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Product Life Cycle analysis


 
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Product Life Cycle analysis

A product life cycle analysis is a popular tool to use as part of the strategic analysis step within the overall strategic planning process:

The Product Life Cycle Model

One of the parts of the resource audit is "markets". This analysis can be performed in greater detail using the product life cycle.

The product life cycle analysis is a technique used to plot the progress of a product through its life span. The model can be used to assess an individual firm's products (e.g. the iPod Classic), a type of product (e.g. CRT televisions) or an industry (e.g. movies).

Different variations of the model can show between four and six stages. Here, we show four stages:

Typical characteristics of these stages are set out in the following table:


Strategy implications of life cycle analysis

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. It also may be viewed as a guide for business level strategy implementation since it helps in selection of functional level strategies.

Introduction stage strategy implications.

During the early stages of the life cycle, marketing strategy should focus on correcting product problems in design, features, and positioning so as to establish a competitive advantage and develop product awareness through advertising,promotion, and personal sales techniques.

At the same time, personnel strategy should focus on planning and recruiting for new product human resource needs and dealing with union requirements.

Also, one would expect the nature of research and development (R&D) strategy to shift from a technical research orientation during the phase prior to introduction to more of a development orientation during actual introduction.

Financial strategy would primarily address sources of funds needed to fuel R&D and marketing efforts as well as the capital requirements of later production facilities. Capital budgeting decisions would be outlined during these early stages so that capacity would be adequate to serve growth needs when sales volumes begin to accelerate.

Growth stage strategy implications

During the growth stage, strategic emphases change.

Marketing strategy is concerned with quickly carving out a niche for the product or firm and for its distribution capabilities, even when doing so may involve risking over capacity. Too often, firms have inadvisably accepted quality shortfalls as a necessary cost of rapid growth. Widening profit margins during the growth phase may even permit certain functional inefficiencies and risk-taking.

Communication strategy is directed toward establishing brand preference through heavy media use, sampling programmes, and promotion programmes, and strategy should emphasise resource acquisition to maintain strength and development of ways to continue growth when it begins to slow.

Personnel strategy may focus on developing loyalty, commitment, and expertise. Training and development programmes and various communication systems are established to build management and employee teams that can deal successfully with the demands of impending tight competition among firms during the maturity phase.

Maturity stage strategy implications

Efficiency and profit generating ability become major concerns as products enter the maturity stage. Competition grows as more firms enter the market and the implication is that only the most productive firms with established niches and competent people will survive. Marketing efforts concentrate on maintaining customer loyalty.

Production strategy concentrates on efficiency and, at the same time, sharpens the ability to meet delivery schedules and minimise defective products. Cost control systems are often put in place.

Personnel strategy may focus on various incentive systems to increase manufacturing efficiency. Advancements and transfers are used and some firms try to fit management positions to managers who have personalities more attuned to the belt-tightening needs associated with the maturity stage.

Decline stage strategy implications

When a product reaches the point where its markets are saturated an effort is often made to modify it so that its life cycle is either started anew or its maturity stage extended. When falling sales of a product cannot be reversed and it enters the decline stage, management's emphasis may switch to milking it dry of all profit. Advertising and promotion expenditures are reduced to a minimum. People are transferred to new positions where their experience can be brought to bear on products in earlier growth stages (if management were skilful enough to have created such products).

Various strategies have been suggested for products that have entered the decline stage. Hofer and Schendel suggest four choices when sales are less than 5% of those of the industry leaders:

  • concentration on a small market segment and reduction of the firm's asset base to the minimum levels needed for survival
  • acquisition of several similar firms so as to raise sales to 15% of the leaders' sales
  • selling out to a buyer with sufficient cash resources and the willingness to use them to effect a turnaround liquidation
  • liquidation.

Cost changes during the life cycle

As a product moves through its life cycle it is likely to find that the nature, value and importance of each of it costs will change.

Every product will be different, but a typical pattern might be:

Every product will be different and there is no hard and fast rule as to what will happen to product costs. So the above table is simply an illustration of what would 'typically' happen to a product's costs over its life cycle.

If we look at 'competition costs' as an example. Competition costs represent element such as the cost of matching competitor prices or offers, the cost of matching their services, or the cost of competing for resources such as staff and materials that become scarce when competitors enter the market.

In the early stages of product development and introduction these costs should be non-existent (if competition do not yet exist) or low (as competitors enter the market). In the growth phase they will start to rise though not yet to high levels as there should be less need to compete for existing customers as there should be plenty of new customers to attract in order to meet goals. But when the market matures then these costs can be high as customers become more discerning, it is difficult to find replacement customers for any that are lost, and rivals look for new ways to gain a competitive advantage.

In the decline phase these costs might actually ease off. The business might take a deliberate decision to 'harvest' the product and compete less aggressively, or competitors might themselves realise that further costs here creates a 'lose-lose' situation, or price stability arises, or competitors leave the market - there are many justifications for a fall in competition costs at this stage.

Some firms now try to incorporate lifecycle costing into their pricing decisions.

Created at 10/12/2012 10:23 AM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 9/11/2013 11:42 AM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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ACCAPEDIA - Product Life Cycle analysis