This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here: http://flevy.com/browse/business-document/product-lifecycle-227 Product Lifecycle Analysis is an invaluable tool for developing a robust product marketing strategy. Marketers and strategists can use this analysis to predict sales growth, associated customer and competitor behaviors, and, in turn, devise the appropriate product marketing strategy. The Product Lifecycle itself it divided into 4 stages of development: *Introduction *Growth *Maturity (and Saturation) *Decline (and Termination) The length of each period varies tremendously. Some products have very short cycles, whereas others can take decades or even centuries to go through the cycle. The lifecycle can be mapped against the consumer adoption curve, where the peak of the curve generally occurs in the Maturity stage of the Product Lifecycle. This document details a 5-phase approach to proper Product Lifecycle Analysis and draws out key strategic insights at each stage of the lifecycle. Additional concepts discussed include: *Consumer Adoption Curve *Bass Diffusion Model *Lifecycle-Performance Factor Matrix *Strategic Positioning *Substitution Analysis

1. Business Framework
Product Lifecycle Analysis
Product Lifecycle Analysis is an invaluable tool for
developing a robust product marketing strategy. This
document details a 5-phase approach to proper Product
Lifecycle Analysis and draws out key strategic insights
at each stage of the lifecycle. Additional concepts
discussed include Consumer Adoption Curve, Bass
Diffusion Model, Lifecycle-Performance Factor Matrix,
Strategic Positioning, and Substitution Analysis.
Innovators
(2.5%)
Early Adopters
(13.5%)
Early Majority
(34%)
Late Majority
(34%)
Laggards
(16%)
STAGE 1
INTRO
STAGE 2
GROWTH
STAGE 3
MATURITY
STAGE 4
DECLINE
Time / Adoption
Saturation/Sales
Compactor
Dishwasher
Color TV
Room A/C
Automatic
Washers
Freezers
Refrigerators
Ranges &
Ovens
B&W TV
Wringer
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2. 3
Contents
• Overview
- Consumer Adoption Curve
- Product Profitability
- Product Lifecycle Stages
- Strategic Purposes
- Drawbacks
• Product Lifecycle Analysis
- Areas of Analysis
- 5 Phases
- Bass Diffusion Model
• Strategic Insights
- Stage-based Strategies
- Strategic Positioning Matrix

3. 5
“CrossingtheChasm”
The Product Lifecycle is typically mapped against the Consumer Adoption
Curve to draw out key marketing and competitive insights
Product Lifecycle – Consumer Adoption Curve
It is useful to map all products within an industry or product category against the Adoption
Curve—to visualize dynamics among products (e.g. substitution, complements).
Innovators
(2.5%)
Early Adopters
(13.5%)
Early Majority
(34%)
Late Majority
(34%)
Laggards
(16%)
STAGE 1
INTRODUCTION
STAGE 2
GROWTH
STAGE 3
MATURITY
STAGE 4
DECLINE
Source: Hax and Majluf, 1984

4. 7
The lifecycle concept is also closely related to Substitution Analysis
Relation to Substitution Analysis
• As a product moves through its lifecycle, the likelihood of customers switching to a
replacement—or substitute—product increases
• This trend is referred to as the Technology S-curve
- As the diffusion rate of new technology generally follows an S-shaped curve
• Since substitution estimates the adoption rate, the focus is only on the early stages of the
Product Lifecycle (i.e. Introduction, Growth, Early Maturity)

5. 9
The appropriate strategy for a business depends on the stage of lifecycle
for the related industry
Product Lifecycle Stages
INTRODUCTION
Typified by slow
growth rate
• Heavy expenditures across the areas of advertising, selling, sampling,
promotion, distribution to stimulate awareness of and demand for the product
• Initial market awareness is minimal, so the focus is on educating the customer
to encourage a trial usage (net cash flow and profitability are negative during
this stage)
DETAILED CHARACTERTIZATION
GROWTH
Signaled by a significant
increase in sales growth
and profitability
• Expenditures remain relatively high, but the focus shifts toward building and
holding loyal customers (e.g. product variation increases as more competitors
enter market)
• The increase in volume sold more than compensates for the decrease in
pricing (driven by competitive pressures and experience curve effects),
causing cash flows and profitability to increase
PRIMARY CHARACTERIZATIONSTAGE
MATURITY
Defined by the
reduction in the rate of sales
growth and a further reduction
in unit costs
• As the growth rate of the market slows, weaker competitors are forced out—
we see larger players consolidating and acquiring smaller players, and excess
capacity drives down prices
• Customer preferences and expectations begin to stabilize, driving up
competitive rivalry as companies compete for customer loyalty and satisfaction
• By the end of the maturity stage, units sales, cash flows, and profitability all
decline
DECLINE
See a continuation of
decline in unit sales, cash
flows, and profitability
• Customers switch to new and/or better products—private labels take an
increasing market share
• Some competitors maintain profitability by being the focus, niche player with
specialized products—however, long term prospects for these small players
are unlikely

