Product life-cycle management (marketing)

The product life cycle is a concept in business administration and describes the process between the launch and completion of a marketable product and its removal from the market. The " life " of a product is divided into several phases, the main tasks of the active product policy in the context of life cycle management represent ( engl. life cycle management ). The product life cycle is considered in most cases only for consumer goods. For innovations in the technology life cycle ( TLC) should be consulted.

The product life cycle theories, which go back to the work of Raymond Vernon (1966) and Hirsch ( 1967) ( product life cycle to Vernon ), divide the " life " of a product on the market in four phases: development and introduction, growth, maturity / saturation and shrinkage / degeneration. They describe how new products to the market ( product innovation) are already introduced and adapted to the constantly changing market conditions ( product variation ). An existing product line is an additional variant complements ( product differentiation ), introduction of new product lines that are horizontally, vertically or laterally in relation to the previous ( product diversification), no longer commercially viable products will be withdrawn from the market ( product elimination ).

The following is the typical function during the life cycle models is first pointed out and set up a basic model. Subsequently, various models and explanations are presented, which are used in the economy.

• 3.1 Product life cycle of Boston Consulting Group 3.1.1 Criticism of the BCG portfolio

• 3.2.1 Criticism of McKinsey Product Lifecycle portfolio

• 3.3.1 Criticism of the ADL product life-cycle portfolio

Life cycle models

In addition to diffusion models describe the life cycle models of growth and saturation processes. They assume that the analyzed time series (eg, sales) in the long term approaches a saturation limit. In contrast to diffusion models, the degeneracy is explicitly depicted in life-cycle models. The typical course of both models is clear from the present graph.

Use of mathematical modeling can be derived in the life cycle and use them as basis for sales forecasting, planning and strategic decisions influence the sizes of the growth process and the position of products.

Product lifecycle basic model

The product life cycle, the change in turnover and profit of a product as a function of time dar. We distinguish the following phases:

• Introduction phase
• Growth phase
• Mature phase
• Saturation phase
• Degeneration phase (decrease)
• If necessary, is also spoken by a follow-up phase.

Introduction

With the beginning of the implementation phase, the company has been made ​​aware through advertising and public relations to the new product. Thus, the sales are gradually increasing. At this stage, however, no profit will be available due to the previous cost of product development and the ongoing communication expenses. At this stage it is decided whether the market accepts the product at all. The image structure arises here because of the statements of market communication. For products that are already a top seller in the market, there is often at the beginning of production bottlenecks due to popular demand. The implementation phase is completed when the break- even point is reached, so the proceeds to offset the costs.

Sometimes a period is appended in time before the product life cycle, which takes place in the product development, ie the development phase. One speaks here of a generic product development process (PDP ) and points out that the quality of the product development determines the quality of the product manufacture ( The key to successful product: The product development process (PDP )) ( PDF; 380 kB).

Growth

With the beginning of the growth phase gains are achieved for the first time, despite the issues of promotion and communication are persistently high. This phase is characterized by strong growth, which is accelerated by advertising. The price and conditions policy is becoming increasingly important. The competitors pay attention to the product ( free-rider problem).

Maturity

The maturity stage is usually the longest phase of the market. This phase is the most profitable. Due to increasing competition fall to the end of the phase, the profits. The growth rates are declining, yet the company still have a high market share. This they can secure or expand by a suitable conservation marketing and product variations.

Saturation

Usually occurs sometime the saturation phase. The product has no market growth - revenue and profits decline. Various modifications can now try to attract more customers. One example is Coca -Cola. The saturation phase ends when the revenue contribution margin limit below again, so if there are no more gains can be achieved.

Decline

The next phase is the decline phase ( degeneration): The market is shrinking and the decline in sales can not be caught through targeted marketing activities. The product loses market share has to fall negative growth and profits. The portfolio should be adjusted, unless there are composite relationships with other products ( economies of scope ). If action is not taken here correctly and quickly, incurring unnecessary costs for a product that barely enters sales. Is distinguished from the decline phase, the relaunch ( Rekonsolidierungsphase ) can be considered a product. The product will be significantly modified and repositioned. The objective of this measure is that the product passes through an additional life cycle. One example is the transition from Golf I to Golf II Will not Relaunch started, the decline phase has ended with the fall of sales to zero - the production is stopped. Consequently, the product has gone through its life cycle - it is effectively dead.

Caster or end-of - life phase

The follow-up phase or end-of - life phase comprises all the setting of the series - production costs to be incurred activities related to the product, as warranty service, spare parts supply, return and disposal of old products and the divestment of resources. Most then exceed the payments the payments, so that the overall success of the product decreases. It is often that the manufacturing equipment and the organization of the series producer for the follow-up phase are not suitable. In this case, it makes sense to outsource the end-of -life business to companies or organizational units that have specialized in this business model.

