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The product life cycle is a method used by business to attempt to gauge the life expectancy of a product and as a calculated attempt to forecast the product with the changes in market demand in order to remain competitive. The four stages that consist of the product life cycle is introduction stage, growth stage, maturity stage and decline stage. As the product flows through the four stages, marketing mixes and strategies are implemented to foothold staying power and remain competitive against newcomers and transitioning old rivals.
The introduction stage is the first stage of the product life cycle and can be considered the developmental stage. Theodore Levitt (81) article “Exploit the Product Life Cycle” suggests this stage is the initial launch even before there is a proven demand for the product (81). A good example of this phase is the Plug-in hybrid electrical vehicles (phev). This relatively new concept had a direct adverse impact on Toyota’s cost recovery performance. Toyota was seeking a new market segment which had no previous track record to use as a compass, therefore there initial entry was filled with uncertainties and unknowing risks.
The introduction stage is also the most risky for the pioneer as the trailblazer absorbs cost while they calculate the penetration price considering overhead expenses and potential profit spreads. It is not unusual for a corporation to be the only manufacturer developing the concept at this time as competitors attempt to save initial investment capital by allowing another company to pay for the test pilot. It is also during this phase that the manufacturer begins reducing operational costs, corporate risk and attempt to improve the product to seek improvements in profit. The pioneer of the product anticipate slow sales with relatively minimal chances of cost recovery, however they also anticipate a gradual growth in sales which sets them in place for the next phase of the product life cycle which is growth.
During the growth phase, which is the second phase of the product life cycle, there is a gradual rise in consumer demand and sales begin to take off. The trailblazer may have a a slight edge over competitors because they may have planted their feet and have the first-movers advantage. Fernando Suarez and Gianvito Lanzolla (121) article “The Half-Truth of First -Mover Advantage” believe that if the company have a strong brand name, solid financial backing and excellent marketing skills, the pioneer may sustain staying power. The article makes reference to the brand name of Sony suggesting that its brand name paired with its exceptional level of product quality allowed them to take a firm hold on the walk-man industry.
The growth stage may not be the phase where cost recovery is optimal. The initial corporation may have launched the product, however if the concept proves to be lucrative, then fierce competition will enter changing the market from blue waters, where there was relatively no competition, to red waters where competition is fierce. The pioneer edge may be the fact that their name was the first attached to the product, however the competitors may now be able to duplicate the product at cheaper cost and correct glitches, therefore launching the same product, with possible better quality, but the competition generally take advantage of the pricing to maximize rate on return. Youngme Moon (88) article “Break Free From the Product Life Cycle,” suggests that the traditional tunnel vision method of the product life cycle may need broadening if competition becomes to fierce or if anticipated sales are not satisfactory.
The article goes on to say that as companies go through the product life cycle that marketeers can intuitively defy the rules of the life cycle and restrategize their marketing positioning in order to regain or capture a larger part of market share. During this stage the trailblazer anticipates a cost recovery for the product, however the initial launcher of the product must begin to fight for product and brand differentiation. If the originator doesn’t have a sustainable brand name then customer loyalty may sway. Also, even though the first movers advantage may be an asset, late entry competitor tactics such as advancement in technology, and the need to lower profit margins to establish its market share may have a direct impact on the originator cost recovery performance.
However, there are marketing tactics that the originator can take to fight for market share. Author Youngme Moon (88) suggests that the pioneer could use marketing positions or repositions, where the product is marketed in unexpected ways allowing the company to change how the customer mentally categorize the product in an attempt to fight for its share of the market. During this growth stage, the demand for the product is still growing and therefore promoting the product to reach a broader audience is another tactic to grab more market share.
The third stage of the product life cycle is the maturity stage. During the maturity stage competition is dueling and the waters have turned from blue waters to red waters. The maturity stage also plateaus the prices which are slashed as competition begin to fight vigorously for market share. During this stage corporations begin to offer incentives, promotions and exceptional level of quality of service to differentiate themselves from competitors to sustain and gain market share. This is also the stage where there is a decline in a business’s cost recovery performance as the direct cut in price along with all the incentives have a direct impact on the profit margin.
