A number of small businesses ignore the importance of having a balanced product mix and the role it plays in helping to level out the ups and downs of their business cycles. To provide some perspective on this, think of the 80/20 Pareto rule of business revenue. It states that 80% of a company’s revenue typically comes from the top 20% of the company’s client base. Companies try to level out this ratio because of the concern that the loss of any one of their larger customers would ultimately mean a substantial loss in revenue. This same rule can be applied to a company’s product mix and ultimately guide the small business with its product life-cycle strategies.
When small businesses look at their product mix, they must be aware of each product’s position in the market. Product life-cycle strategies allow small businesses to analyze their product’s pricing relative to its current market position and ultimately, when, and if, to start developing new products.
Success is about knowing what stage the product is in and when new products should launch – if they should launch. Herein lies the ultimate question businesses face when looking to balance their product mix and adopt strategic plans to grow: "When should a business invest in new product development?” Life-cycle strategies aim to help answer this question by empowering companies to track their product’s life in their market.
Understanding a Product’s Life in the Market
When thinking of a product’s life, think of the various stages a product goes through. For instance, there’s the introduction stage (1), the growth stage (2), the peak stage (3), and finally, the decline stage (4). Sometimes there's another stage called rebirth (5), before that product reaches its eventual end of life.
Every product goes through the first four stages, but very few products have the ability to attain the fifth stage. Understanding your product’s current position is essential to determining when and if your company should allow the product line to end at the decline stage (4), or whether you should continue to manufacture and sell that product for the upcoming rebirth stage (5). Success means your company will be able to capitalize when your competitors have all but abandoned the market. In fact, it’s during this fifth stage that a number of companies achieve significantly higher profit margins.
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 table and video above shows all five phases of a product’s life and is from the post: Your Product's Exit Strategy and the Final Stage of Product Life-Cycle Management
Why should small businesses adopt life-cycle strategies? Well, as a small business it’s essential to know where your product is along its growth curve. This helps to ensure your small business is properly investing money and resources on new product development initiatives. After all, these stages could occur very rapidly, or they could take several decades to run their course. This is why managing a product’s life in your market is so important. In some cases, products may never reach their end of life.
Coke is one product that doesn’t seem it will ever have an end of life, while VHS tapes only had so long before they would eventually be replaced. Understanding your product's life-cycle allows your business to ensure that it’s always introducing new products at the right time and under the right circumstances. This ultimately allows your company to balance out its product mix, while ensuring that the loss of any one product line isn’t too detrimental to your business's revenue.
To read more about the life of a given product, please read: Product Life-Cycle Management: Steal Market Share in the Fourth Stage
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