Product Life Cycle

Ken Homa

K.E. Homa 2000

Product Life Cycle

Maturity Growth Decline

Introduction

Time

Product Life Cycle

Maturity Growth Introduction Decline

Typical pattern, highly varied

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

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 Remaining Potential Already Bought New Innovators

New Buyers

Simplified Diffusion Model

Innovation Rate
Total Market Potential Remaining Potential Already Bought New Imitators Imitation Rate New Innovators

New Buyers

Simplified Diffusion Model

Innovation Rate
Total Market Potential Remaining Potential Already Bought New Imitators Imitation Rate New Innovators

New Buyers

Bass Diffusion Model

Total Market Potential Remaining Potential Already Bought Momentum Factor Total Market Potential Imitation Rate Innovation Rate Current Imitation Rate

New Buyers

New Buyers Rate

Bass Diffusion Model

Illustrative Penetration Pattern
100.% 90.% 80.% 70.% 60.% 50.% 40.% 30.% 20.% 10.% 0.% 0 1 2 3 4 5 6 7 8 9 10
ASSUMPTIONS Market Potential = 1000 Innovation Rate = 10% Imitation Rate = 33%

Bass Diffusion Model

Illustrative Buying Pattern
150 TOTAL BUYERS

ASSUMPTIONS Market Potential = 1000

100 IMITATORS

Innovation Rate = 10% Imitation Rate = 33%

50

INNOVATORS

0 1 2 3 4 5 6 7 8 9 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 Introduction Decline

Typical pattern, conceptually based Cash flow critical

Mature lend, growing borrow Direct link to portfolio strategy

Product Life Cycle

Maturity

Growth Introduction

Sales

Decline

Profit
Loss Loss

Product Life Cycle

Maturity

Growth Introduction

Sales

Decline

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

Decline

Introduction

Growth

Maturity

Decline

Business Portfolio => Cash Flow

Growth Businesses

Intro Businesses
External Financing CASH Declining Businesses Mature Businesses

Linking PLC & Business Portfolio

Market Attractiveness
High

Introduction

Growth

Cash Flow Position

Develop or Invest/Grow Withdraw

Outflow

Inflow

Low

Harvest/ Divest
Decline
Low

Earn/Protect
Mature
High

Relative Business Strength

High Cost Low Cost Competitive Cost Position

Product Life Cycle

Maturity Growth Introduction Decline

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

Decline

Introduction

Faster

PLC Management
Maturity
Longer

Growth
Higher

Decline

Introduction

Faster

PLC Management
Maturity
Longer

Growth
Higher

Decline

Introduction

Faster

More profitably

PLC Management
Maturity
Longer

Growth
Higher

Decline

Introduction

Faster
Tactical differentiation Competitive positioning Strategic regeneration Crossing the Chasm

Managing the PLC

Tactical differentiation Competitive positioning

Strategic regeneration
Crossing the Chasm

Differentiated PLC Management

Strategy Class Introduction Investment Policy Phased/Selective Strategic Role
Management Focus

Establish a profitable Market position position or cut losses 1st Mover ?

Provide future cash flow base Sales/Share Installed base Profitable Share

Growth

Aggressive

Maturity

As needed to protect Generate current profits (cost reduction, cash needs line extensions, etc.) Highly Restrictive

Decline

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% Early Late s Innovators Early adopters m majority majority Laggards

Time of adoption of innovations

Product Life Cycle

Typical pattern, highly varied
Maturity Growth Introduction Decline

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

Cash flow critical

Time

Mature lend, growing borrow Direct link to portfolio strategy

Manageable
Differentiated tactics Competitive positioning Strategic regeneration Crossing the Chasm