Locating Products in Their Life Cycles
The easiest way to locate a Product (including services) in its life cycle is to study its performance, competitive history, and current position and match this information with the characteristics of a particular stage of the life cycle.
Analysis of past performance of the product will include:
1. Examination of sales-growth progression since introduction.
2. Any design problems and technical bugs which need to be sorted out.
3. Sales and profit history of allied products (those similar in general character or function as well as those directly competitive).
4. Number of years the product has been on the market.
5. Casualty history of similar products in the past.
The review of competition will focus on:
1. Profit history
2. Ease of entry (with which other firms can get into the business)
3. Extent of initial investment needed to enter business
4. Number of competitors and their strengths
5. Number of competitors which left the industry
6. Life cycle of the industry
7. Critical success factors in the business.
Additionally, current perspectives may be reviewed to gauge whether sales are on the upswing, have leveled out for the last couple of years, or are heading down; whether any competitive products are moving up to replace the product under consideration; whether customers are becoming demanding vis-a-vis price, service, or special features; whether additional sales efforts are necessary to keep the sales going up; and whether it is harder to sign up dealers and distributors.
The above information on the product may be related to the characteristics of the different stages of the product life cycle as discussed above; the PLC stage with which the product perspectives match will indicate the position of the product in its life cycle. Needless to say, the whole process is highly qualitative in nature, and managerial intuition and judgment will bear heavily on the final placement of the product in its life cycle.
Listed below are steps which may be followed to position a product in its life cycle:
1. Develop historical trend information for a period of three to five years (longer for some products). Data included will be unit and dollar sales, profit margins, total profit contribution, return on invested capital, market share, and prices.
2. Check recent trends in the number and nature of competitors; number and market-share rankings of competing products, and their quality and performance advantages; shifts in distribution channels; and relative advantages enjoyed by products in each channel.
3. Analyse development in short-term competitive tactics such as competitors’ recent announcements of new products or plans for expanding production capacity.
4. Obtain (or update) historical information on the life cycles of similar or related products.
5. Project sales for the product over the next three to five years, based on all the information gathered, and estimate an incremental profit ratio for the product during each of these years (the ratio of total direct costs – manufacturing, advertising, product development, sales, distribution, etc. – to pretax profits).
Expressed as a ratio – e.g., 4.8 to 1 or 6.3 to 1 – this measures the number of dollars required to generate each additional dollar of profit. The ratio typically improves (becomes lower) as the product enters its growth period; begins to deteriorate (rise) as the product approaches maturity; and climbs more sharply as it reaches obsolescence.
6. Estimate the number of profitable years remaining in the product’s life cycle and – based on all the information at hand – fix the product’s position on its life-cycle curve
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