HOW TO LOCATE A PRODUCT
 

 

 

 

 

 

 

 

 

 

 

 

 

The easiest way to locate a product in its life cycle is to study its past performance, competitive history, and current position and to match this information with the characteristics of a particular stage of the life cycle. Analysis of past performance of the product includes examination of the following:

In addition, current perspectives may be reviewed to gauge whether sales are on the upswing, have leveled out for the last couple of years, or are heading down; whether any competitive products are moving up to replace the product under consideration; whether customers are becoming more demanding vis-à-vis price, service, or special features; whether additional sales efforts are necessary to keep the sales going up; and whether it is becoming harder to sign up dealers and distributors. This information on the product may be related to the characteristics of dif- ferent stages of the product life cycle as discussed above; the product perspectives that match the product life cycle indicate the position of the product in its life cycle. Needless to say, the whole process is highly qualitative in nature, and man- agerial intuition and judgment bear heavily on the final placement of the product in its life cycle.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As a matter of fact, making the appropriate assumptions about the types of information described here can be used to construct a model to predict the industry volume of a newly introduced product through each stage of the product life cycle.

A slightly different approach for locating a product in its life cycle is to use past accounting information for the purpose. Listed below are the steps that may be followed to position a product in its life cycle: Develop historical trend information for a period of three to five years (longer for some products). Data included should be unit and dollar sales, profit margins, total profit contribution, return on invested capital, market share, and prices. Check recent trends in the number and nature of competitors, number and market share rankings of competing products and their quality and performance advantages, shifts in distribution channels, and relative advantages enjoyed by products in each channel. Analyze developments in short-term competitive tactics, such as competitors’ recent announcements of new products or plans for expanding production capacity. Obtain (or update) historical information on the life cycle of similar or related products. Project sales for the product over the next three to five years, based on all infor- mation gathered, and estimate an incremental profit ratio for the product during each of these years (the ratio of total direct costs—manufacturing, advertising, product development, sales, distribution, etc.—to pretax profits). Expressed as a ratio (e.g., 4.8 to 1 or 6.3 to 1), this measure indicates the number of dollars required to generate each additional dollar of profit. The ratio typically improves (becomes lower) as the product enters its growth period, begins to deteriorate (rise) as the product approaches maturity, and climbs more sharply as it reaches decline.