product life cycle ken homa © k.e. homa 2000. time introduction growth maturity decline product...

Product Life Cycle

Ken Homa

© K.E. Homa 2000

Time

Introduction

Growth

Maturity

Decline

Product Life Cycle

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

Diffusion Models

Diffusion Models

• Innovators (First in)…Motivated by market knowledge

• Imitators (Followers)…Motivated by interpersonal influences

Simplified Diffusion Model

InitialInnovators

InitialPotential

InnovationRate

InitialBuyers


TotalMarket

Potential

NewInnovators

RemainingPotential

AlreadyBought

InnovationRate

NewBuyers


TotalMarket

Potential

NewInnovators

RemainingPotential

AlreadyBought

InnovationRate

NewImitators

ImitationRate

NewBuyers

TotalMarket

Potential

ImitationRate

AlreadyBought

MomentumFactor

TotalMarket

Potential

InnovationRate

CurrentImitation

RateNew

BuyersRate

RemainingPotential

NewBuyers

Bass Diffusion Model

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%

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

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

Introduction

Growth

Maturity

Decline

Product Life Cycle

• Typical pattern, conceptually based

• Cash flow critical…Mature ‘lend’, growing ‘borrow’…Direct link to portfolio strategy

Introduction

Decline

Maturity

GrowthSales

Product Life Cycle

Loss Loss

Profit

Introduction

Decline

Maturity

GrowthSales

Loss

Profit

Product Life Cycle

Loss

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

Business Portfolio => Cash Flow

Growth Businesses

Mature Businesses

Intro Businesses

Declining Businesses

External FinancingExternal Financing CASH

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

Introduction

Growth

Maturity

Decline

Product Life Cycle

• Typical pattern, diffusion based

• Cash flow critical, portfolio linked

• Manageable …

Introduction

Growth

Maturity

Decline

PLC Management

Introduction

Growth

Maturity

Decline

PLC Management

FasterFaster

Introduction

Growth

Maturity

Decline

PLC Management

FasterFaster

HigherHigher

Introduction

Growth

Maturity

Decline

PLC Management

FasterFaster

LongerLonger

HigherHigher

Introduction

Growth

Maturity

Decline

PLC Management

FasterFaster

More profitably …More profitably …

LongerLonger

HigherHigher

Introduction

Growth

Maturity

Decline

PLC Management

FasterFaster

LongerLonger

HigherHigher

Tactical differentiationCompetitive positioningStrategic regenerationCrossing the Chasm

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 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 ?

Industry

Weak Competitor

Product Life CycleCompetitive Positioning

Strong Competitor

First Mover, orPredatory Follower

Last In …

Product Life CycleRegeneration

“Natural”Evolution


“Natural”Evolution

“Induced”Regeneration

Mkt AMkt B

Mkt C

Mkt D


Product Life CycleRegeneration - Intel

386


386

486


386

486

Pentium

Innovator’s Dilemma

EstablishedTechnology



DisruptiveTechnology




Why upstarts and not established players?




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”

34%

Earlymajority

Time of adoption of innovations

Earlyadopters

2.5%Innovators

34%

Latemajority

16%Laggards

13.5%

Chasm

“Immature” solution No “killer application”

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

product life cycle ken homa © k.e. homa 2000. time introduction growth maturity decline product...

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