How does a Basic Product Life-Cycle work?

Having spent a long time managing suppliers and product categories in my career within the SME space, I was lucky enough to be asked to drive a key product category over multiple continents for one of the worlds truly iconic, global brands who has a history of innovation and product development. And I have to tell you - it was a real eye-opener!

The experience of working with an global expert in product development totally changed my perception of how a product and its Life-Cycle should be designed, financially modelled, intelligently launched and managed through its existence (and even beyond). Now, I am not going to go into any of the details of the products or specifics, but thought that a basic understanding of a Product Life-Cycle would be very useful to many businesses, aspiring entrepreneurs and to be honest – pretty much anyone who works for any business who sells ‘anything’.

Product management can be hard enough (as those actually performing in this sector will tell you) but if your business scales beyond more than one product then product portfolio management becomes a critical tool to manage you range, offering and delivery. There is a huge amount to do internally to ensure resources are assigned to the correct products, and that you have a pipeline of new product ideas ready to launch at the right time. And this ‘right time’ is dependent upon many factors, not just when you yourself feel ready – but it also needs to take into account factors like: the Life-Cycle of the product it maybe replacing, availability/profits of any ‘associated’ products such as ‘consumables’, any after-market size and scope, seasonality, competitor offerings and launch, technological changes, legalities and patents, availability of parts, time to scale distribution, communication, pricing, marketing, etc.. So, as mentioned – doing this for one product is difficult enough but juggling more than one in a ‘range’ of products can become a real challenge if not planned properly.

To manage this process from inception right through to retirement is critical and something that I personally had not appreciated until I saw firsthand the planning, foresight and intelligence that was involved. The Life-Cycle of a product is associated with many areas including marketing and management decisions within the businesses, and all products should go through four primary stages: Introduction, Growth, Maturity, and Decline. Each stage has its costs, opportunities, and risks, and individual products differ in how long they remain at any of the Life-Cycle stages based upon numerous factors – all of which are key to success of the project.

The above chart shows the volumes/sales that you would expect to see for a product over its Life-Cycle throughout each of the pre-mentioned stages. You can add more stages to this model if you wish such as ‘Development’ (before Introduction) or ‘Saturation’ (before the Decline phase), but I have kept to four for simplicity here:

1. Introduction

'First there was a dream...' My son reminded me of this quote from Hugo Drax (Moonraker) - but it also fits the beginning of this Stage as well (obviously, without the consequences for the extinction of the Human Race as Bonds nemesis was actually referring to in this brilliant film), as this is where all your new products and ideas start to live.

It is also very importantly about developing a market for the product and building product awareness to ensure that it will be successful. Marketing and development costs are very high at this stage, as it is necessary to reach out to potential customers, evaluate the competition, design new solutions and solve existing problems. This is also the stage where patents and intellectual property rights protection are established and therefore incredibly important to the overall return that a product can generate over its life. Remember, any costs created in this Stage need to be recovered once launched and so excess costs here may lead to the final product pricing having to be increased to cover this – and that could price the product out of the market, so management of these areas is vital.

2. Growth

In the growth stage, the product has been accepted by customers, and companies are striving to increase market share. For innovative products it is possible that there maybe limited competition at this stage, so pricing can remain at a higher level. Both product demand and profits will be increasing, and marketing is aimed at a broad audience. To coin on old phrase ‘this is when you can make hay when the sun shines’. If you are waiting for the competition to catch up then this stage can grow rapidly assuming you have planned the parts, manufacturing distribution, marketing and sales correctly aligned.

3. Maturity

At this stage, you would expect sales to be at their highest levels but with the expectation that they will soon start to level off. Competition will have increased as they will probably have caught up or even overtaken you on the technology or innovation front, meaning product features may need to be enhanced to maintain market share where possible. Whilst volumes maybe at their peak, the prices are expected to decline to stay competitive. However, this for a short time maybe balanced by a reduction to Manufacturing costs which should start to also decline because of efficiencies in the manufacturing process.

Advertisement, sales promotions, deals and other activities may start to be used as methods to hold off the competition and keep volumes high. At this point (maybe even at the late stages of the Growth phase) you may even start to break even – and from this I mean due to the high pricing and margins from the Growth Stage and the volumes in this Mature stage you would expect to have now covered the costs of Stage 1. Therefore this means that every £ of profit made from this point, is actual real profit for the company.

4. Decline

Eventually all products start to decline.. and this stage is associated with decreasing revenues due to market saturation, high competition, and changing customer needs. Companies at this stage have several options: you can choose to discontinue the product, try to extend its existence by upgrading software / adding new features, finding new uses for the product, or tap into new markets through exporting. The key here is to have enough of a pipeline of new product ideas coming up behind it that you are actually disrupting yourself (rather than letting a competitor or new entrant do so), and to recognise this early enough so that you can start reassigning resources away from the declining product to one of your growing products instead.

As mentioned earlier the above 4 Stages will cover most cases - however if required, you can always split this Life-Cycle into more focused categories if your circumstance dictate, this will probably depend upon the complexity of your product and your market. However, the planning in terms of expected volumes, timescales, pricing, margins, stock, costs, etc.. must be done in Stage 1 and must always be measured against. If you get this wrong or cannot adjust to unforeseen factors, then this could severely impact the overall profitability of your business and therefore the important it is key to get this right.

As always, I have summarised a very complex subject here, but if you do need any further information or have any specific questions then please do not hesitate to contact me on julianpatel@clivedenhouseconsulting.co.uk and I would be delighted to discuss.

Many thanks for reading as always and hopefully I will speak to many of you soon, stay safe and well,

Julian

Julian Patel

Cliveden House Consulting Ltd

www.clivedenhouseconsulting.co.uk