centuries, if Lyle’s Golden Syrup is anything to go by. One way to do this is by creating product lifecycle extension strategies. These are high-level plans for extending a product’s lifecycle in the maturity stage, increasing its market share and keeping it generating income without letting it fall into the next phase (decline).

Oliver Munro from Unleashed Software has these top tips for extending a product’s life cycle:

Repackaging and refreshing how the product looks to broaden its appeal to new customers and making it seem new and improved to existing ones.

  • Changing the size, eg mini travel size options or larger ‘family size’ packs. This wins consumer attention and also benefits retailers.
  • Improving the product. It’s possible to revive products that have been around the block a few times by improving it or adding a new spin, e.g. more sustainability, adding accessories or introducing advanced new materials.
  • Finding new markets. Globalisation and e-commerce have opened up the world, allowing products to potentially be sold anywhere and everywhere beyond the original target market.
  • Creating bundles. This boosts sales of individual items over time.
  • Slashing prices. Once a product is mature, it will be up against competitor products, many of which will be cheaper. By cutting profit margins to boost sales, it’s possible to maintain brand loyalty, increase sales and extend the product’s life cycle.
  • Repositioning, re-branding or re-launching. Repositioning is a deliberate tweak made to a company’s identity to explore new markets by updating its brand personality and reputation, while rebranding gives tired and outdated looking companies a fresh start by changing its name, logo, core product and entire business model. Re-launching a product as ‘version 2.0’ can also be effective for maintaining sales profits for longer.
  • How can analysing product life cycle help a business?

 

The product life cycle is an invaluable tool for managers to aid business strategy and decision-making and help them analyse and develop marketing strategies and metrics for their products as they go in and out of each stage across their lifespan. According to Dovetail.com, some specific uses include:

  • Deeper understanding of a product’s performance to guide decision-making on its future.
  • Strategic planning to determine the optimum marketing mix for each stage of the product life cycle.
  • Allocation of resources: by understanding what stage of the life cycle a product is in, businesses can more efficiently earmark resources and decide whether to invest in new products or take existing ones off the market.
  • Comparing performance of different products: running product life cycle-based market research can reveal market trends and help with decisions on product development.
  • Spotting new opportunities – studying the product lifecycle can unearth new markets for mature product or highlight the need to modify and innovate it to extend its lifespan.

Product life cycle analysis can be useful on all scales, from individual products through to whole sectors, says Kaplan Financial:

“Life-cycle curves can be useful devices for explaining the relationships among sales and profit attributes of separate products, collections of products in a business, and collections of businesses in a conglomerate or holding company. Life-cycle analysis has been suggested by some of its advocates as a basis for selecting appropriate strategy characteristics at all levels. “ 

There are, of course, some limitations. While analysing the product life cycle undoubtedly helps stakeholders plan, it isn’t failsafe because there isn’t any way to predict how long each of the four stages will last. What is more, not all products will move through the stages at the same pace. There’s also the risk that product managers will neglect putting effort and resources into a product they think is declining, when in fact customers are still using it, creating planned obsolescence.

What is Product life cycle management (PLM)?

This is the process of managing how and when a company’s product portfolio is presented to the market. It’s used to develop strategy and inform decisions around a company’s portfolio of products. It can help with pricing strategy, marketing and promotions and selling strategy, as well as expansion and discontinuation plans. In a nutshell, it brings together disparate sources of information, data and teams to work more collaboratively and efficiently, helping businesses to save money and get products to market faster by:

  • Managing information all in one place
  • Keeping data accurate
  • Collaborating more easily
  • Getting to full production faster
  • Capturing more market share
  • Pricing accurately
  • Finding new ideas for functionality and product

As this is quite a complex process, technology and so-called Enterprise Resource Planning (ERP) software may be used to support it, integrating product development, customer relationship management, supply chain and more into one complete, more efficient system.

According to Oracle Netsuite, which offers ERP products for PLM, an organisation’s effectiveness is only as good as the integrity of its information and its ability to respond to a problem. Abby Jenkins, Product Marketing Manager at Oracle Netsuite, says that an incredible 90% of companies are slow to bring their products to market and over budget.

“PLM enables your organisation to manage the information so that it’s clear, concise and valid. With accurate data and better collaboration, companies can get product to market faster, ramp-up to full production more quickly, capture more market share, price products accurately to continue to deepen market penetration and find ideas for new products and functionality,” adds Jenkins.

A product life cycle case study: the Floppy Disk

Those born into the era of cloud data sharing may find it astonishing that a few decades ago we used to store and share comparatively tiny amounts of data on magnetic disks enclosed in little plastic cases. First developed in 1970 by IBM engineers, the floppy disk had just 2MB storage capacity.

Introduction: The floppy disk was introduced in 1971 and quickly took off as a way to transfer or store computer data.

Growth: In the 1980s and 1990s, there was steady growth and pretty much everyone used the product to store and share data.

Maturity: Sales boomed in the 1990s, by which time product advancements had boosted its storage capacity by 100-fold, with a capacity of 200MB. However, new innovative products from competitors such as USB sticks, external hard disks and CDs emerged at the start of the 21st century, expanding the range of data storage options on the market.

Decline: After a slump in sales, Hewlett-Packard halted floppy disk production in 2009. The storage capacity for other products in the market grew to be more efficient. Today, floppy disks are obsolete relics.

Secure the skills for leadership success

From managing product life cycles and the fundamentals of innovation and entrepreneurship through to financial management and stakeholder engagement, the University of Lincoln’s 100% online MBA Leadership equips leaders or aspiring leaders with all the skills they need for a successful future. The course is tailor-made for ambitious professionals who want to fast-track their career progression or head up a successful real-world start-up company.

Because the MBA Leadership is delivered entirely online, it can be studied from anywhere in the world, with no need to attend campus. What is more, its flexibility means you can learn the skills to move your career up to the next level while still working in your current role. Find out more.