Product Life Cycle Ken Homa © K.E. Homa 2000

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

Diffusion Models

Innovators (First in) …Motivated by market knowledge Imitators (Followers) …Motivated by interpersonal influences

Simplified Diffusion Model Initial Innovators Initial Potential Innovation Rate Initial Buyers

Simplified Diffusion Model Total Market Potential New Innovators Remaining Potential Already Bought Innovation Rate New Buyers

Simplified Diffusion Model Total Market Potential New Innovators Remaining Potential Already Bought Innovation Rate New Imitators Imitation Rate New Buyers

Simplified Diffusion Model Total Market Potential New Innovators Remaining Potential Already Bought Innovation Rate New Imitators Imitation Rate New Buyers

Total Market Potential Imitation Rate Already Bought Momentum Factor Total Market Potential Innovation Rate Current Imitation Rate New Buyers Rate Remaining Potential New Buyers Bass Diffusion Model

Illustrative Penetration Pattern ASSUMPTIONS Market Potential = 1000 Innovation Rate = 10% Imitation Rate = 33%

Illustrative Buying Pattern ASSUMPTIONS Market Potential = 1000 Innovation Rate = 10% Imitation Rate = 33% TOTAL BUYERS IMITATORS INNOVATORS Bass Diffusion Model

Technology Adoption Life Cycle 34% Early majority Time of adoption of innovations 34% Late majority 16% Laggards 2.5% Innovators Early adopters 13.5% Adapted from Geoffrey Moore, Crossing the Chasm

Product Life Cycle Typical pattern, conceptually based Cash flow critical …Mature ‘lend’, growing ‘borrow’ …Direct link to portfolio strategy

Introduction Decline Maturity Growth Sales Product Life Cycle

Introduction Decline Maturity Growth Sales Loss Profit Product Life Cycle Loss

Product Life Cycle Cash Flow Summary Intro- duction GrowthMaturityDecline Net Income Investment Intro- duction GrowthMaturityDecline Intro- duction MaturityDecline Growth Cash Flow from Operations and Investments

Business Portfolio => Cash Flow Growth Businesses Mature Businesses Intro Businesses Declining Businesses External Financing CASH

Linking PLC & Business Portfolio Low High Low High Relative Business Strength Market Attractiveness Invest/Grow Develop or Withdraw Earn/Protect Harvest/ Divest High Cost Low Cost Competitive Cost Position Cash Flow Position Outflow Inflow Growth Introduction Mature 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 Faster

Introduction Growth Maturity Decline PLC Management Faster Higher

Introduction Growth Maturity Decline PLC Management Faster Longer Higher

Introduction Growth Maturity Decline PLC Management Faster More profitably … Longer Higher

Introduction Growth Maturity Decline PLC Management Faster Longer Higher 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 ClassInvestment PolicyStrategic Role Management Focus IntroductionPhased/SelectiveEstablish a profitable position or cut losses Market position 1 st Mover ? GrowthAggressiveProvide future cash flow base Sales/Share Installed base MaturityAs needed to protect profits (cost reduction, line extensions, etc.) Generate current cash needs Profitable Share DeclineHighly RestrictiveMaximize short-term profits; contain losses Profits/Cash Last in ?

Industry Weak Competitor Product Life Cycle Competitive Positioning Strong Competitor First Mover, or Predatory Follower Last In …

Product Life Cycle Regeneration “Natural” Evolution

Product Life Cycle Regeneration “Natural” Evolution “Induced” Regeneration

Mkt A Mkt B Mkt C Mkt D Product Life Cycle Regeneration

Mkt A Mkt B Mkt C Mkt D Product Life Cycle Regeneration

Product Life Cycle Regeneration - Intel 386

Product Life Cycle Regeneration - Intel

Product Life Cycle Regeneration - Intel Pentium

Product Life Cycle Regeneration - Intel Pentium

Innovator’s Dilemma Established Technology

Innovator’s Dilemma Established Technology Disruptive Technology

Innovator’s Dilemma Established Technology Disruptive Technology

Innovator’s Dilemma Established Technology Disruptive Technology

Innovator’s Dilemma Established Technology Disruptive Technology Why upstarts and not established players?

Innovator’s Dilemma Established Technology Disruptive 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” 34% Early majority Time of adoption of innovations Early adopters 2.5% Innovators 34% Late majority 16% Laggards 13.5% ChasmChasm “Immature” solution No “killer application”

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