Most companies are familiar with the four stages that a product goes through within its market or industry. Commonly referred to as Product Life-Cycle management, this doctrine specifies different pricing and marketing strategies for the four different stages that a product goes through during its lifetime. However, there is another doctrine called Product Lifecycle Management. Yes, you read that correctly. However, while it may appear that the only difference is in how these two terms are spelled, the fact is, they are different. Understanding these differences helps companies maximize gross profit across their entire product portfolio.
Product Life-Cycle Versus LifeCycle Management
Before delving into the strategies behind each approach, it’s best to explain the differences between these two concepts. While they appear identical, there is an inherent difference in how these strategies are implemented. First, we’ll review the more common of the two and the one most companies are familiar with: Product Life-Cycle Management - or PLCM for short.
For every product, there’s an introduction stage, a growth stage, a peak stage, followed by a decline stage. Some products rapidly go through these stages, while others take years and even decades to reach maturity.
If one thinks of VHS tapes, it’s easy to see how the products had an introduction stage in the 1970’s, a growth stage during the 1980’s, followed by a peak stage in the mid-1990’s, until the product eventually declined and was permanently replaced by DVDs in the 2000's. In this case, the four stages were experienced over a period of 20 to 30 years.
Each Stage Includes a Different Pricing and Marketing Strategy
In each of these stages, companies that manufactured VHS tapes had a different pricing and marketing strategy in order to maximize gross profit. Most PLCM models focus on four stages. However, there are times when a fifth stage presents itself. This is commonly referred to as the "rebirth stage". Here are these five aforementioned stages.
1. Introduction Stage
Typically, pricing is higher in this first stage. This is not because companies are trying to gouge customers. Instead, it's due to the fact that production volumes are low and costs are high. An increase in volumes is needed before costs are brought down. This can only happen once the market fully adopts the product offering.
2. Growth Stage
As volumes increase, and the product gains market acceptance, pricing tends to drop. However, costs decline as well due to increased volume, thereby making it an easy trade-off. In the growth stage, gross profit margins are healthy because production volumes are higher.
3. Peak Stage
This is the beginning of market saturation. Increased competition eventually saturates the market and maximum competition drives prices down even further. It’s typically in this period where pricing and marketing strategies change in order to accomodate future product replacements and introductions.
4. Decline Stage
In the decline stage, companies may try and capture the remaining market share by drastically reducing pricing. They know the product is in a decline stage. As such, they will try and ride out the profit before the product line dies.
5. Rebirth Stage
Sometimes products appear to die, only to achieve a rebirth or renewal stage. When thinking of this final rebirth period, think of how vinyl records seemed to die and then rebounded due to customers who had a nostalgic feel for the product line. Surprisingly enough, today's vinyl record manufacturers have backlogs of six months or more.
In the above graph the Y-axis (vertical) could represent millions of units sold, while the X-axis (horizontal) could represent number of years of sales
The above video explains the five stages of Product Life-Cycle Management. You can learn more by going to: Your Product's Exit Strategy and the Final Stage of Product Life-Cycle Management
In each of these five stages, a company will use different marketing and pricing approaches to maximize gross profit margins. Most companies are aware of these four stages and how they progress from one to the other. However, it’s the next Product Lifecycle Management approach that allows a company to maximize each of these stages even further.
Product Lifecycle Management Includes Managing Product From Company to Customer & Back Again
When thinking of Product Lifecycle Management, think of how a company manages all the parts and raw materials that go into making a finished good. This Lifecycle management approach includes maximizing costs throughout the company as the product is manufactured. It includes production and manufacturing best practices that are exemplified by ECN’s (Engineering Change Notices) QCR’s (Quality Control Review), SPC (Statistical Process Control), batch control, in addition to process and work flow optimization.
However, it also involves managing the product from initial customer delivery back to the company. In what form you ask? In the form of waste. That’s right, managing waste is nothing more than recycling, and in the case of Product Lifecycle Management, that means a cheap, inexpensive source of raw material to put back into production to make new finished goods.
What are The Benefits of Product Lifecycle Management?
There are a number of benefits of adopting the proper Product Lifecycle Management approach and they are listed below.
Stronger Customer Relationships: Because companies manage both the delivery of new products and the eventual pick up of the waste, they become embedded in their customer’s operations. Schedules are shared and arrangements coordinated between the company and its customer.
Cheap Source of Raw Materials: Scrap and waste is an excellent source of cheap and inexpensive raw materials. Several companies use the waste generated by their customers as just another source of raw materials to be used back into their production.
Consistent Revenue Source and Higher Gross Profit: Inexpensive material means lower manufacturing costs and higher gross profit. It’s also an excellent source of revenue should the company decide to sell the scrap instead of using it themselves. In fact, in some cases, companies derive considerable profit from their recycling activities.
Understanding the market drivers in Product Life Cycle Management and adopting a cohesive and well-managed Product Lifecycle approach internally, will maximize your company’s returns. The key is to try and combine both ideologies and maximize revenue over time.
If your company delivers consumables to customers, and those customers are looking for some company to help them in the disposal of their waste or scrap, then your company might be well-suited to using these approaches. In the end, it means maximizing both life-cycle and lifecycle strategies in order to maximize gross profit and eliminate waste.
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