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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!