Product variants and product life cycle

Durable and varied goods, especially consumer durables ( cars, televisions, hand tools, household appliances, ...) and capital goods ( machinery, medical equipment, technical equipment and tools, ...) are constantly being developed to complement new equipment and functions or also completely redeveloped. In the automotive industry is often on the outside of the product name is maintained ( eg VW Golf ), even if the product has been completely redesigned. The constructive new vehicle will then internally differentiated by the series or type. The customer can then order under the same Produkt-/Verkaufsnamen the new ' basic model ', which he can change by selecting various options ( equipment, colors, functions, etc.) according to his wishes. Here is to decide whether it is still the same product or a new product with a new product life cycle. For product versions to blur in some ways, the above phases of the product life cycle.

Variants of the concept

Within the Business Administration has established the two-dimensional four-field portfolio with relative dimensions of the Boston Consulting Group ( BCG matrix ) to represent a de facto standard and synonymous with the term product life cycle. In addition, the nine- field matrix by McKinsey ( McKinsey matrix) is used as a slightly more accurate model. It is rare, but interesting in a particular case is the product life cycle analysis by Arthur D. Little ( ADL ) model with 16 to 20 fields. The basic model in two-dimensional visualization with simple absolute dimensions of sales and time will continue for a variety of individual considerations use.

The planning of a product life cycle is the task of strategic management of companies. Depending on the thickness has a product life cycle from four to seven stages - not all are always achieved. The planning and observation models are generally accepted in economics, however they are not generally valid empirically detectable. With the help of the various representations will be clarified more practically, the relationship between the product life cycle and the cost experience curve as well as the proceeds or the market attractiveness and competitive advantages in different stages of market participation.

During the basic phase model assigns the product life cycle on conversion and timing, use the matrices commonly used by the Boston Consulting Group and McKinsey, a coordinate system with dynamic parameters. The Nine-Field portfolio is just a more sophisticated version of the above four fields version and also based on the basic idea of the product life cycle.

Before a product can be introduced on the market, it must be developed and tested to determine its marketability, this is done by the so-called product innovation process and is part of the product policy in marketing.

Product life cycle from Boston Consulting Group

The so-called BCG portfolio, also known as BCG matrix and Growth -share matrix, are based, among others, the three as independent variables adopted product life cycle, experience curve and competition. Although this portfolio can also be evaluated without life cycle assessment, but it is based on the cyclic consideration because the four phases of product life cycles mentioned normally follow each other.

Note: The unit is called Poor Dogs quadrant is referred to in the English language only as dogs. The poor attribute is not used in this context.

Since the 80's use, according to the author of approximately 75 percent of all larger companies portfolio matrix in investment decisions and in strategy development, not only for the consideration of the product life cycle in itself. Today, there are virtually no more diversified company that is not working with the portfolio concept.

Criticism of the BCG portfolio

The consideration of the market growth rate, which is considered in the model of BCG as a given factor is questionable. In fact, a company can be influenced by appropriate marketing measures market growth positively.

In addition, the portfolio is useful only applicable in manageable oligopoly markets with a few large suppliers. Especially in highly competitive markets with many different major providers the dimensions of market growth and market share are often insufficient. This drawback can be circumvented by including appropriate variables and weighting factors in the McKinsey matrix.

Another point of criticism is that the BCG analysis only to its own products is usually wise applicable. She draws a current image of the portfolio and is therefore well suited to rethink its own portfolio and to modify it as necessary, but provides only mild or no opportunity for benchmarking ( comparison with the market leader or the strongest competitor, if you yourself are the market leader ).

Product life cycle of McKinsey

The Nine-Field - McKinsey matrix (also: McKinsey portfolio ) was also known as a representation model of portfolio analysis for the product life cycle. Their dimensions take the market attractiveness (Y- axis) and the relative competitive advantages (X- axis). However, the dimensions can be defined in different ways.

The messages in the quadrant of the example graph on the left are not required for the application in practice. The standard strategies in each quadrant should be formulated differently when viewed live less cyclically oriented dimensions. Depending on the graphic display can better display of product indicators ( as in the example of BCG of sales as bubbles in the relevant quadrant ) a static dimension are mapped even without the visualization suffers. The sample graph here is only for consideration of product life cycle strategies.

Since there are a variety of considerations for the interpretation of the McKinsey matrix, the special advantage of this model lies in its variability and versatility. Basically, it is a further development of the BCG matrix. Although this model can thus be used for other business considerations, it is based on the assumption that products go through a certain cyclical career.

The market attractiveness (Y- axis) can be represented by the following main criteria:

• Market growth and market size,
• Market quality,
• Supply of energy and raw materials,
• Environmental situation.

This set is itself composed of several sub-criteria.

To determine the relative competitive advantages with respect to the closest competitor ( x-axis ), it is considered, for example, the following four main criteria:

• Relative market position and market share,
• Relative production potential,
• Relative R & D potential,
• Relative qualifications of managers and employees.