6. 11
With all the strategic benefits of Product Lifecycle Analysis, it is important
to note this framework’s drawbacks
Drawbacks of Product Lifecycle Analysis
Lifecycle Analysis is based entirely
on time.
• This framework assumes all industries/products move through a predictable growth
pattern as time passes
• This is a limited point of view is and does no consider the structural economics in an
industry that might impact sales and profitability
- E.g., not all industries follow an S-shaped sales growth pattern—some industries
skip the Introduction stage, others skip Maturity and begin to decline immediately
(e.g. due to a disruptive technology)
- Companies can be impact the shape of the sales growth curve through product
innovation or strategic market repositioning
The actual timing of the lifecycle
stages different from industry-to-
industry and product-to-product.
• To use Lifecycle Analysis as a forecasting tool, we must make broad assumptions
regarding the stage of the product’s life
- Resultantly, sales forecasts are typically incorrect
- E.g., a slump in sales could be mistakenly be interpreted as that a product has
reached the Maturity or Decline stage, when other factors may be at play
From a strategic perspective, there
is no clear relation between the
nature of competition in an industry
and its current lifecycle stage.
• To illustrate this point, some industry remains highly concentrated throughout the
lifecycle—others main highly fragmented
• The nature of competition is more dependent on the underlying economics of the
business, rather than the lifecycle concept—and over-reliance on this framework may
provide misleading conclusions
DRAWBACK DETAILS
Lifecycle Analysis should be used as a starting point to developing strategic hypotheses—
underlying economics should be further analyzed before specific action is recommended.

7. 13
Contents
• Overview
- Consumer Adoption Curve
- Product Profitability
- Product Lifecycle Stages
- Strategic Purposes
- Drawbacks
• Product Lifecycle Analysis
- Areas of Analysis
- 5 Phases
- Bass Diffusion Model
• Strategic Insights
- Stage-based Strategies
- Strategic Positioning Matrix

8. 15
There are 5 phases to conducting Lifecycle Analysis
Product Lifecycle Analysis Approach
Define the industry/
scope of analysis
Determine the
level of lifecycle
performance
metrics
Identify the
lifecycle stage
Forecast sales
based on
lifecycle stage
Develop strategic
hypotheses and
action steps
1 2 3 4 5
• Be clear about your
industry, as this drives
the scope of your
analysis
• Determine the SIC code
to focus on
• Evaluate product
performance against 7
external factors
• Develop a Lifecycle-
Performance Factor
Matrix
• Validate the lifecycle
stage against generic
performance metrics
• Estimate sales by the
lifecycle stage
• Utilize the Bass
Diffusion Model for
new technology or
product innovation
• Draw strategic
recommendations
based on knowledge
of the select lifecycle
stage

9. 17
Phase 2
Determine the level of lifecycle performance metrics
Business and product performance across seven external factors must be assessed.
 There are 7 external performance factors that must be evaluated, which are:
 Relative growth rate
 Market industry potential
 Breadth of the product lines
 Number of competitors
 Distribution/stability of market share among competitors
 Barriers to entry
 Technology innovation
 The levels of these metrics should be identified through focus interviews and secondary
research (e.g. trade association publications, analyst reports, annual reports, SEC filings,
business journals)
Define the industry/
scope of analysis
Determine the
level of lifecycle
perf. metrics
Identify the
lifecycle stage
Forecast sales
based on
lifecycle stage
Develop strategic
hypotheses and
action steps
1 2 3 4 5

