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STUDY GUIDE

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Product Portfolio Management (PPM)

• PPM and the PLC • Strategic objectives across the PLC • Extending the PLC

Study guide: PPM and the Product Lifecycle (PLC)

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PPM and the PLC

A Product Portfolio Manager begins their task by first establishing where on the product lifecycle (PLC) each of their products currently sits. They do this by tracking the trends of key metrics like sales, revenues and profits and understanding the competitive and market dynamics for each of their products.

The next step then is to establish the strategic objectives and of their product consider a series of strategic and tactical actions for their portfolio of products, depending on the stage of the lifecycle they are in.

The concept of a lifecycle was first applied to products in the 1950s. According to this theory, all products have lifecycles, defined at the period from their development (incubation) of the product through its introduction (birth), growth (youth), maturity (middle age/old age) and subsequent decline and withdrawal from the market (death). These broad phases can be clearly identified by plotting on a graph the volume of sales across the lifetime of the product.

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PPM and the PLC

Additionally, at each stage of the product’s sales lifecycle, we can measure the revenue and costs of the product, and hence determine the profits that the product makes and track the profit made on the product over time.

It is important to keep in mind that the PLC is not deterministic, i.e., while all products will follow this shape, the size of the curve (the amount of sales or profits made) or the length of each stage will be determined by the strategies undertaken by the business. Managing the product through its lifecycle is therefore a critical issue for businesses. The PLC is a very effective management tool in this activity because it helps product managers to understand which stage their product is in currently, what might happen next and what strategies are appropriate at this stage of the lifecycle.

As with any statically determined model, the higher the level of aggregation at which we view the information, the better the model fits the data. Hence the PLC is found to work best at the level of the product category or sub-category. It may be less accurate at the level of a particular brand or model, though the general shape of the curve continues to be consistent.

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PPM and the PLC

The PLC is usually designated as having five major phases. These are:

1. Development

2. Introduction

3. Growth

4. Maturity

5. Decline

The amount of time that a product stays in each stage may vary from weeks and months to years and decades. The sales volume achieved in each stage is a function of a number of factors of which two stand out. These are the potential demand in the market for the product, and competitive strategy.

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PPM and the PLC

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Revenues

Product Life Cycle

Development Introduction Growth Maturity Decline

Rev

enue

/Pro

fit

Time

Profits



Strategic objectives across the PLC

This table summarises the strategic objectives that a product manager must set for their product across the PLC.

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Development Introduction Growth Maturity Decline

Product

Price

Promotion

Distribution

Competitive forces

Design and testing of a product that best meets the needs of a target customer set

Build awareness and trial; establish a strong market share

Maintain/grow market share

Defend market share

Squeeze any leftover profits from the product

Minimum\ or no variations

Minimum or no variations

Product feature enhancement; multiple variations/extensions

Very minor product enhancements

Minimum or no variations

Pre-selling to distributors at attractive prices

Skimming or aggressive market penetration pricing

Pricing reduction to grab market share

Price movements to defend market share

Creation of awareness in distribution channels

Aggressive awareness building for both customers and distribution channel

Establish market/brand leadership

Maintain brand positioning

Declining spend with a focus on narrower target segments

Establish launch distribution channels that will allow for reasonable product availability to early adopters

Slowly expand distribution channels as demand builds; high margins for distribution channels to ensure they provide shelf space

All possible distribution channels to ensure customer demand can be met; distribution channel margins start to reduce

All possible distribution channels to ensure customer demand can be met; low margins for distribution channel

Nil As product begins to become popular, aggressive competitors enter

Aggressive competition based on product different; competition for distribution channels

Deeply entrenched competitors with well-established market shares; less capable competitors have left the market

No/very small number of competitors

Overall Strategy

Maintain or even raise price to achieve small profit

Only specialist distribution channel/ lowest-cost channels are kept alive



Extending the PLC

It is possible to extend the PLC and keep a product in an extended maturity or growth stage, sometimes even reversing from a decline stage. This can be done through one or more of the following three strategies:

1. Increase the use of the product amongst existing users. This is achieved by creating opportunities for existing customers to use the product more often. For example in the credit cards industry, by increasing the number and type of merchants that accept cards, we can increase the usage/revenues from the product. In the toothpaste industry this has been achieved by encouraging customers to brush their teeth after every meal rather than once a day.

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Extending the PLC

2. Create new uses for the product. This can be done by creating product variants and repackaging the product. A good example of this is the development of Kellogg’s Cereal Snack bars, which has extended the lifecycle of the base cereal product by creating a snacking product that can be eaten at times other than breakfast.

3. Identify new customers. This is achieved by expanding into new geographies or new socio-economic or psychographic groups. A good example of this strategy is expanding the sale of toothpaste into developing countries or launching wealth-management products into Latin America and Africa.

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Extending the PLC

The table of strategic objectives, demonstrates the complexity of the task for a product manager when looking across a portfolio of products. Products in different stages may be combined to form a diversified product portfolio, which can reduce risk. Mature products with strong, steady cash-flows can help balance the cash-flow deficit of products in the pioneering stage, which will lower the risk of bankruptcy. A balanced product portfolio will also help smooth production and personnel needs. Low unit sales in the introduction and decline stages can be offset by higher sales during the growth and maturity phases. This will facilitate scheduling as well as increase the stability and efficiency of operations. If the company desires to be a healthy, ongoing concern, it cannot rely on only one product that will eventually reach maturity and decline. Instead, it should maintain a portfolio of several products – ideally, at least one product in each PLC stage. The cash-flows generated by mature and declining products can feed the cash-flow needs of new, developing products, creating a continuous cycle of evolution. One generation of products can help give birth to the next. Cash resources need not come from the capital market, but rather from those units that generate cash-flows. In this way, the firm can perpetuate itself as a continually evolving, viable system.

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