Your Product's Exit Strategy and the Final Stage of Product Life-Cycle Management

Every product has a beginning and an end. Every product is introduced to its market, gains some traction and grows, reaches its peak, and then gradually declines until it’s no longer needed by customers. Some products don’t even make it this far, while others seem to stand the test of time. These aforementioned periods are commonly referred to as the four stages of product life-cycle management. While this topic has been covered by me before, today I wanted to take the time to define the importance of outlining your exit strategy in the fourth and final decline stage.

The Four Stages of Your Product’s Life 

When companies look at their product offering, they often measure their product’s success or failure by how well it moves from each one of these aforementioned stages. However, is it really about how well the product is adopted within its market, or is it ultimately how the company manages its product offering through all four stages of its life? Ultimately, it's both. A company must properly manage its product offering through each stage in order to maximize profit, but it must also outline an exit strategy that protects the company's interests, one where the company is ready to withdraw its product offering from the market without fear or concern about being stuck with an excess inventory. 

Product life-cycle management (PLCM) outlines four stages of a product’s life in its market. These four stages are explained below. 

1. Introduction Stage: This first stage is marked by high manufacturing costs and high engineering design costs. Consequently, the product’s pricing tends to be high during this initial stage. Companies often incur losses until the product gains acceptance by customers within the market. Once that happens, the product then moves into the second stage, which is referred to as the growth stage.

2. Growth Stage: During this second stage the product’s pricing declines somewhat, as manufacturers take advantage of higher sales volumes, and lower manufacturing costs. More and more customers accept the product offering during this growth stage.

3. Peak (Market Saturation) Stage: The third stage is the peak stage, or sometimes referred to as simply the market saturationstage. It’s during this third stage that the market becomes over-saturated with multiple product offerings, all from companies trying to increase market share. The product’s pricing declines even further.

4. Decline Stage: Finally, the fourth and final stage is called the decline stage. This final stage is market by further price erosion. A large number of companies start to abandon the market. They begin to remove their product offering entirely. It’s during this fourth and final stage that your company must define its exit strategy.

Product Life-Cycle Management: Four Stages of a Product's Life

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

Aligning Your Product's Exit Strategy in Final Decline Stage

What's so important about this fourth and final stage? More importantly, what does this final stage mean to your product and your company’s inventory? Well, if you’ve not properly accounted for this final stage, then you could be left holding large volumes of inventory. However, it’s not just about holding semi-finished and finished inventory, but also about the high costs of holding too much raw material inventory. Therefore, your company must account for its inventory during this final stage. It’s ultimately about ensuring that your company isn’t left with inventory it can’t possibly use or sell. So, what must your company do to ensure that you’ve properly accounted for this final stage? 

• Move Raw Materials to Other Production Requirements: Once your product offering enters the final stage of its life, your company must start to move its raw material requirements to the production of other product lines. This is likely the easiest portion of scaling back your product offering.

• Secure Long-Term Volume Contracts: Any long-term customer demand must be tied up into contracts, ones that are clearly defined with both your existing customer base, and your vendor base. If your customers want to continue to purchase what amounts to an outdated product offering, then they must be willing to sign long-term contracts. In addition, you must sign the same kind of contracts with your vendor base for those parts, and raw materials, so vital to production.

• Offer Discounts to Reduce Inventory Holding Costs: For any volume of product not locked up in contracts, your company should immediately start offering pricing discounts to reduce inventory levels. The idea is to reduce the inventory counts so that the only thing that remains in inventory are products that have long-term contracts. This will ensure that your product's final stage is managed properly.

• Watching Out for the Elusive Fifth Stage: On very rare occasions a product will achieve a fifth stage of product life-cycle management. In this case, the fifth stage occurs after the final decline stage and is defined by a rebirth in product sales. In essence, some customers are still interested in the product offering. There are several examples of where a product was once thought dead, only to rebound and see an increase in sales. For instance, vinyl records were dead as the 1980s ushered in an era of the compact disc (CD). However, vinyl has been reborn and people are still producing and buying vinyl records today, while the companies making those records are enjoying record profits - pardon the pun. 

 

Coming up with your product’s exit strategy in the fourth and final stage is of vital importance to protecting your bottom line. It allows your company to plan for your product’s eventual end of life, while ensuring that raw materials and spare parts are properly managed. The fourth and final stage is where your company must not only plan for your product’s exit, but also plan for its replacement. That is of course if you're guaranteed that the final decline stage represents the end of the product's life. In this case, the final decline stage my be followed by a period of relative stability or even growth before it enters that aforementioned elusive fifth stage.

To better understand this rare, but very possible fifth stage, then please read: The 5th Cycle of Product Life Cycle Management: Rebirth & Growth