Product/market/industry Life Cycles
The product life cycle is basic to understanding the significance the portfolio approaches. The concept has been around for so long and is so widely used that it is difficult to trace its originator.
The product life cycle holds that products and markets and entire industries develop, grow rapidly, mature, saturate, and decline in a somewhat predictable fashion. If sales are plotted as a function of time, this predictable pattern is a lazy-S curve. The traditional stages in an industry's life cycle are shown in Figure 4-1.
In the introduction phase, the output industry (products or services) is initially offered to the customers, and sales are slowly built up as more customers become aware of product. At this stage in the industry's development, choice of technology is often not yet settled.
After a certain critical mass of demand has been established, sales take off in an exponential growth rate as increasingly large numbers of new customers demand the product for the first time, the industry enters the growth stage.
At this stage, most buyers are still first-time purchasers of the industry's outputs. Over time, growth of the industry begins to slow as marked demand approaches saturation. Fewer first-time buyers remain; most purchase are now for replacement purposes. When the market demand for the industry/s outputs is completely saturated, the maturity stage has been reached.
As technology makes the product obsolete, or as substitute products arrive, sales decline. This decline stage is often ushered in when consumers begin to turn to the products or services of substitute industries.
There are problems with using the Life Cycle Concept as a precise strategic decision making tool. It is almost impossible to predict how long a certain phase of the life cycle will last or know the height of the curve (unit sold). Thus, the concept's use as a forecasting tool is very limited.
However, the product life cycle captures the dynamics of product of production and market evolution and can be used for generating strategic alternatives, specifically in the following ways:
-to suggest appropriate areas of functional area emphasis by stages of the cycle;
-to suggest appropriate strategy alternative;
-to time strategy changes;
-to asses the corporate business units to ensure that developing products are introduced as others pass through growth to maturity.
Figure 4-2 depicts four general stages of product/market evolution and the typical changes in functional capabilities often associated with business success at each stage.
The important observation of the life cycle is that one of the critical success factors in this in the extent to which the product can gain and maintain a large market share. This later became of central importance to portfolio analysis.