product life cycle ken homa © k.e. homa 2000. time introduction growth maturity decline product...
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Product Life Cycle
Ken Homa
© K.E. Homa 2000
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Time
Introduction
Growth
Maturity
Decline
Product Life Cycle
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Introduction
Growth
Maturity
Decline
Product Life Cycle
• Typical pattern, highly varied…broadly representative …product, brand, geography…not necessarily predictive…instructive, not definitive…conceptually based:
diffusion, tech adoption
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Diffusion Models
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Diffusion Models
• Innovators (First in)…Motivated by market knowledge
• Imitators (Followers)…Motivated by interpersonal influences
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Simplified Diffusion Model
InitialInnovators
InitialPotential
InnovationRate
InitialBuyers
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Simplified Diffusion Model
TotalMarket
Potential
NewInnovators
RemainingPotential
AlreadyBought
InnovationRate
NewBuyers
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Simplified Diffusion Model
TotalMarket
Potential
NewInnovators
RemainingPotential
AlreadyBought
InnovationRate
NewImitators
ImitationRate
NewBuyers
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Simplified Diffusion Model
TotalMarket
Potential
NewInnovators
RemainingPotential
AlreadyBought
InnovationRate
NewImitators
ImitationRate
NewBuyers
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TotalMarket
Potential
ImitationRate
AlreadyBought
MomentumFactor
TotalMarket
Potential
InnovationRate
CurrentImitation
RateNew
BuyersRate
RemainingPotential
NewBuyers
Bass Diffusion Model
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Bass Diffusion ModelIllustrative Penetration Pattern
0.%
10.%
20.%
30.%
40.%
50.%
60.%
70.%
80.%
90.%
100.%
0 1 2 3 4 5 6 7 8 9 10
ASSUMPTIONS
Market Potential = 1000
Innovation Rate = 10%
Imitation Rate = 33%
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Illustrative Buying Pattern
ASSUMPTIONS
Market Potential = 1000
Innovation Rate = 10%
Imitation Rate = 33%
0
50
100
150
1 2 3 4 5 6 7 8 9 10
TOTAL BUYERS
IMITATORS
INNOVATORS
Bass Diffusion Model
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Technology Adoption Life Cycle
34%
Earlymajority
Time of adoption of innovations
34%
Latemajority
16%Laggards
2.5%Innovators Early
adopters
13.5%
Adapted from Geoffrey Moore, Crossing the Chasm
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Introduction
Growth
Maturity
Decline
Product Life Cycle
• Typical pattern, conceptually based
• Cash flow critical…Mature ‘lend’, growing ‘borrow’…Direct link to portfolio strategy
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Introduction
Decline
Maturity
GrowthSales
Product Life Cycle
Loss Loss
Profit
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Introduction
Decline
Maturity
GrowthSales
Loss
Profit
Product Life Cycle
Loss
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Product Life CycleCash Flow Summary
Intro-duction
Growth Maturity Decline
Net Income
Investment
Intro-duction
Growth Maturity Decline
Intro-duction
Maturity DeclineGrowth
Cash Flow from Operations and Investments
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Business Portfolio => Cash Flow
Growth Businesses
Mature Businesses
Intro Businesses
Declining Businesses
External FinancingExternal Financing CASH
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Linking PLC & Business Portfolio
Low High
Low
High
Relative Business Strength
Mar
ket A
ttrac
tiven
ess
Invest/GrowDevelop or Withdraw
Earn/ProtectHarvest/Divest
High Cost Low CostCompetitive Cost Position
Cas
h Fl
ow P
ositi
on
Out
flow
Inflo
w
GrowthIntroduction
MatureDecline
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Introduction
Growth
Maturity
Decline
Product Life Cycle
• Typical pattern, diffusion based
• Cash flow critical, portfolio linked
• Manageable …
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Introduction
Growth
Maturity
Decline
PLC Management
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Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
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Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
HigherHigher
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Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
LongerLonger
HigherHigher
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Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
More profitably …More profitably …
LongerLonger
HigherHigher
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Introduction
Growth
Maturity
Decline
PLC Management
FasterFaster
LongerLonger
HigherHigher
Tactical differentiationCompetitive positioningStrategic regenerationCrossing the Chasm
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Managing the PLC
• Tactical differentiation
• Competitive positioning
• Strategic regeneration
• Crossing the Chasm
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Differentiated PLC Management
Strategy Class Investment Policy Strategic Role Management Focus
Introduction Phased/Selective Establish a profitable position or cut losses
Market position1st Mover ?
Growth Aggressive Provide future cash flow base
Sales/ShareInstalled base
Maturity As needed to protect profits (cost reduction, line extensions, etc.)
Generate current cash needs
Profitable Share
Decline Highly Restrictive Maximize short-term profits; contain losses
Profits/CashLast in ?
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Industry
Weak Competitor
Product Life CycleCompetitive Positioning
Strong Competitor
First Mover, orPredatory Follower
Last In …
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Product Life CycleRegeneration
“Natural”Evolution
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Product Life CycleRegeneration
“Natural”Evolution
“Induced”Regeneration
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Mkt AMkt B
Mkt C
Mkt D
Product Life CycleRegeneration
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Mkt AMkt B
Mkt C
Mkt D
Product Life CycleRegeneration
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Product Life CycleRegeneration - Intel
386
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Product Life CycleRegeneration - Intel
386
486
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Product Life CycleRegeneration - Intel
386
486
Pentium
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Product Life CycleRegeneration - Intel
386
486
Pentium
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Innovator’s Dilemma
EstablishedTechnology
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Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
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Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
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Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
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Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
Why upstarts and not established players?
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Innovator’s Dilemma
EstablishedTechnology
DisruptiveTechnology
Why upstarts and not established players?
High dependency on existing customers
Initial market too small (relative to current)
Uncertain potential, certain consequences
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“Crossing the Chasm”
34%
Earlymajority
Time of adoption of innovations
Earlyadopters
2.5%Innovators
34%
Latemajority
16%Laggards
13.5%
Chasm
“Immature” solution No “killer application”
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Time
Introduction
Growth
Maturity
Decline
Product Life Cycle
• Typical pattern, highly varied…broadly representative…product, brand,geography…not necessarily predictive… instructive, not definitive…conceptually based:
diffusion, tech adoption
• Cash flow critical…Mature ‘lend’, growing ‘borrow’…Direct link to portfolio strategy
• Manageable ……Differentiated tactics…Competitive positioning…Strategic regeneration…Crossing the Chasm