Product Life Cycle
Ken Homa
© K.E. Homa 2000
Product Life Cycle
Maturity
Growth
Decline
Introduction
Time
Product Life Cycle
Maturity
Growth
Decline
Introduction
• 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
Innovation
Rate
Initial
Innovators
Initial
Potential
Initial
Buyers
Simplified Diffusion Model
Innovation
Rate
Total
Market
Potential
New
Innovators
Remaining
Potential
Already
Bought
New
Buyers
Simplified Diffusion Model
Innovation
Rate
Total
Market
Potential
New
Innovators
Remaining
Potential
New
Buyers
Already
Bought
New
Imitators
Imitation
Rate
Simplified Diffusion Model
Innovation
Rate
Total
Market
Potential
New
Innovators
Remaining
Potential
New
Buyers
Already
Bought
New
Imitators
Imitation
Rate
Bass Diffusion Model
Total
Market
Potential
Remaining
Potential
Already
Bought
Momentum
Factor
Total
Market
Potential
New
Buyers
Current
Imitation
Rate
Imitation
Rate
Innovation
Rate
New
Buyers
Rate
Bass Diffusion Model
Illustrative Penetration Pattern
100.%
90.%
80.%
70.%
60.%
ASSUMPTIONS
50.%
Market Potential = 1000
40.%
Innovation Rate = 10%
30.%
Imitation Rate = 33%
20.%
10.%
0.%
0
1
2
3
4
5
6
7
8
9
10
Bass Diffusion Model
Illustrative Buying Pattern
150
TOTAL BUYERS
ASSUMPTIONS
Market Potential = 1000
100
Innovation Rate = 10%
IMITATORS
Imitation Rate = 33%
50
INNOVATORS
0
1
2
3
4
5
6
7
8
9
10
Technology Adoption Life Cycle
34%
2.5%
Innovators
34%
13.5%
16%
Early
Late
Early
adopters majority majority Laggards
Time of adoption of innovations
Adapted from Geoffrey Moore, Crossing the Chasm
Product Life Cycle
Maturity
Growth
Decline
Introduction
• Typical pattern, conceptually based
• Cash flow critical
…Mature ‘lend’, growing ‘borrow’
…Direct link to portfolio strategy
Product Life Cycle
Maturity
Growth
Sales
Decline
Introduction
Profit
Loss
Loss
Product Life Cycle
Maturity
Growth
Sales
Decline
Introduction
Profit
Loss
Loss
Product Life Cycle
Cash Flow Summary
Net Income
Cash Flow from Operations
and Investments
Introduction
Growth
Maturity
Decline
Investment
Introduction
Growth
Maturity
Introduction
Decline
Growth
Maturity
Decline
Business Portfolio => Cash Flow
Growth
Businesses
Intro
Businesses
External Financing
CASH
Declining
Businesses
Mature
Businesses
High
Introduction
Growth
Develop or
Invest/Grow
Withdraw
Low
Market Attractiveness
Inflow
Outflow
Cash Flow Position
Linking PLC & Business Portfolio
Harvest/
Divest
Earn/Protect
Decline
Mature
Low
High
Relative Business Strength
High Cost
Low Cost
Competitive Cost Position
Product Life Cycle
Maturity
Growth
Decline
Introduction
• Typical pattern, diffusion based
• Cash flow critical, portfolio linked
• Manageable …
PLC Management
Maturity
Growth
Decline
Introduction
PLC Management
Maturity
Growth
Decline
Introduction
Faster
PLC Management
Maturity
Growth
Higher
Introduction
Faster
Decline
PLC Management
Maturity
Longer
Growth
Higher
Introduction
Faster
Decline
PLC Management
Maturity
Longer
Growth
Higher
Decline
Introduction
Faster
More profitably …
PLC Management
Maturity
Longer
Growth
Higher
Introduction
Faster
Tactical differentiation
Competitive positioning
Strategic regeneration
Crossing the Chasm
Decline
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 Market position
position or cut losses 1st Mover ?
Growth
Aggressive
Provide future cash
flow base
Maturity
As needed to protect Generate current
profits (cost reduction, cash needs
line extensions, etc.)
Decline
Highly Restrictive
Sales/Share
Installed base
Profitable Share
Maximize short-term Profits/Cash
profits; contain losses Last in ?
Product Life Cycle
Competitive Positioning
Industry
Strong
Competitor
Weak
Competitor
First Mover, or
Predatory Follower
Last In …
Product Life Cycle
Regeneration
“Natural”
Evolution
Product Life Cycle
Regeneration
“Induced”
Regeneration
“Natural”
Evolution
Product Life Cycle
Regeneration
Mkt A
Mkt B
Mkt D
Mkt C
Product Life Cycle
Regeneration
Mkt A
Mkt B
Mkt D
Mkt C
Product Life Cycle
Regeneration - Intel
386
Product Life Cycle
Regeneration - Intel
486
386
Product Life Cycle
Regeneration - Intel
Pentium
486
386
Product Life Cycle
Regeneration - Intel
Pentium
486
386
Innovator’s Dilemma
Established
Technology
Innovator’s Dilemma
Disruptive
Technology
Established
Technology
Innovator’s Dilemma
Disruptive
Technology
Established
Technology
Innovator’s Dilemma
Disruptive
Technology
Established
Technology
Innovator’s Dilemma
Disruptive
Technology
Established
Technology
Why upstarts and not established players?
Innovator’s Dilemma
Disruptive
Technology
Established
Technology
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”
“Immature” solution
No “killer application”
C
h
34%
34%
13.5% a
2.5%
16%
Early
Late
s
Innovators
Early
adopters m majority majority Laggards
Time of adoption of innovations
Product Life Cycle
• Typical pattern, highly varied
Maturity
Growth
Decline
… broadly representative
… product, brand,geography
… not necessarily predictive
… instructive, not definitive
… conceptually based:
diffusion, tech adoption
Introduction
• Cash flow critical
Time
… Mature ‘lend’, growing ‘borrow’
… Direct link to portfolio strategy
• Manageable …
… Differentiated tactics
… Competitive positioning
… Strategic regeneration
… Crossing the Chasm