University of Washington EMBA ProgramUniversity of Washington EMBA ProgramRegional 20Regional 20

“Product Life Cycle &

Diffusion of Innovation”

Instructor: Elizabeth Stearns

Product Life CycleProduct Life Cycle

Sa l

e s V

olu

me

Entry RapidGrowth

CompetitiveTurbulence

Maturity Decline

ProductClass

ProductForm

ProductForm

Time

Product Class: Evolution in demand for a general class of products

Product Form: Evolution in demand for products and services that serve the same function

Sales & Profit Life CyclesSales & Profit Life Cycles

IntroductionIntroduction GrowthGrowth MaturityMaturity DeclineDecline

TimeTimeSal

es &

Sal

es &

pro

fits

pro

fits

($)($

)

©2000 Prentice Hall

Market EvolutionMarket Evolution

Product and profit life cyclesProduct and profit life cycles

Sales

Profit

Time

$’s

Time

Introduction DeclineMaturity

Growth

Market Evolution: IntroductionMarket Evolution: Introduction

Market Characteristics» Uncertainty & turbulence

» Initially monopolistic followed by competitive entry

» Little “meaningful” differentiation

» Big marketing investment

» Consumer education

Product and profit Product and profit life cycleslife cycles

Time

$’s

Time

Entry

Strategies at IntroductionStrategies at Introduction Pioneer

» Skimming

Focus on price inelastic customers

Extract all value

» Expansion/Penetration– Stimulate demand– Price less than value

Market Evolution: GrowthMarket Evolution: Growth

Market Characteristics» Revenue growth

» Competitive entry

» Standardized design

» Prices drive profitability

» Well defined segments

» Sophisticated buyers

» Marketing aimed at differentiation

» Competitive consolidation

Product and profit life cyclesProduct and profit life cycles

$’s

Time

Growth

Growth StrategiesGrowth Strategies

Market Leader » Market domination or expansion

» Attack

» Flank the competition

» Strategic withdrawal

Followers» Direct confrontation

» Leapfrog strategy

» Flanker strategy

» Encirclement strategy

» Guerrilla attack

» Avoidance

Market Evolution: MaturityMarket Evolution: Maturity

Market Characteristics» Slow/negative growth

» Declining profits

» Excess capacity

» Price competition

Product and profit life cyclesProduct and profit life cycles

Profit

Time

$’s

Time

Maturity

Strategies in Mature MarketsStrategies in Mature Markets

Market Leader

» Increase market dominance

» Maintain leadership

» Harvest

Followers

» Build share, disadvantage leader

» Maintain current position

» Divest

Market Evolution: DeclineMarket Evolution: Decline

Market Characteristics» Technological change

» Differentiated products

» Shifting demographics

» Shifting tastes

» Intense rivalry Strategies

» Seek maximum share

» Niche

» Divest quickly

» Harvest slowly

Product and profit life cyclesProduct and profit life cycles

$’s

Time

Decline

Strategies in Declining MarketsStrategies in Declining Markets

Seek maximum share

Niche

Divest quickly

Harvest slowly

Market EvolutionMarket Evolution

What else drives the PLC phenomena?What else drives the PLC phenomena?

Customers & InnovationCustomers & Innovation

InnovatoInnovatorsrs

2.5%2.5%

LaggardsLaggards16%16%

LateLateMajorityMajority

34%34%

Early Early AdoptersAdopters

13.5%13.5%

EarlyEarlyMajorityMajority

34%34%

PLC Strategy SummaryPLC Strategy Summary

PLC can provide strategic insights but is not a rulebook.

Well-managed pioneers are hard to overtake.

Winners win by changing the rules of the game!

RECOMMENDED BOOK: » Eating the Big Fish, Adam Morgan

Customer Life CycleCustomer Life Cycle

The ability of the firm to manage the Customer Life Cycle is critical because the needs of the customer changes at various stages

Customers go through Lifecycles, too!Customers go through Lifecycles, too!

Time

Cu

sto

me

rV

alu

e

Prospect/lead First time

buyer

First-timerepeatbuyer

Regularcustomer Declining

Stage

CLC and Customer ValueCLC and Customer Value

Prospect / lead: Low» High percentage will not become customers

First time buyers: Moderately low » High attrition rates

Second time buyers: High» Lower attrition rates and long-life cycle

CLC and Customer ValueCLC and Customer Value

Regular customers: High» Low marketing costs and high retention rates

Declining: Low but better than prospects» Have already signaled interest in buying from firm

CLC and Marketing StrategyCLC and Marketing Strategy

Prospect/Lead

Advertising: Awareness generation Pricing: Depends upon characteristics of offer Promotion: Generate interest and trial Product: Concentrate on “lead-product” Customer service: Rapid follow-up

CLC and Marketing StrategyCLC and Marketing Strategy

Advertising: Reinforce purchase decision Pricing: Normal (Value) Promotion: Induce repeat purchase Product: Focus on second lead product Customer service: Follow up on initial purchase to insure

satisfaction

First time Customer

CLC and Marketing StrategyCLC and Marketing Strategy

Advertising: Reinforce purchase decision Pricing: Normal (Value) Promotion: Provide on-going rewards Product: Acquire or develop add-on products Customer service: Rapid follow-up

First repeat purchase

CLC and Marketing StrategyCLC and Marketing Strategy

Advertising: Communicate based on purchase patterns Pricing: Normal Promotion: Provide rewards for being preferred customer

(higher than new customers) Product: Focus on add-on products Customer service: Rapid follow-up and special contacts to

overcome any product/service problems

Regular Customers

CLC and Marketing StrategyCLC and Marketing Strategy

Advertising: Use one-on-one contacts to reinvigorate/stimulate interest

Pricing: Normal Promotion: Provide incentive to become regular customer Product: Focus on base product Customer service: Contact customer to learn cause of

attrition/defection

Declining

Thank you!Thank you!