10. 19
This is a typical Lifecycle-Performance Factor Matrix
Lifecycle-Performance Factor Matrix
The matrix above is true to most industry and product lifecycles,
but many exceptions exist.
INTRODUCTION GROWTH MATURITY DECLINE
Relative Growth Rate Positive, increasing Positive, increasing Positive, decreasing Negative, increasing
Market Industry Potential Uncertain Strong Moderate Weak
Breadth of Product Lines Narrow Increasing
Wide, private label
emerging
Decreasing
Number of Competitors Few Increasing
Several, consolidation
occurring
Decreasing
Distribution/Stability of Market
Share
Unstable Stabilizing Stable, strong loyalty
Stable, customers
loyal
Barriers to Entry Low Increasing High High
Technology Innovation High Stable Stable Low
EXTERNAL PERFORMANCE FACTOR
LIFECYCLE STAGE
Source: Hax and Majluf, 1984
Define the industry/
scope of analysis
Determine the
level of lifecycle
perf. metrics
Identify the
lifecycle stage
Forecast sales
based on
lifecycle stage
Develop strategic
hypotheses and
action steps
1 2 3 4 5

11. 21
In addition to validation, these
generic performance metrics can provide strategic insight
Generic Performance Metrics by Lifecycle Stage (2 of 2)
INTRODUCTION GROWTH MATURITY DECLINE
Foreign Trade
 Some exports  Significant exports
 Few imports
 Falling exports
 Significant imports
 No exports
 Significant imports
Competition
 Few competitors  Entry high, many competitors
 Increasing mergers
 Price competition
 Industry shake out
 Increase in private brands
 Exist
 Few competitors
Risk
 High risk  Growth covers risk taking
behavior
 Cyclicality
Margins and
Profits
 High prices and margins
 Low profits
 Price elasticity low
 High profits, fairly high prices
 Recession resistant
 High P/E ratios
 Good acquisition climate
 Falling prices, lower profits
and margins
 Lower dealer margins
 Increase market share
stability
 Poor acquisition climate,
tough to sell companies
 Low prices and margins
 Price may rise in late decline
Overall
Strategy
 Best period to increase share
 R&D and engineering are key
functions
 Practical to change price or
quality image
 Marketing is key function
 Bad time to increase share,
change price, or quality
image
 Competitive cost structure
key
 Marketing effectiveness is
key
 Cost management is key
PERFORMANCE
FACTOR
Source: Michael Porter, Competitive Strategy
Use these metrics and trends to develop strategic insight into the market dynamics.
Define the industry/
scope of analysis
Determine the
level of lifecycle
perf. metrics
Identify the
lifecycle stage
Forecast sales
based on
lifecycle stage
Develop strategic
hypotheses and
action steps
1 2 3 4 5

12. 23
Apply product knowledge and
insight when using Product Lifecycle for forecasting
Implications on Sales Growth
 If we determine the product to be in the Growth stage of its lifecycle, the sales growth would be
expected to be grow at a slower rate
 We should recognize that the product will eventually reach maturity, at which point the sales growth
rate will begin to decline
 This insight should be incorporated into the sale forecasts
 For forecasting purposes, the timing of these stages and subsequent changes to the sales growth
rate should be estimated by reviewing the sales histories of comparable products or industries
Define the industry/
scope of analysis
Determine the
level of lifecycle
perf. metrics
Identify the
lifecycle stage
Forecast sales
based on
lifecycle stage
Develop strategic
hypotheses and
action steps
1 2 3 4 5

13. 25
Here is the Bass Model Diffusion Equation
Bass Diffusion Model – Equation
The Bass Model approximate the
S-curve using the following adoption
equation:
Where:
Pt probability of a purchase at time t, given that no purchase has
yet been made
p coefficient of innovation, initial probability of adoption (from
comparable products)
q coefficient of imitation, measure of the ―word of mouth‖ effect
(from comparable products)
yt-1 cumulative sales prior to period t (i.e. including period t-1)
m market potential / potential sales volume (determined from
market research)
(yt-1/m) fraction of the Total Available Market (TAM) who have tried
the new technology
• Using this probability estimate, sales volume resulting from new adopters in any period would be equal to
the remaining potential sales multiplied by Pt
• Mathematically, sales volume in any period would be given by:
   S p m q p y
q
m
yt t t
     1 1
2
P p q
y
m
t
t
 






