For any entrepreneur or businessman who wants to launch a new, brilliant idea, it is critical to be familiar with the business framework used by strategy consulting firms known as product life cycle development. There is a great PowerPoint presentation describing this in detail on.
Here is the direct link to the Product Life Cycle document on that site. To conduct proper product life cycle analysis, there are 5 phases to perform.
1. Define the industry. This first phase is all about defining the scope of analysis. First, be clear what industry we are evaluating, as this drives the scope. To be more specific, define the SIC code for this industry. Once the SIC code is known, we can construct a time series of industry sales volume.
2. Determine the level of life cycle performance metrics. Business and product performance across 7 externals must be assessed. These range from relative growth rate to number of competitors to technology innovation. All must be carefully analyzed, which can be done through focus interviews and secondary research.
3. Identify the life cycle stage. To identify the product life cycle stage, we need to create a matrix that maps the company’s performance to relevant life cycle stage across various performance metrics. This matrix represents a life cycle scorecard against which your company’s performance is measured.
4. Forecast sales based on life cycle stage. The Bass Diffusion Model can be used for this step. Different growth parameters for the Bass Diffusion Model are determined by the industry (as determined in phase 1). This step is critical, as it drives the financials that will drive business decisions.
5. Develop strategic hypotheses and action steps. Finally, with all your ducks in a row, you can form your strategic hypotheses and accompanying recommended actions. Clearly, the life cycle stage has specific implications for strategic and tactics selected by your organization. The video below quickly runs through the framework.
The product life cycle framework can also be extended and applied to the BCG Growth-Share Matrix. In fact, the strategic actions implied by Life Cycle Development depend on both the current stage, as well as the competitive positioning of the business or product in the market. Using both frameworks, we can create a Strategic Positioning Matrix.