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AMI4900: Engineering Design

Unit 1: Commercial Overview

Section 2: The total product life cycle

1.2 The total product life cycle

A project has a defined set stages called the Product Life Cycle (PLC). It is based upon the biological life cycle. For example:

• A seed is planted - introduction
• It begins to sprout – growth
• It shoots out leaves and puts down roots as it becomes an adult – maturity
• After a long period as an adult the plant begins to shrink and die out – decline
• It is then disposed of in an environmentally safe way usually by recycling - withdrawal

In theory it's the same for a product. After a period of development it is introduced or launched into the market. It gains more and more customers as it grows, eventually as the market stabilises, the product becomes mature. Then after a period of time the product is overtaken by new developments and the introduction of superior competitors, it goes into decline and is eventually withdrawn.

However, most products fail in the introduction phase. Others have very cyclical maturity phases where declines see the product promoted to regain customers.

We define a product as anything that is capable of satisfying customer needs. This definition includes both physical products (e.g. cars, washing machines, DVD players) as well as services (e.g. insurance, banking, private health care).

Businesses should manage their products carefully over time to ensure that they deliver products that continue to meet customer wants. In this way businesses maintain a cash flow that covers the company’s costs and delivers s a profit to it. With out this profit very few businesses can survive in the longer term. The process of managing groups of brands and product lines is called portfolio planning. The life of a product is the period over which it appeals to customers. The sales performance of any product rises from nothing when the product is introduced to the market reaches a peak and then declines to nothing again. A good example of products that have had short lifespan in recent years are home computers. New models with new specifications are launched on the market rapidly to be replaced by newer models. There is a similar story for mobile phones and video games software.

The figure below illustrates the Product Life Cycle in which sales are plotted against time. The classic product life cycle has five stages:

• Introduction
• Growth
• Maturity
• Decline and
• Withdrawal

Figure1.2.1

Product Life Cycle

The Product Life Cycle can be further broken down into distinct stages. Sales grow slowly at the introduction stage when a product is new on the market and there is only a limited awareness of its existence. Sales then grow rapidly during the period of growth. It is now that competitors enter the market and promote their own products. This will reduce the rate of growth of sales. This period is known as maturity and it is at this time that the market becomes saturated as there are too many firms competing for customers. Firms will compete in a variety of ways and some will drop out of the market. The product market finally declines and the existing product becomes unprofitable.

The Product Life Cycle of some products may last for hundreds of years while for others it may be a few months. If a firm wants to prolong the life cycle of its own distinct product it is essential to invest well in the development of the product and the promotion of it. This may mean that a lot of work is put into the product before it's launched. Once the product is on the market it may be necessary to periodically inject new life into it. This can be done in several ways including:

• Product improvement
• Extending the product range
• Improved promotion etc.

The Product Life Cycle process is the mechanism through which products are managed from inception to retirement.

The Product Life Cycle does not have to end. It can easily be prolonged by a range of marketing and production innovations.

Introduction Stage

At the Introduction (or development) Stage market size and growth is slight. It is possible that substantial research and development costs have been incurred in getting the product to this stage. In addition, marketing costs may be high in order to test the market, undergo launch promotion and set up distribution channels. It is highly unlikely that companies will make profits on products at the Introduction Stage. Products at this stage have to be carefully monitored to ensure that they start to grow. Otherwise, the best option may be to withdraw or end the product. The need for immediate profit is not a pressure as the lack of it is expected at this time. The product is promoted to create awareness. If the product has no or few competitors, a skimming price strategy is employed to maximise profits. Limited numbers of product will be available in few channels of distribution.

If we now show the profit and loss for the Product Life Cycle then the figure below clearly illustrates that heavy costs are involved before the launch of the product that are incurred during the product development. This is a negative cash flow and great effort is usually applied to minimise this expenditure.

Figure 1.2.2

Product Life Cycle with Profit and Loss

The introduction stage encompasses a number of activities that will include:

• Concept: Overview of the customer requirement that an opportunity seeks to address, supported by evidence of market need

• Definition: High-level definition of customer requirements and analysis of business opportunity

• Design: Analysis of customer requirements creating project plan and detailed product specification

• Development: Data and software development

• Development Testing: Testing of the product against pre-defined test schedules to ensure satisfactory performance against customer requirements

• Development of pricing and licensing model

• Development of user guide, alpha/beta data

• Introduction of the product to the market place

• Pricing and licensing finalised, pre-launch live data, customer and partner communications

• Promotion becomes more widespread and uses a greater variety of media

• Ongoing management: Capture, research and analyse new requirements; product releases, customer and partner service and support

• Involvement in elements of these stages is dependent upon your level of Insight qualification