During the maturity stage, the product may turn from being market driven to market driving. Nirmalya Kumar, Liswa Scheer, Philip Kotler (1) authors of the article “From Market Driven to Market Driving” suggests that countless pioneering companies who have chartered blue waters revolutionized existing industries through innovation and creativity are market driving instead of being market driven. The maturity stage of the product life cycle is one of market driven. During this cycle, the originator fights to hold its position and makes direct contact with the customer to begin to differentiate itself from competitors and try to remain in the market. This point in the product life cycle is also when the product features may be enhanced and the customer may be given more bang for their buck.
A prime example of this stage is the recent competitive bout for the new car purchaser. The auto makers were experiencing a sharp decline in new car sales, therefore General Motors, DaimlerChrysler and Ford, which are deemed the big 3, offered huge incentives to lure customers in to purchase pre-manufactured automobiles. Incentives such as rebates, amenities, low interest rates and other bait and hook tactics were offered. This segment of the product life cycle for this particular example reveals an adverse affect on a business cost recovery performance.
The final stage of the product life cycle is the decline stage. During this phase, saturation becomes endemic and sales begin to decline while survival tactics begin to surface. Competitors may begin to merge, buy others out or the weaker ones may withdrawal. During this stage cost recovery performance is highly declining and product refocusing must be made. It is during this stage that a marketing mix decision can be utilized to salvage the product and plateau expenses.
The decline stage allows for the reposition for growth via breakaway positioning or reverse positioning. Youngme Moon (92), author of “Break Free From the Product Life Cycle” explains that with breakaway positioning a mature product can be repositioned for growth by combining features of distinctly different categories. The author also goes on to say that reverse positioning can be utilized by adding some new components and stripping away old attributes which can shift a product backward from maturity into the growth phase. The recommendations can stave off severe cost recovery performance and allow a corporation to turn back to a lucrative stage.
The product life cycle consist of four stages and is generally used by corporations as a gauge to keep track of their products performance. The first stage is your introduction stage where the product is introduced into the market. The second stage called the growth stage is where the corporation is most likely to retrieve their cost recovery performance. The third stage deemed the maturity stage is where competition becomes fierce and sales begin to decline. The final stage of decline is when the market becomes to saturated and profitability margin spread is too thin and weaker opponents must restructure in order to remain in the loop.
Kotler, P, Kumar, N & Scheer, L. 2005. Market Driven to From Market Driving. Harvard Business Review 1-12
Lanzolla, G. Suarex, Fernando. 2005. The Half-Truth of First-Mover Advantage. Best Practice 121-127
Levitt, T. 2005. Exploit the Product Life Cycle. Harvard Business Review 81-93
Levittt, T. 2006. What Business Are You In? Harvard Business Review 127-148
Moon, Y. 2005. Break Free From the Product Life Cycle. Harvard Business Review 87-92
Roberts, J. 2005. Defensive Marketing How a Strong Incumbent Can Protect Its Position. Harvard Business Review. 150-170
5. To what extent do you agree with the statement that “a growing product market is a necessary precondition for achieving superior productivity”? Discuss using an extended example.
The first important aspect that one must consider is the practical implications of the meaning of “achieving superior productivity” as well as the defining the term “growing product market”. This paper will discuss practical examples of companies which have achieved superior productivity.
Measuring “Superior” Productivity
Productivity is commonly defined as a ratio of a volume measure of output to a volume measure of input use. There are various measures of productivity; the table below gives a few basic criteria that are set in order to measure productivity (Weir 2002). The measures are not independent of each other. Each of these measures have their own unique interpretations and advantages, however productivity measurement is outside the scope of this paper. The concept of total or multi-factor productivity has been developed to measure the contribution of all factors of production to productivity growth(Centre for the Study of Living 1998).
Superior productivity is often an outcome of technological advances that have been made by the companies’ engineers in an aim to give their more quality products. What must be understood is the sort of market the company operates in, because this determines the type of resources they have (Rickman 1995). In a very competitive industry, most companies would like to achieve superior productivity however if it is a slower industry, productivity may not be the only source of concern. However, the main problem in particular by industry, is that productivity measures are sensitive to the kind of statistical units used.
To be able to understand whether growing product growth is a precondition for superior productivity we must first understand the costs associated with increasing productivity. The basic costs involved are the costs of superior capital resources (in the form of machinery and incorporating the latest technology) and superior labour resources (more skilled labour with a more advanced skill set).
