The Tribe Discovers the Product Life Cycle
Two weeks ago, the Fire Enterprises, Inc. (FEI) tribe discussed why a company’s product development efforts should derive from knowledge of its core competencies. This week, Lucy defines and examines each stage of the Product Life Cycle in order to help the FEI tribe understand the growth, maturity and decline they can expect from each of their new product entries. Remember, fire = print.
Lucy wrote these three letters on the whiteboard: PLC
“I’ve found the best way to learn about a new topic is through creative comparison,” Lucy said. “Org, you’re a boogie-boarder, right?”
“Yep,” Org replied.
“The first stage of the product lifecycle—the emerging market—is like a ripple in a pond,” Lucy explained. “Imagine you visited a new part of the beach and found only a rippling pond. Save an odd ripple or two, you’d have to put a lot of effort toward a small chance of catching a wave.”
“Doesn’t sound fun,” Org said. “Unless I’m an upstart kid with energy to burn.”
“Exactly,” Lucy agreed. “Emerging markets are only for the intrepid. Your grandfather Prometheus caught a ripple. For every Prometheus, though, there are 50 more investors who lose their toga chasing something they can’t catch.
“Now imagine the Aegean Beach on a Saturday afternoon. Word of emerging waves has driven Olympians to the beach. Sounds perfect, right? This is much like having a product in the growth stage.”
“If it’s a nice day, everyone and their Muse will be dropping a board in the water,” Org said. “I’ll have to jockey for position—when and where I drop in makes a difference.”
“But if you steal a good spot, you can ride the waves for hours, right?” Lucy asked rhetorically. “Better yet, you can get a good position before the crowd even arrives.”
“Now imagine boogie-boarding at high tide,” she continued.
“The excitement of the big waves and the beauty of the sea are undercut by how darn crowded it is out there!” Org exclaimed. “The same amount of boogie-boarders are jockeying for a place in significantly less ocean. If you don’t have one of the best spots, you might as well dry off.”
“You just described a mature market,” Lucy said. “Great profits are possible if you control a significant portion of market share. Competition becomes cutthroat and pricing pressures become reality. Unless you’re an industry leader, you should consider a market exit strategy.”
“Following high tide, the waves inevitably decline and the tide comes in,” she added.
“Actually, low tide is sometimes my favorite time to boogie-board,” Org said. “Since the ‘amateur’ boogie-boarders have left, low tide can be a very peaceful setting. Even when the water becomes too shallow for boarding, I improvise by collecting shells on the beach.”
“The declining market, too, can provide an unexpected boon for those who stick it out,” Lucy pointed out. “The key to surviving in a declining market is diversification. In this case, Org moves into shell collecting, which is a much more fertile market.”
“Sounds like our traditional Fire products are in a declining market,” Numo said.
Lucy nodded. “Cost-management, marketing and advertising activities will be crucial over the next few months to keep these products from becoming unprofitable. Of course, diversification into new product categories is vitally important as well.”
Numo scratched his chin with a bony finger. “The challenge for us is to create a series of waves,” he observed.
“What do you mean?” Lucy asked.
“He’s right!” Org jumped in enthusiastically. “Having a series of products in different parts of the PLC will allow us to capture today’s revenue while keeping enough growth opportunities open in other areas to provide for FEI’s future.”
“Excellent!” Lucy immediately visualized a model. “We’ll call it the FEI Product Development Strategy Wave.”
“What’s standing in the way of us developing a new product today?” Org asked.
“We don’t know yet,” Lucy answered. “A SWOT (strengths, weaknesses, opportunities and threats) analysis will be necessary to form a more detailed profile of our business. With this knowledge, we’ll also discover the challenges and opportunities inherent in any new product development effort.”
“Let’s do it,” Org said, sounding a bit like Dirty Harry.
Today’s FIRE! Point
At some point, all successful products travel through each of the four stages of the “Product Life Cycle.” The four stages are: emerging, growth, maturity and decline. Although emerging products have a low probability of success, the opportunity to capture a significant share of emerging market makes it worth the risk. Growth stage products are characterized by rapid sales growth and healthy profitability. In a mature marketplace, market share is everything and competition is fierce. Declining industries often feature fragmented competition (i.e. lots of players and few companies with a dominant market share) and low margins.
Financial excellence is paramount to success. When competing in a declining product category, consider industry consolidation strategies in which business growth is fueled through planned acquisition and merger activities.
FIRE! in Action
With its core products in decline, Dupont diversifies
Dupont’s revenue stream in the Brazil and China markets has been growing at 15 percent the last few years. The textile giant http://www.money.cnn.com/2010/04/14/news/companies/kullman_dupont.fortune/index.htm" fills a market niche by providing armor-shields for vehicles in these high murder- rate countries.
Next week: the FEI tribe plumbs the strengths, weaknesses, opportunities and threats faced by their business via a SWOT analysis.