Product Life Cycle

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

2. Time Product Life Cycle Maturity Growth Decline Introduction

3. Product Life Cycle • Typical pattern, highly varied • broadly representative • product, brand, geography • not necessarily predictive • instructive, not definitive • conceptually based:diffusion, tech adoption

4. Diffusion Models

5. Diffusion Models • Innovators (First in) • Motivated by market knowledge • Imitators (Followers) • Motivated by interpersonal influences

6. Simplified Diffusion Model Innovation Rate Initial Innovators Initial Potential Initial Buyers

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

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

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

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

11. Bass Diffusion Model Illustrative Penetration Pattern ASSUMPTIONS Market Potential = 1000 Innovation Rate = 10% Imitation Rate = 33%

12. Bass Diffusion Model Illustrative Buying Pattern 150 TOTAL BUYERS ASSUMPTIONS Market Potential = 1000 Innovation Rate = 10% Imitation Rate = 33% 100 IMITATORS 50 INNOVATORS 0 1 2 3 4 5 6 7 8 9 10

13. 34% Early majority 34% Late majority 13.5% 2.5% Innovators 16% Laggards Early adopters Time of adoption of innovations Technology Adoption Life Cycle Adapted from Geoffrey Moore, Crossing the Chasm

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

15. Maturity Sales Growth Decline Introduction Profit Loss Loss Product Life Cycle

16. Maturity Sales Growth Decline Introduction Product Life Cycle Profit Loss Loss

17. Product Life CycleCash Flow Summary Net Income Cash Flow from Operations and Investments Intro- duction Growth Maturity Decline Investment Intro- duction Maturity Decline Growth Intro- duction Growth Maturity Decline

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

19. Growth Introduction High Develop or Withdraw Invest/Grow Inflow Market Attractiveness CashFlowPosition Harvest/ Divest Outflow Earn/Protect Low Mature Decline High Low Relative Business Strength HighCost LowCost Competitive Cost Position Linking PLC & Business Portfolio

20. Product Life Cycle • Typical pattern, diffusion based • Cash flow critical, portfolio linked • Manageable …

21. PLC Management Maturity Growth Decline Introduction

22. PLC Management Maturity Growth Decline Introduction Faster

23. PLC Management Maturity Growth Decline Higher Introduction Faster

24. PLC Management Maturity Longer Growth Decline Higher Introduction Faster

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

26. PLC Management Maturity Longer Growth Decline Higher Introduction Faster Tactical differentiation Competitive positioning Strategic regeneration Crossing the Chasm

27. Managing the PLC • Tactical differentiation • Competitive positioning • Strategic regeneration • Crossing the Chasm

28. Differentiated PLC Management Management Focus Strategy Class Investment Policy Strategic Role Market position 1st Mover ? Introduction Phased/Selective Establish a profitable position or cut losses Sales/Share Installed base Growth Aggressive Provide future cash flow base Profitable Share Maturity As needed to protect profits (cost reduction, line extensions, etc.) Generate current cash needs Profits/Cash Last in ? Decline Highly Restrictive Maximize short-term profits; contain losses

29. Industry Weak Competitor Product Life CycleCompetitive Positioning Strong Competitor First Mover, or Predatory Follower Last In …

30. Product Life CycleRegeneration “Natural” Evolution

31. Product Life CycleRegeneration “Induced” Regeneration “Natural” Evolution

32. Mkt A Mkt B Mkt D Mkt C Product Life CycleRegeneration

33. Mkt A Mkt B Mkt D Mkt C Product Life CycleRegeneration

34. 386 Product Life CycleRegeneration - Intel

35. 486 386 Product Life CycleRegeneration - Intel

36. 486 386 Product Life CycleRegeneration - Intel Pentium

37. Product Life CycleRegeneration - Intel Pentium 486 386

38. Established Technology Innovator’s Dilemma

39. Established Technology Innovator’s Dilemma Disruptive Technology

40. Established Technology Innovator’s Dilemma Disruptive Technology

41. Disruptive Technology Established Technology Innovator’s Dilemma

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

43. Disruptive Technology Established Technology Innovator’s Dilemma Why upstarts and not established players? High dependency on existing customers Initial market too small (relative to current) Uncertain potential, certain consequences

44. “Immature” solution No “killer application” 34% Early majority 34% Late majority 13.5% 2.5% Innovators 16% Laggards Early adopters Time of adoption of innovations “Crossing the Chasm” C h a s m

45. 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’ • Directlink to portfolio strategy • Manageable … • Differentiated tactics • Competitive positioning • Strategic regeneration • Crossing the Chasm