Monday, July 10, 2017

12. PRODUCT LIFE CYCLE ANALYSIS

OBJECTIVE

Define the maturity of the industry in which a company is competing or the maturity of a product that it is selling.


DESCRIPTION

Several studies have been carried out on industries’ life cycles. Industries and products usually start from an emergent phase, pass through a growth phase, and finally reach a mature phase. At this point either they start the cycle again thanks to innovations or they decline.

This is a tool made for reasoning about the maturity of the industry and the maturity of the kind of products being manufactured. To define the phase in which the company is positioned, consider the following:

  • -          Emergent phase: this is characterized by a small number of firms, low revenues, and usually zero or negative margins;
  • -          Growth phase: the margins are increasing rapidly (for a while, but less in the last part of the growth phase), as well as the number of firms;
  • -          Mature phase: the global revenues are increasing at a far slower rate; both the margins and the number of firms are decreasing.


Phases Product Life Cycle

Competitive Life Cycle


Usually, after the emergent phase, the dominant standards are defined and the rise of one or a few companies is experienced (annealing). Due to rapidly increasing margins, many companies imitate those successful pioneers, and, consequently, the margins start to decrease and a few companies start to leave the market (shakeout). Only the most efficient firms remain in the market during the mature phase, at the end of which we have either decline or disruption thanks to innovation or a demand shift. Finally, the process starts again.



TEMPLATE


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