1. University of Washington EMBA Program Regional 20 “Product Life Cycle & Diffusion of Innovation” Instructor: Elizabeth Stearns

2. Product Life Cycle Sales Volume Entry Rapid Growth Competitive Turbulence MaturityDecline Product Class Product Form Product Form Time Product Class: Evolution in demand for a general class of products Product Form: Evolution in demand for products and services that serve the same function

3. Sales & Profit Life Cycles IntroductionGrowthMaturityDecline Time Sales & profits ($) ©2000 Prentice Hall

4. Market Evolution Product and profit life cycles Sales Profit Time $’s Time IntroductionDeclineMaturityGrowth

5. Market Evolution: Introduction l Market Characteristics »Uncertainty & turbulence »Initially monopolistic followed by competitive entry »Little “meaningful” differentiation »Big marketing investment »Consumer education Product and profit life cycles Time $’s Time Entry

6. Strategies at Introduction l Pioneer »Skimming Focus on price inelastic customers Extract all value »Expansion/Penetration –Stimulate demand –Price less than value

7. Market Evolution: Growth l Market Characteristics »Revenue growth »Competitive entry »Standardized design »Prices drive profitability »Well defined segments »Sophisticated buyers »Marketing aimed at differentiation »Competitive consolidation Product and profit life cycles $’s Time Growth

8. Growth Strategies l Market Leader »Market domination or expansion »Attack »Flank the competition »Strategic withdrawal l Followers »Direct confrontation »Leapfrog strategy »Flanker strategy »Encirclement strategy »Guerrilla attack »Avoidance

9. Market Evolution: Maturity l Market Characteristics »Slow/negative growth »Declining profits »Excess capacity »Price competition Product and profit life cycles Profit Time $’s Time Maturity

10. Strategies in Mature Markets l Market Leader »Increase market dominance »Maintain leadership »Harvest l Followers »Build share, disadvantage leader »Maintain current position »Divest

11. Market Evolution: Decline l Market Characteristics »Technological change »Differentiated products »Shifting demographics »Shifting tastes »Intense rivalry l Strategies »Seek maximum share »Niche »Divest quickly »Harvest slowly Product and profit life cycles $’s Time Decline

12. Strategies in Declining Markets l Seek maximum share l Niche l Divest quickly l Harvest slowly

13. Market Evolution What else drives the PLC phenomena?

14. Customers & Innovation Innovators 2.5% Laggards 16% Late Majority 34% Early Adopters 13.5% Early Majority 34%

15. PLC Strategy Summary l PLC can provide strategic insights but is not a rulebook. l Well-managed pioneers are hard to overtake. l Winners win by changing the rules of the game! l RECOMMENDED BOOK: »Eating the Big Fish, Adam Morgan

16. Customer Life Cycle l The ability of the firm to manage the Customer Life Cycle is critical because the needs of the customer changes at various stages Customers go through Lifecycles, too! Time Customer Value Prospect/ lead First time buyer First-time repeat buyer Regular customer Declining Stage

17. CLC and Customer Value l Prospect / lead: Low » High percentage will not become customers l First time buyers: Moderately low »High attrition rates l Second time buyers: High »Lower attrition rates and long-life cycle

18. CLC and Customer Value l Regular customers: High »Low marketing costs and high retention rates l Declining: Low but better than prospects »Have already signaled interest in buying from firm

19. CLC and Marketing Strategy Prospect/Lead l Advertising: Awareness generation l Pricing: Depends upon characteristics of offer l Promotion: Generate interest and trial l Product: Concentrate on “lead-product” l Customer service: Rapid follow-up

20. CLC and Marketing Strategy l Advertising: Reinforce purchase decision l Pricing: Normal (Value) l Promotion: Induce repeat purchase l Product: Focus on second lead product l Customer service: Follow up on initial purchase to insure satisfaction First time Customer

21. CLC and Marketing Strategy l Advertising: Reinforce purchase decision l Pricing: Normal (Value) l Promotion: Provide on-going rewards l Product: Acquire or develop add-on products l Customer service: Rapid follow-up First repeat purchase

22. CLC and Marketing Strategy l Advertising: Communicate based on purchase patterns l Pricing: Normal l Promotion: Provide rewards for being preferred customer (higher than new customers) l Product: Focus on add-on products l Customer service: Rapid follow-up and special contacts to overcome any product/service problems Regular Customers

23. CLC and Marketing Strategy l Advertising: Use one-on-one contacts to reinvigorate/stimulate interest l Pricing: Normal l Promotion: Provide incentive to become regular customer l Product: Focus on base product l Customer service: Contact customer to learn cause of attrition/defection Declining

24. Thank you!