 1
Define the industry/
scope of analysis
Determine the
level of lifecycle
perf. metrics
Identify the
lifecycle stage
Forecast sales
based on
lifecycle stage
Develop strategic
hypotheses and
action steps
1 2 3 4 5

14. 27
Phase 5
Develop strategic hypotheses and action steps
The results of the Lifecycle Analysis should be drive strategic hypotheses
 The lifecycle stage has implications for strategic and tactics selected by your organization
 These implications are based on generalizations across several industries
 They may be used to drive strategic hypotheses, but should be rigorously analyzed prior to
recommendation or implementation
Define the industry/
scope of analysis
Determine the
level of lifecycle
perf. metrics
Identify the
lifecycle stage
Forecast sales
based on
lifecycle stage
Develop strategic
hypotheses and
action steps
1 2 3 4 5
Stage specific strategies are
detailed in the next section

15. 29
In the Introduction stage, get your pricing strategy right
Introduction Stage Strategies
INTRO GROWTH MATURITY DECLINE

Invest heavily in advertising, selling, sampling, promotion, and distribution to stimulate diffusion of the new
product to earn new customers
 Experiment with production processes to ensure continuous improvement and innovation
 Monitor competitors and adjust positioning to preempt competitive moves
 Pricing should receive special attention in the Introduction stage

There are two general pricing strategies in the Introduction stage: 1) set prices high to ―skim the market,‖ or 2) set
prices low to maximize ―market penetration‖ – decision on strategy depends on level of competition

By setting prices high, margins will be maximized—minimizing consumer surplus with innovator/early adopter
markets

Competitors will enter the market, pushing prices down, unless the incumbent has a cost advantage (e.g. economy
of scale, experience, investment required)
 If prices are set low, initial investment in the product may not be recovered

Although competitors will be less likely enter the market, a technological innovation may make the current product
obsolete

Thus, the pricing decision must be made by weighing the benefits and risks of potential market demand (size and
growth), competitive entry, and technological development

16. 31
The Maturity stage leads to 3 strategic options
Maturity Stage Strategies
INTRO GROWTH MATURITY DECLINE

Based on the competitive dynamics in the industry, there are 3 strategies we should follow to extend the
profitability and duration of the Maturity stage
 Maintenance
 Employed when the threat from competitive entry or technology innovation are minimal
 Maintain the market position/profitability through advertising, promotion, and pricing
 Monitor competitive positioning, product development activities, and general business and macro-environmental trends

Defense
 Employed when new or current competitors are altering the status quo by changing their marketing mix (i.e. product,
pricing, promotion, placement)
 Adjust advertising and promotion, improve their product performance, modify pricing, and alter distribution spending to
maintain profitability

Innovation
 Employed to expand the market, fill customer needs, and preempt competition
 Develop product innovation through ―flankers‖ (E.g. new flavors, colors, sizes, new uses and users (e.g. Arm &
Hammer’s baking soda to deodorize refrigerator smells), or significant product innovation (e.g. cannibalization,
introduction of new models)
 In addition to these generic strategies, we should identify and exploit core competencies and competitive advantages to
survive the industry shake-out/massive consolidation at the end of the Maturity stage (e.g. brand equity, cost
advantages, channel dominance/partnerships)

17. 33
Product Lifecycle Analysis can be extended and applied to the BCG
Growth-Share Matrix
Competitive Positioning Categories
The strategic actions implied by Lifecycle Analysis depend on both the current stage, as
well as the competitive positioning of the business or product in the market.
The competitive position of our business or product can be estimated based on a set of
qualitative and quantitative criteria for each the 6 competitive categories below:
DOMINANT
STRONG
FAVORABLE
TENABLE
WEAK
NONVIABLE
Results from quasi-monopoly or a strongly protective technical leadership
Can usually follow strategies of their choice, irrespective of competitors
Fragment industries, with no competitor clearly standing out
Can usually be maintained profitably through specialization in the niche
Can be too small to survive independently and remain profitable in the long-term,
given the competitive economics of the industry; can be a large firm suffering from
past mistakes
Market is too small, product is not differentiated, costs are too high to be competitive

18. 1
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