BUSINESS GROWTH AND THE PLC CURVE
You are about to launch a new product or service into the market. Should you continue? Early in the development, you identified the opportunity as significantly large enough to make the investment in the product or service. Your market research and due diligence justified your commitment to the project.
On the eve of the launch you are asked if this is the right product for the market, especially since you are no longer the only competitor. Would you proceed? Do you understand the Product Life Cycle (PLC) curve well enough to launch the product?
Product Life Cycle Curve
Before answering, let’s examine the different phases of the Product Life Cycle curve. Traditionally, the PLC curve is divided into 4 phases: 1) Introduction (start-up), 2) Growth, 3) Maturity, and 4) Decline. Each phase has its own trials and obstacles to overcome.
In the Start-up Phase, there is a “honeymoon” period where the company is excited about the new product or service. The Sales team has been waiting anxiously to get the new product. Collateral materials are created and the product is poised to take-off. Or, is it?
Just before the growth phase is another trial to overcome. At this point reality interjects. You may realize that your product or service has additional competition not previously identified. There may be an additional product or feature required to achieve market acceptance. You are essentially “3-feet” from the proverbial “pot-of-gold” at the end of the rainbow. Will you continue, or go into a new development cycle?
After overcoming obstacles in the Start-up Phase, you now face new challenges within the Growth Phase. Business owners have an interesting dilemma in the Growth phase. Sales may exceed expectations, but now you are looking at capacity constraints or delivery issues. Do you invest additional dollars at this point to continue along the growth curve? Perhaps sales revenue has flattened due to a sales capacity limit. Can you afford additional personnel for the sales team? These questions are known collectively as “The Founder’s Dilemma”. Recognizing and overcoming these challenges is paramount to staying in the growth phase.
Maturity and Decline
Phases 3 and 4 are, respectively, the Maturity Phase and the Decline Phase. They are linked by one of the major challenges for any business: identifying the “Success Trap”. In the “Success Trap”, companies do not recognize that they are at a peak in terms of product / service volume. This is usually related to market dynamics and the competitive environment. If a company does not recognize the “Success Trap”, they will not make the investments required for new products and services. At this point, companies must reinvent their businesses and create a new PLC curve.
Apple’s products provide the proto-typical PLC management within the consumer industry. Apple recognized the peak PC market and transitioned their products into handheld devices. They first invested in the iPod, and created a whole new music eco-system. They then expanded into iPhones and handheld computers. Tablets became a natural extension. Apple recognized the power of the PLC curve and invested wisely to expand their overall market share.
At the beginning, we asked the question of understanding the PLC curve. In the case of Apple, they created a whole new market and new category. Therefore, their potential was limited only by the number of consumers with access to their devices. As a result they achieved exponential growth as the product and the category expanded.
For others, the market may be well established. For example, LED light bulbs have only recently entered the public domain. Have we reached peak volume for LED light bulbs? Fortunately, market studies and government reports actually calculate an installed base of light bulbs for the industry. As an example, for the US, the installed base of 60 watt light bulbs is approximately 3 billion lamps. The premise of LED light bulbs is that they will last many years (22 years based on some packaging). So, peak volume can be predicted using the installed base and empirical models (e.g. Bass Diffusion Model, 1969). This model mirrors the PLC curve and utilizes a limited number of parameters to build a forecasting model. By using the model (which will be the subject of another paper), one can predict that we are still in the Start-up phase of the PLC curve and just about to enter into the Growth phase.
Managing the PLC curve is critical to any business. By understanding the constraints that each section of the PLC curve generates, a business can properly navigate these dilemmas and continue to generate accelerated growth.
About the Author: Garrett Grega is a Certified Business Coach with FocalPoint Business Coaching in Branchburg, New Jersey, where he specializes in reconnecting executives, business owners, and managers with their business passions! He has 20+ years helping international companies launch new products and processes. His professional experience includes: strategic planning, business development, marketing, and product development. See more at www.garrettgrega.focalpointcoaching.com