Product Life Cycle

Ken Homa

K.E. Homa 2000

Product Life Cycle

Maturity
Growth

Decline

Introduction

Time

Product Life Cycle

Maturity
Growth
Introduction

Typical pattern, highly varied

broadly representative
product, brand, geography
not necessarily predictive
instructive, not definitive
conceptually based:
diffusion, tech adoption

Decline

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

Imitation
Rate

New
Imitators

Simplified Diffusion Model

Innovation
Rate
Total
Market
Potential

New
Innovators
Remaining
Potential

New
Buyers

Already
Bought

Imitation
Rate

New
Imitators

Bass Diffusion Model

Total
Market
Potential
Remaining
Potential
Already
Bought

Total
Market
Potential

Momentum
Factor
Current
Imitation
Rate
Imitation
Rate
Innovation
Rate

New
Buyers

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

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

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
ExternalFinancing
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
position or cut losses

Market position
1st Mover ?

Growth

Aggressive

Provide future cash

flow base

Sales/Share
Installed base

Maturity

As needed to protect Generate current

profits (cost reduction, cash needs
line extensions, etc.)

Decline

Highly Restrictive

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

Innovators Dilemma

Established
Technology

Innovators Dilemma

Disruptive
Technology
Established
Technology

Innovators Dilemma

Disruptive
Technology

Established
Technology

Innovators Dilemma

Disruptive
Technology

Established
Technology

Innovators Dilemma

Disruptive
Technology

Established
Technology

Why upstarts and not established players?

Innovators 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%
s
Early
Late
Innovators
Early
adopters m majority majority Laggards

Time of adoption of innovations

Product Life Cycle

Typical pattern, highly varied
broadly representative
product, brand,geography
not necessarily predictive
instructive, not definitive
conceptually based:

Maturity
Growth

Decline

diffusion, tech adoption

Cash flow critical

Introduction

Mature lend, growing borrow

Direct link to portfolio strategy
Time

Manageable
Differentiated tactics
Competitive positioning
Strategic regeneration
Crossing the Chasm