From the actual position of strategic business units can be also called the standard strategies derived:

Said matrix is ​​divided into three fields:

Here are three different selective strategies can be distinguished: offensive strategies, defensive strategies and transition strategies. Whichever strategy you choose depends on whether a position improvement of the various SGE can be realized or not.

The marketing manager has his target portfolio reached when the divisions facing business in the absorption range in the investment area. The nine fields portfolio is thus simply a more sophisticated version of the above four fields version and also based on the basic idea of the product life cycle.

Criticism of McKinsey Product Lifecycle portfolio

To consider are critical to an aggregation of different indicators and on the other the one-sided view of the satisfaction degrees with unpredictable relative references and bad to be derived from objective formulations. In addition, the criteria will be assessed and weighted subjectively compared to the BCG matrix (market growth and share ). The quality of the results is highly dependent on the knowledge and assessments of the performers.

Product life cycle of Arthur D. Little ( ADL)

The one dimension of the ADL portfolio is analogous to the approach of BCG, the relative market position or a comparable measure. The second dimension of ADL portfolio is the assessment of the strategic business units of the company or its phase in the product life cycle.

Based on these basic models are numerous related valuation methods in use, which differ mostly by the choice and weighting of different indicators of the company and the market. In the assessment (forecast ) the development of a portfolio (or market ) you go to the classical theory of the following basic assumptions:

In real markets, these assumptions have turned out to be factually incorrect (see, for BB Mandelbrot, Scientific American 5/99 ): Price changes may well be correlated. Mass effects are observed especially in larger price declines, which move almost all values ​​of a market down ( eg July 98 and esp. examples). Even in periods of optimism is clearly a correlation between the individual values ​​detectable. The investor rated in his decision (buy / sell ), not only the single value, but also the market situation as a whole.

Criticism of the ADL Product Lifecycle portfolio

The duration of the phases varies considerably, and the determination of the current phase is difficult. Moreover, where, as in the example of artwork by a strong orientation of the two dimensions of the competitors of the course of the theoretical life cycle are hardly affected controllable. This is then often in practice hardly nachzusteuern.

Factors affecting product life cycles

The duration of a cycle often varies greatly. So there are goods with a very short life cycle (fashionable consumer goods such as accessories ) and others with a very long, such as bread ( the life cycle of bread should not be confused with its shelf life ). A determination of the duration of the phases is possible only in retrospect.

The duration of a complete product life cycle is dependent on various factors. Apart from the four classic areas of the marketing mix:

Must also be considered external conditions, particularly:

Last but not least strategic decisions affect the product life cycle (see ABC analysis ).

Acceptance

No larger company and hardly an SME waived today on the strategic alignment of its product policy. The high frequency of use of different, especially the dynamic models for the planning of services on the market can be traced back to a few positive aspects of the overall portfolio models:

• Orientation of resources, not on plans
• Simple competitive strategies for SBUs,
• Strategic objectives are clearly defined,
• Clear overall performance picture.

Life cycle of a building

In the field of life cycle management for a cause or a building is attempted in addition to the pure construction costs of the matter and all other costs incurred during the use phase to capture and optimize where possible.

For buildings, this means that all of the following items are taken into consideration:

• Planning costs,
• Construction costs,
• Collection costs (eg energy costs),
• Repair and maintenance costs,
• Costs of any subsequent changes of use,
• Disposal or demolition costs.

As part of the life cycle management sometimes leads to other insights about the profitability of investments. So can consume (high heating costs in winter, high cooling costs in the summer ) the overall profitability for example, the operation costs of an office building made ​​of steel and glass.

In addition, life-cycle management is a key word that is also used in connection with environmental protection. Here the focus is on planning the disposal of the product already in its design phase and, if possible, to optimize environmental point out.

Related terms are also the Life Cycle Engineering, ie life- cycle approach - sustainable - Planning and Building ( certainly also preparatory for the optimal, for example, energy-efficient operation ( economy, ecology ) of the building under user comfort ( human factor ), resulting in so-called green buildings, ie sustainable buildings (see also Green Building Labeling or certificates, eg DGNB). This is ensured by the optimal interaction of as many relevant engineering disciplines ( green building design for new construction or green building management for existing buildings ). the planning and construction- facility management Consulting brings the requirements of the subsequent operation (users, tenant) time in the planning and building process and makes it safe. this prevents later " nasty surprises ", additional costs and rescheduling. the life cycle cost analysis provides a planning safety of up to 20 years and determines the operation and usage costs of the building, a multiple of the original investment for the construction of the building be. Through a " smart " investment planning maintenance and investment for the maintenance and repair can be optimized from an economic and simultaneously the prescribed maintenance intervals be observed manner. This optimizes costs, has contributed to the return and yet minimizes the risk of operator liability.