(Measuring Productivity: OECD Manual)
Increase in Labour Input
(Measuring Productivity: OECD Manual) Labour still remains the most important part of the production process. It is simply not enough to count the number of labourers working, a more accurate measure is looking at the number of hours the labour force is working. However, many concerns have been raised on the non-wage part of the income for employees (stock options) or the treatment of self-employed.
The diagram on the right shows how the total hours worked by the total force. Calculating this figure as the actual productivity cannot be measured without this. Important factors that we must incorporate are normal working hours, absences, holidays, etc.
The implications of this figure are that it should be reduced to a minimum without affecting the overall output of the company.
“The fully burdened labour cost for an experienced technical professional is typically in the neighborhood of $75 to $125/hour. Let us use $100/hour in an example to keep it simple. The burdened cost to employ a group of 20 engineers at $100/hour is approximately $347,000/month, where the day is filled with distractions and delays. Also, the labour may be generally slower due to lack of proper skills and time management. Technology helps us stay connected but at the same time provides additional channels for interruptions” (Pritchard 1995). Therefore by cutting labour costs effectively one should be able to add value. This leads us to believe that productivity cannot be increased without investment in making the labour more productive. This can be done in several ways(Industrial Systems Research 2008):
Physical-organic, location, and technological factors;(Investment in location and physical working conditions)
Taking into consideration employee’s cultural environment, what motivates them and possibly adding working incentives. (Investment in compensation packages to increase the overall motivation levels in the workforce)
Investing in training and skill building workshop’s to allow for more individual innovativeness.
Increase in Capital Input
The productive capacity of capital should be measured by how much quantity it can produce with minimal resources (Edgett 2008). With the latest technological advances the productive capacity of capital increases however, this increase in productivity comes at the cost of hiring this more expensive capital. Depreciation and the age-price profile are the two important factors when it comes to valuation of capital assets.
A common mistake that people make is assuming that an increase in capital investment will generally mean improving productivity. The graph below shows that there has been more emphasis being paid to increasing capital investment rather than increasing capital productivity. This means that the “right” kind of capital may not be being employed. This trend can generally be seen by various countries all over the world, however to a greater extent by developing countries. The figure below illustrates this phenomenon. Once again, we must understand that companies must work more towards making capital more productive. This can be by “Larger use of the productive park”(Cooper 1999) which is to reduce the capital/productivity ratio by using current production capabilities which is done through increasing work hours.
The globally competitive nature of the automotive market and the size of the US in this market would be good example to use when talking about productivity. As we saw, initially some of the non-US original equipment manufacturers (OEMs) had clear productivity advantages which enabled them to create significant competitive pressure in the US market.
Between 1987 and 2002, The US production of new vehicles (including parts and assembly) saw an increase of 3.3% per anum in labour productivity. The hours required to produce the parts and assemble a vehicle fell, even while the average value-added per vehicle increased hours worked fell because of process innovations, shifts in market share to more productive players, and changes in product mix. In manufacturing, based on employee output, it was estimated there would be an increase of 2.4% per anum in productivity, excluding the high-tech and auto sectors. (MCKINSEY)
Even though the automotive market gave the incentive for change, in the US growth in production was mainly due to the actions made by General Motors, Ford and Chrysler. The reason why the performance was so bad was because each of the companies were slashing prices as they were at gridlock in competition of quality and durability. Therefore they had to create some form of advantage by having greater productivity. (MCKINSEY)
Productivity and profitability have a dynamic relationship. In a market where two companies are selling the same good’s with access to the same factor inputs, if one of the companies are able to increase productivity the other company would have to also match its competitors. This is due to the fact that if productivity is increased the company would be able maintain its quality and quantity of goods and services with less labour costs or materials. Once both companies are at the same level of production, price becomes the main area of competition. And this is where the US automobile industry stands, it still is a growing market for all types of international manufacturers, and this is the prime reason why more emphasis is being paid on increasing productivity.
The costs associated with increasing productivity can be overwhelming to any company however the benefits of this “superior” productivity can in most cases justify the costs. A growing product market can only provide the necessary profits and incentives to encourage companies to improve their productivity (Love 2001). If the market was at a mature stage and did not give the necessary profits to balance the costs, the company would rather look for cost-reduction or product differentiation to make much higher profits so in conclusion a growing product market is a necessary precondition for achieving superior productivity.
