4.3 Product Strategy

Successful products, like people, go through a lifecycle. They are born, they grow, they mature, and they eventually die (see Figure 4.4).

The Product Life Cycle

Let's talk briefly about each stage of the product life cycle (PLC).

Introduction

Bringing a product to market begins with development and launch. Your goal is to "find a need and fill it." During introduction, you promote demand and assure product availability. Gillette spent approximately $1 billion dollars to develop and launch its Mach 3 razor. High introduction costs often lead to losses, but these expenditures are necessary to get a product off to a good start and a successful run.

Growth

During the growth stage, sales take off. This is when the early adopters and early majority begin to buy and use the product. To build momentum, you increase advertising and promote positive word of mouth. Sourcing and manufacturing must ramp up volumes to support growing sales. Logistics must quickly, but as inexpensively as possible, expand distribution. Rivals are now starting to aggressively enter the market with viable products. If you can't fill demand, they will—and you may never get those customers back.

Maturity

During early maturity, sales continue to grow—but at a slower pace. The market is becoming saturated. Two challenges loom on the horizon. Fewer customers are entering the market. Worse, competition is intensifying. Low-cost rivals from global markets often enter the market, threatening to drive prices—and margins—down.

Marketing's job is to create a fresh storyline, perhaps by finding niche markets where the product can fulfill new needs. Product enhancements and extensions can also extend a product's life. For example, General Mills has mastered line extensions. Consider Cheerios. GM introduced Cheerios as Cheeri-oats in 1941. Today, Cheerios account for 1/8 of box cereal sales in the U.S. GM's secret: Constantly introduce new flavors and package sizes to keep Cheerios not just alive but also fresh and profitable (see Figure 4.5).

The supply chain task during maturity is simple and straightforward (but very hard to do): Provide product access at the lowest possible costs.

Decline

During decline, efficient operations, including perhaps global sourcing, are needed to support a product with fading sales volume and vanishing profits. You might think the best thing to do would be to eliminate these products. However, you may have customers—who buy other products from you—that continue to rely on these old standbys. Even as you support these customers, you need to plan for spares, production-line transition to new products, and materials and equipment disposal.

BCG Growth-Share Matrix

Boston Consulting Group (BCG) built the BCG growth-share matrix on the lifecycle concept (see Figure 4.6). The BCG matrix categorizes products based on market share and growth rates. The four quadrants are labeled Dogs, Cash Cows, Question Marks and Stars. Bruce Henderson, the brain trust behind the matrix, described the product strategy you want to pursue:

To be successful, a company should have a portfolio of products with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows. High growth products require cash inputs to grow. Low growth products should generate excess cash. Both kinds are needed simultaneously. . . Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities. The balanced portfolio has:

• stars whose high share and high growth assure the future;

• cash cows that supply funds for that future growth; and

• question marks to be converted into stars. 1

The lifecycle of a hit product goes as follows: Begin as a question mark, grow into a star, mature into a cash cow, and decline into a dog. The lifecycle of an unsuccessful product is short circuited: Begin as a question mark and die as a dog.

A Successful Product Strategy

Your job is to make sure you maintain a "full" product pipeline and a diversified product portfolio. In other words, you need to have products in every stage of the life cycle—with new products constantly being born. Products in the introduction stage create excitement, communicating that the company has a bright future and will be able to growth revenues and profits. Products in the maturity spin off the cash to fund future new products and company growth.

However, as you might guess, bringing new products (question marks) to market and growing them to maturity (first as stars and then as cash cows) is easier said than done. Many products are still born and for others, the lifecycle is short, looking much like that of a fruit fly. Consider the following facts:

• Nineteen of 20 pharmaceuticals that reach clinical trial fail—never make it to launch! 2

• Thirty thousand new consumer products are launched each year. Ninety-five percent fail! 3

• According to Nielsen Global New Products report, half of new products fail to attain year one's sales performance in year two. The "vast majority" vanish from the market within the first three years. And, it doesn't matter where in the world you operate, two out of three products will fail! 4

• Only 3% of new consumer packaged goods reach the threshold of a highly successful launch: $50 million first-year sales. 5

The bottom line: From the very beginning, executing a successful product strategy is hard. Even established companies with deep pockets experience painful product failures (see Table 4.1).

To help you succeed, let's take a closer look at the NPD process.