Product life-cycle management allows companies to anticipate and manage their product’s various business cycles. It involves using multiple pricing strategies along four stages of the product's life. There’s the introduction stage (1), the growth stage (2), the peak stage (3), and finally the decline stage (4). Every product goes through these four stages. Some go through these four stages very quickly, while others take decades to reach their final end of life.
However, in some cases there’s a fifth stage. Although this last stage is somewhat rare, it does occur. When it does, it is those companies who steal market share in the fourth stage that are ultimately able to achieve significant profits in the fifth. So, what are the most important strategies in this final stage of product life-cycle management?
Before venturing into the fourth and fifth stage of product life-cycle management, it’s probably ideal to review how pricing fluctuates during all stages.
1. Introduction Stage: During this initial stage, a product’s production volumes are low and its costs high. As such, this first stage is marked by high pricing. In this case, the product has not yet been fully adopted by customers.
2. Growth Stage: During this second stage, the product’s pricing becomes more competitive,. More competitors enter the market, customers buy more products, and the market pushes the product's pricing down.
3. Peak Stage: During the third stage, the product’s pricing stabilizes as profits stagnate and the market becomes saturated with competitors. Companies know that the product has reached its peak and that a steady decline will follow. It’s typically during this third stage that companies begin planning their new product introductions.
4. Decline Stage: This leaves us at the fourth stage – the decline stage and the period where certain companies are able to steal market share. If successful, they can achieve significant profit and can essentially control the market’s pricing in the fifth stage. So, what is the strategy that makes this possible?
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 is from the post: Your Product's Exit Strategy and the Final Stage of Product Life-Cycle Management
1. Assessing the Product’s Future
Granted, the product itself is on a steady decline, but if the company has determined that this particular product might enter the fifth stage, then they might have the ability to capture market share in the fourth, and be the “last man standing” so to speak. In this case, the company must define future volumes, if and when that product will enter the fifth stage and what the company must do to steal market share in a declining market. These are some of the questions that must be answered.
- How long (in years) will customers continue to purchase the product?
- Will the company have access to critical parts and materials in order to continue manufacturing the product?
- Does the company have a competitive advantage? If so, how can the company use this advantage to steal market share in the fourth Stage?
2. Stealing Market Share in the Fourth Stage
Let’s assume the company has determined that the product’s decline period will last three more years, have one year where demand is extremely small or non-existent, followed by a fifth year of rebirth and growth. In this case, the company’s market share on the product would be an inverse relationship to the product’s decline in the fourth stage.
In essence, the company would be pushing out its competitors while grabbing additional market share in a declining market. However, this will only be successful if the company is tracking its market share each of these three years during the decline stage.
- Company must track its increased market share during each of the three years.
- Company must continue to track customer consumption and ensure the product line will enter the fifth stage.
- Company must track gross profit during each year.
3. Preparing Customers for the Fifth Stage
All this work must bear fruit in the fifth stage of product life-cycle management. For this to be successful means the company must accept that raising the product’s price might be a strategy to increase gross profit. Please note, raising pricing isn’t paramount to success in this fifth stage, but an argument can easily be made that manufacturing costs have increased and therefore warrant an increased price. In this fifth stage the company can essentially dictate its product’s price by explaining the increased costs, due to a lack of material availability, as well as the fact that the company is manufacturing a product other competitors have abandoned.
A number of companies may question the logic behind trying to steal market share in a declining market. However, when successful, companies are able to achieve significant returns on gross profit, returns that can help fund future product developments. A number of companies adopt this strategy and swear by the results.
Success depends upon a thorough understanding of the market, its customers and most importantly, the product’s life. Granted, during this fourth and final stage, some competitors will be more than willing to abandon the market. However, they’ll do so because they haven’t taken the time to fully assess the product’s life and its future returns.
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