Product life cycle phases and cost recovery strategies in growing and mature markets

¶ … Growing & Mature Markets

Analyzing the Characteristics of Growing and Mature Product Markets

Throughout the lifecycle of any product there are distinct phases that include drastically different pricing, product management, promotion and distribution strategies. The intent of this analysis is to evaluate how the various phases of a given markets' lifecycle, from nascent or emerging to growing, maturing, stabilizing to contracting and consolidation affect the profitability and revenue of companies competing in them. Just like products, markets also have product lifecycles (Raddats, 2011). In high technology, many markets move faster than the product lifecycles of the devices being sold into them, with microprocessors, electronic components and very specialized, engineer-to-order products having this characteristic (Raddats, 2011). Each phase of the lifecycle of a market are defined in this paper and the profitability implications on companies competing within it are assessed.

Nascent or Introductory Phase

When markets first emerge as a consolidated set of needs and requirements, their pace of growth is often very rapid with pockets of profitable sales opportunities for companies present. This pattern of "profit pools" is what venture capitalists look for when investing in new companies. They are looking to invest in technologies that successfully meet and exceed the expectations of consumers, whether they are B2B or B2C-based, in these markets. The nascent or introductory phase of a market is noted for its exponentially high growth rates, lack of entrenched competition and quick pace of innovation (Gillier, Piat, 2011). All of these factors contribute to rapid investment in new and emerging markets by investors, venture capitalists and companies looking to be the leaders in these emerging, high sales potential areas. As of late 2011, markets that would be considered in this category including social networks being used for e-commerce, customer relationships management (CRM) software delivered over the Internet as Salesforce.com is, and the emerging areas of hydrogen-powered vehicles. All of these areas have double- and triple-digit growth rates in revenue and unit shipments or customer installations. All of these factors contribute to the exceptional level of sales and profit that companies who successfully capture these markets can attain. According to studies completed by Gartner Group and other research firms, up to 70% of a given products' profits are generated during the first six months of its life, even in high-growth, very turbulent markets

(Pasche. Persson, Lofsten, 2011). It is common to find successful new product introductions into high growth markets generating a positive Return on Investment (ROI) of 10% or more for companies who can launch products successfully and quickly into rapidly emerging markets (Kuik, Nagalingam, Amer, 2011). For the agile, market-driven organization the ability to respond to these emerging markets is key to their ongoing profitability and growth. Intel's dominance of the microprocessor and components markets is a case in point. They were able to not only dominate these early markets, they were instrumental in creating them.

Nascent or introductory markets attract an exceptionally large base of competitors, which makes attaining profitability even more difficult to attain. Despite the highly competitive nature of emerging or nascent markets, they provide competitors with an opportunity to gain valuable insights into how they can better position, price and produce their products over time (Raddats, 2011). The nascent or introductory phase of a market is a proving ground of profitability for many products, with the most well-defined and tuned to the market surviving and growing in profitability. Emerging markets are in many respects a crucible that tests all products that seek to gain market share and establish a foundation of growth, with the more precisely aligned to market needs growing the most profitable over time (Gillier, Piat, 2011).

Growth Phase

The next phase of a market's evolution is the growth of sales and unit sales over the next 30% or longer period of time within the total product lifecycle. This is the phase where many of the companies competing for sales in a given market attain profitability and positive market growth. The ROI of the market leaders during this phase of the product lifecycle are attaining double-digit levels of investment returns by this phase (Rajagopalan, Xia, 2011). This is also the phase of a market lifecycle that attracts more competitors than the nascent or introductory phase as it has now emerged as a proven, viable and reliable series of market needs. The ROI for companies just entering a market at this stage will be low and challenged the longer they wait to introduce products and services. Examples of this include the many smartphone manufacturers attempting to catch the Apple iPhone in terms of sales and profits over time. Apple clearly dominates the smartphone market and has in large part defined the trajectory of this phase of the global smartphone market. The market leaders in any given market that is experiencing growth also concentrate on creating a high pace of innovation, as evidenced by the pace of new product introductions. As the growth phase of a given market begins to reach it peak and transitions into the Maturing Phase of the market, the leading competitors begin launching product line extensions to continually gaining new customers. Examples of this are in the tablet, netbook and laptop markets where manufacturers rely on new features, enhanced microprocessors and better graphics chipsets to attract new customers as this phase of a market transitions. For new entrants to the given industry that is in this phase, the ROI is marginal to negative, and the costs associated with gaining market share high. Yet many companies lunge into markets in this phase, having initiated product development when the market was nascent or introductory (Chen, Chen, Wu, 2011). The speed and pace of new product introductions are critical for any company to quickly capitalize on the most profitable new markets emerging (Pasche. Persson, Lofsten, 2011). The bottom line is that during this phase, ROI and profitability are very high for market leaders, often translating into high corporate-wide gross margins as well. For companies entering markets at this phase the ROI and profitability are marginal at best.

Maturing Phase