Cooper, R. (1999). Product Development for the Service Sector: Lessons from Market Leaders. Perseus Books
Edgett, S. (2008). Maximizing Productivity in Product Innovation. Research Technology Management, Vol. 51
Love, P. (2001). Driving Productivity in Product Innovation. Management Services, Vol. 45, January
Pritchard, R. (1995). Productivity Measurement and Improvement: Organizational Case Studies. Praeger Publishers
Rickman, D. (1995). Differences in State Unemployment Rates: The Role of Labour and Product Market Structural Shifts. Southern Economic Journal, Vol. 62
Weir, D. (2002). Will Productivity Build you a Fortune? Futures, Vol. 31, August
McKinsey Global Institute (2005). Increasing Global Competition and Labour Productivity: Lessons from the US Automotive Industry.
Industrial Systems Research(2008). Manufacturing in Britain: a survey of factors affecting growth and performance in Business, Finance and Investment Reports.
Centre for the Study of Living(1998). Standards Productivity: Key to Economic Success.
3. To what extent can improvements in productive flow and product quality lead to an increase in sales and profit? Use examples to critically examine the links.
The main objective of any business is profit making which it derives by making its products and services available to people. The business models therefore, can be described as value propositions for various stakeholders for which the management evolves strategies and methodologies to create goods and services in some particular arena and delivers the same to the desired target group or customers. It explains how the business would function, identify the goods and services that would be produced for identified customers, ensure the viability of the objectives and goals of the business to deliver values based services. In the contemporary environment of highly competitive business, innovative managerial practices become critical for increasing profitability without major capital investment. The paper would therefore focus on how the improvements in productive flow and product quality would impact on firms’ sales and profit.
Productive flow and quality product
Productive flow broadly defines the streamlined process of manufacturing goods and services that have minimal defects. Thus quality products are important product outcomes of productive flow within a manufacturing unit that greatly facilitate in meeting the demands of the customers. The streamlining of the various interactive processes becomes intrinsic to the quality control mechanisms that significantly help lower the overall cost of production. In the contemporary times of cutting edge competition, Juran (2000) asserts ‘all quality improvement occurs on a project-by-project basis and in no other way’. This is the foundation of quality assurance techniques and application which the organizations follow in order to meet the challenges of the time and maintain or increase their profit and sales.
Byrnes (2003) asserts that product flow management is a powerful ‘profit lever that can increase earnings while raising customer service levels’. Thus, the organizations continuously make effort to identify factors and issues that would help produce the desired outcome with efficiency and unmatched proficiency. The various processes that can reduce time span and efficiently deliver results are adopted to increase profits through quality products that corroborate with the changing customers’ requirements. Small and big organizations like General Motors, Samsung, Sony, Ford etc. have all redefined their strategic goals to meet the changing equation of global business that primarily focuses on customers’ preferences and their satisfaction.
How it influences the revenue/ profit
Byrnes (2003) further claims that ‘product flow management ties closely with service interval management because the most costly product flow variance occurs in the core product/core customer quadrant of the customer service matrix’. The discrepancy in product development and customer requirements adversely impacts the profits. Reducing variance and improving on operational processes leads to increased sales. Thus, improvements in productivity that are intrinsically aligned to the changing preferences of the people promote sales and profitability of the organizations. Indeed, contemporary environment of recession and tough economic condition, necessitate organization to come up with quality goods at low cost thereby ensuring good profit margin. Hence, Six Sigma approach to production becomes highly desirable for improved profitability of the firms.
The improvement initiatives of business processes have been major imperatives of the corporate world across the globe (porter et al., 2000; Laraia et al., 1999; Karltun et al., 1999). The traditional approach to business has fast transformed into an integration of various interacting elements of the business that work cohesively to produce optimal results. Indeed, processes like JIT (just in time), benchmarking, TQM, lean production, Six Sigma, HIKE etc. have become important ingredients of business processes that have considerable impact on the sales and profits of the firms (Karim, 2009; Russel and Taylor, 1999; Kaplan and Norton, 1996 ). The use of these initiatives in the traditional process of production significantly improves the quality and increases the performance outcome of the organizations. Indeed, Mannan and Ferdousi (2007, p.2) have correctly declared that ‘now the key to competing in the international market place is to simultaneously improve both quality and productivity on continual basis’.
