University of Washington EMBA Program
Regional 20
“Product Life Cycle &
Diffusion of Innovation”
Instructor: Elizabeth Stearns
Product Life Cycle
Product
Class
Product
Form
Product
Form
Entry
Rapid Competitive Maturity Decline
Growth Turbulence
Time
Product Class: Evolution in demand for a general class of products
Product Form: Evolution in demand for products and services that serve the same
function
Sales & profits ($)
Sales & Profit Life Cycles
©2000 Prentice Hall
Introduction
Growth
Maturity
Time
Decline
Market Evolution
Product and profit life cycles
Introduction
Growth
Maturity
$’s
Decline
Sales
Profit
Time
Time
Market Evolution: Introduction
Product and profit life
cycles
Entry
$’s

Market Characteristics
» Uncertainty & turbulence
» Initially monopolistic followed by
competitive entry
» Little “meaningful” differentiation
» Big marketing investment
» Consumer education
Time
Time
Strategies at Introduction

Pioneer
» Skimming
Focus on price inelastic customers
Extract all value
» Expansion/Penetration
– Stimulate demand
– Price less than value
Market Evolution: Growth
Product and profit life cycles
Growth
$’s

Market Characteristics
»
»
»
»
»
»
»
Revenue growth
Competitive entry
Standardized design
Prices drive profitability
Well defined segments
Sophisticated buyers
Marketing aimed at
differentiation
» Competitive consolidation
Time
Growth Strategies

Market Leader

Followers
» Market domination or expansion
» Direct confrontation
» Attack
» Leapfrog strategy
» Flank the competition
» Strategic withdrawal
» Flanker strategy
» Encirclement strategy
» Guerrilla attack
» Avoidance
Market Evolution: Maturity
Product and profit life cycles
Maturity
$’s

Market Characteristics
»
»
»
»
Slow/negative growth
Declining profits
Excess capacity
Price competition
Profit
Time
Time
Strategies in Mature Markets

Market Leader
» Increase market dominance

Followers
» Build share, disadvantage
leader
» Maintain leadership
» Maintain current position
» Harvest
» Divest
Market Evolution: Decline
Product and profit life cycles

»
»
»
»
»

Decline
Market Characteristics
Technological change
Differentiated products
Shifting demographics
Shifting tastes
Intense rivalry
$’s
Strategies
»
»
»
»
Seek maximum share
Niche
Divest quickly
Harvest slowly
Time
Strategies in Declining Markets

Seek maximum share

Niche

Divest quickly

Harvest slowly
Market Evolution
What else drives the PLC phenomena?
Customers & Innovation
Innovators
2.5%
Early
Adopters
13.5%
Early
Majority
34%
Late
Majority
34%
Laggards
16%
PLC Strategy Summary

PLC can provide strategic insights but is not a rulebook.

Well-managed pioneers are hard to overtake.

Winners win by changing the rules of the game!

RECOMMENDED BOOK:
» Eating the Big Fish, Adam Morgan
Customer Life Cycle
Customers go through Lifecycles, too!
Customer
Value
First-time
repeat
buyer
Prospect/
lead

Regular
customer
Declining
Stage
Time
First time
buyer
The ability of the firm to manage the Customer Life Cycle
is critical because the needs of the customer changes at
various stages
CLC and Customer Value

Prospect / lead: Low
» High percentage will not become customers

First time buyers: Moderately low
» High attrition rates

Second time buyers: High
» Lower attrition rates and long-life cycle
CLC and Customer Value

Regular customers: High
» Low marketing costs and high retention rates

Declining: Low but better than prospects
» Have already signaled interest in buying from firm
CLC and Marketing Strategy
Prospect/Lead





Advertising: Awareness generation
Pricing: Depends upon characteristics of offer
Promotion: Generate interest and trial
Product: Concentrate on “lead-product”
Customer service: Rapid follow-up
CLC and Marketing Strategy
First time Customer





Advertising: Reinforce purchase decision
Pricing: Normal (Value)
Promotion: Induce repeat purchase
Product: Focus on second lead product
Customer service: Follow up on initial purchase to insure
satisfaction
CLC and Marketing Strategy
First repeat purchase





Advertising: Reinforce purchase decision
Pricing: Normal (Value)
Promotion: Provide on-going rewards
Product: Acquire or develop add-on products
Customer service: Rapid follow-up
CLC and Marketing Strategy
Regular Customers





Advertising: Communicate based on purchase patterns
Pricing: Normal
Promotion: Provide rewards for being preferred customer
(higher than new customers)
Product: Focus on add-on products
Customer service: Rapid follow-up and special contacts to
overcome any product/service problems
CLC and Marketing Strategy
Declining





Advertising: Use one-on-one contacts to
reinvigorate/stimulate interest
Pricing: Normal
Promotion: Provide incentive to become regular customer
Product: Focus on base product
Customer service: Contact customer to learn cause of
attrition/defection
Thank you!