The product life cycle is the stages of a typical product from design to decline, a cycle divided into the four phases of introduction, growth, maturity, and decline. The objective of managing a product’s life cycle is to generate maximum value and profitability at each stage. However, selection of correct strategies and KPIs is important to drive the value maximization process.
At Introduction stage, a product is conceptualized, designed and launched into the market. The objective of any new product introduction is to meet consumers’ needs with a quality product at the lowest possible cost in order to return the highest level of profit.
Sales may be low as the company’s focus is to drive awareness of its product among potential customers. The company should offer the basic product and charge cost-plus from the customers. The company builds selective distribution as it still wants to test the product in real life market. The focus KPI now would be the sales figures with less focus on profits and cost. For operations, it would be to achieve efficiency in processes in order to attain economies of scale in future.
After the product has performed well on their KPIs in the introduction phase, the next phase is the growth phase. With rapidly increasing sales, customer acquisition cost lowers down but there might be an increase in competitors. Production increases, leading to lower unit costs. So the company has to decide the strategic objective to be pursued for the product whether to target high market share or increased profitability. In case of a high market share, it should pursue extensive market distribution and set KPI as the sales achieved as compared to market size and growth. In case of profitability, the objective would be to drive down costs and charge a premium. The KPI would revolve around getting maximum profit per customer.
At the maturity stage, sales growth slows down with high competition. Defending the present market share while maximizing the profit becomes the chief objective, and the marketing team needs the help of promotion to lure customers to buy the product. The product price is now customer driven. So in order to maximize product, the company will plan to lower per unit cost in the maturity stage in order to drive maximum profits. The relevant KPI for the marketing team would be to achieving a target sales revenue while operations department would focus more on cost saving by optimizing the production and distribution. The money earned from the mature products should then be used in research and development to come up with new product ideas to replace the maturing products.
Eventually, the revenues drop to the point where it is no longer economically feasible to continue making the product. Investment is minimized. The product can simply be discontinued, or it can be sold to another company. With declining revenues, the focus is on extracting maximum value from the present brand equity and cut prices to phase out the product from the market. The KPI would be Return on Investment (ROI) for the product portfolio in order to phase out weak products and non-profitable distribution
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