Lean production streamlines the production processes by identifying and removing the extraneous activities and ‘obvious’ wastes that do not contribute to the efficient product activity (Womack and Jones, 1994; Papadopoulou and Ozbayrak, 2005). The wastes are obvious and therefore easily removable. These are good initiatives for improving productive flow for small projects where low investment is the need of the hour.
Six Sigma is the methodology of business processes that eliminates defects thus promoting the quality production at low cost (Mikel, 1998). It is used when the problem within the process is not obvious. It was the brainchild of Motorola that was later adopted by the auto industries so as to facilitate and improve production processes. The strategy involves simultaneous inputs from various different departments so as to measure, analyze, improve and control the production of new products and services.
Integration of improvement processes within the industry
Through focused approach, the companies develop dynamic business strategies to identify the critical factors of change and meet the challenges with creative inputs through collective vision and shared goals. Indeed, ‘..strategy must be a dynamic tool for guiding the development of a company over time’ (Montgomery, 2004). The changing dynamics of the global business has necessitated formation and incorporation of management strategies that go beyond the realm of individual company’s concern and plan for distinctive competencies to give the company market leadership.
Case study of PACCAR is an exemplary example of how innovative practice in production of quality goods significantly impact performance and sales. PACCAR is a multinational technology company that specializes in state of the art heavy duty trucks, industrial winches etc under various brands. It maintains an exceptionally high standard of quality. Through the evolving process of entrepreneurial creativity, it has been able to assess the challenges faced by the company in meeting all its aims and objectives within the framework of its principle and professional and organizational ideologies. It has incorporated Six Sigma strategy within its various business processes. It has also complemented its six sigma strategy with HIKE or high impact Kaizen events to introduce new concepts of production flow improvement (PACCAR). Indeed, it has been innovative in its approach to tackle the wide ranging implications of the changing technology and rapid globalization process through well defined and identified strategic goals and visions.
In these difficult times, the demand of products and services has drastically come down and the customers are looking for bargain products which are low cost but offer quality. The companies, therefore, are also forced to cut cost and thereby, the prices, in order to operate profitably. Ford Automobiles is another flagship organization that has maintained its market position through strategic productive flow for improved quality products leading to increased sales. It has developed dynamic business strategies that would be able to identify the critical factors of change and meet the challenges with creative inputs through collective vision and shared goals (Ford). Thus, timeliness, pricing and quality become major factors to gain leverage. Hence, new product management must include exigencies so that the three factors can collectively be approached to make the product appealing for the people while at the same time, encourage creativity and innovative practices that give a unique perspective to participatory approach of management and employees.
One of the most interesting and probably the most visible strategy of quality products has been that of McDonalds. McDonald’s corporate strategy mainly relies on creating value through customer satisfaction. It has been able to gain effective leverage against its rivals by exploiting its internal resources which are: brand equity, quality products and exemplary service. It has evolved into the best fast food centre through customer satisfaction and meeting their changing preferences. The use of technology and uniformity in its products has been the hallmark of its fast food across the world. McDonald’s strategy to customize its products as per the changing requirements of the people has been its major strategic win (McDonalds). Streamlined processes and uniformity in its production processes has considerably lowered the overall cost leading to higher profitability for McDonalds even during recessive times.
Samsung is another highly successful firm that relies on productive flow of quality goods to penetrate new market and maintain its market position. Currently Samsung is a market leader in the field of semiconductors, electronics and telecommunication accessories (Siegel and Chang, 2009). It is known for its quality innovative product lines which are also cost effective. Its success is founded on its speed based innovative products. The company focused on its strategy of developing research and engineering skills so that it could improve and improvise innovatively on the electrical and digital products of Sony, Phillips, Matsushita and Nokia. Samsung’s ability to launch its own products with added features with a great speed, was a huge success with the target population. Samsung had geared its teams of professionals to keep a strict watch on the people’s pulse and was therefore able to anticipate their demands and used to come up with new products and features that were envied by its rivals.
One can thus conclude that managerial leadership becomes important issue in making decisions about the improvement potential in the various business processes, especially productivity flow that could significantly impact sales and overall revenue. The fast changing dynamics of the business environment make it necessary for the firms to adapt new operational logic and flow strategy that rely on quick evaluation for improved productivity. Indeed, profit is the reward of the entrepreneur and main motive of the business. Thus, continuous improvement in productivity flow for quality products that leads to improves sales and profits becomes vital factor in the contemporary business.
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