Figure 1.2.3

Introduction stage

It is in this stage that Engineering Design comes to the fore and has its major contribution. The intention is ensure that the new product:

• Meets all the customer requirements
• The design time is minimised as this leads to
  • Shorter time to market for the product
    • Shorter time to profitability for the new product
      • Increase Return On Investment (ROI)
        • Earlier payback of investment costs

Growth Stage

The Growth Stage is characterised by rapid growth in sales and profits as the product or service is becoming established. Profits arise due to an increase in output (economies of scale) and possibly better prices for raw materials and manufactured components. There may be fewer competitors, sales are growing and profit margins are good. Now' is the time to work out how you can reduce the costs of delivering the new product. At this stage, it is cheaper for businesses to invest in increasing their market share as well as enjoying the overall growth of the market. Accordingly, significant promotional resources are traditionally invested in products that are firmly in the Growth Stage.

Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilise.

Maturity Stage

The Maturity Stage is, perhaps, the most common stage for all markets. It is in this stage that competition is most intense as companies fight to maintain their market share. Here, both marketing and finance become key activities. Marketing spend has to be monitored carefully, since any significant moves are likely to be copied by competitors. The Maturity Stage is the time when most profit is earned by the market as a whole. Any expenditure on research and development is likely to be restricted to product modification and improvement and perhaps to improve production efficiency and quality. Sales growth is slowing or has even stopped. You will have been able to reduce production and marketing costs, but increased competition has driven down prices. Now is likely to be the best time to invest in a new product. Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilise. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins.

Decline Stage

In the Decline Stage, the market is shrinking, reducing the overall amount of profit that can be shared amongst the remaining competitors. At this stage, great care has to be taken to manage the product carefully. It may be possible to take out some production cost, to transfer production to a cheaper facility, sell the product into other, cheaper markets. Care should be taken to control the amount of stocks of the product. Ultimately, depending on whether the product remains profitable, a company may decide to end the product. At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting.

Withdrawal stage

In this stage product retirement takes place and a migration plan for the company products and markets will be established to support customers and partners. It is within this stage of the life cycle that the recycling and final disposal of constituent components has to be addressed. It is of prime importance that this stage of the Product Life Cycle has been fully considered during the product development in the introduction stage. The figure below illustrates the process involved in the Product Life Cycle.

Figure 1.2.4

Previous environmental impact of product life cycle

The raw materials are extracted from the environment, the air, the sea and the land, through many processes typified by mining. The raw materials are then processed into refined products for use in product manufacture. Then through distribution networks they are delivered to customers and achieve hopefully a useful working life.

At the end of this work life the products are disposed of. Typical this disposal takes the form of dumping into landfill and hither to there has been little recycling of the products. This has caused concern for the environment on a national, European and global stage and has led to the introduction of harmonisation standards. The major directives affecting this area are:

• WEEE
  • Waste from Electrical & Electronic Equipment
    • The purpose of WEEE is:
      • The prevention of waste EE equipment and in addition the re use, recycling and other forms of recovery of such waste as to reduce the disposal of waste
• RoHS
  • Restriction of the use of certain Hazardous Substances in electrical and electronic equipment

Manufacturers will we be affected by WEEE

• Producers have to pay for collection from a central point and disposal
  • “producer” is anyone making goods available to a customer
  • Free take-back of goods from private households including from retailers
  • Recovery & recycling
  • a target per head of the population per annum
    • 50% to 80% within 4 years
• Manufacturers will we be affected by RoHS
  • Everything electrical covered except medical equipment, and monitoring and control equipment
  • From July 2006:
    • lead, mercury, cadmium, hex-chromium, polybrominated biphenyls and polybrominated diphenyl ethers will be banned

In addition other regulations will be applicable:

• Packaging Regulations
• End of life for vehicles (ELV)
• Landfill Directive
• Hazardous Waste Directive
• End of use equipment directive (EUE)

The intention of these directives will lead to re-mapping of Product Life Cycle processes. The retired products will be taken back from the customer so that they can be reused directly through distribution. Products will be put through a product de-manufacture to extract sub components or materials that can reused in product manufacture or material processing for new components. Materials will be extracted from the de-manufacturing process to be fed back as raw materials as well as being in energy recovery schemes for heat, power and clean fuels. The remaining residue will then be disposed in landfill. This residue is anticipated to be a significantly smaller amount than that currently disposed of. In addition the cost of the final disposal into landfill will be increased substantially to act as a deterrent to polluting the environment.

Figure 1.2.5

Environmental impact of product life cycle following new directives

There is and will be significant design effort to ensure conformity with the new regulations.

Problems with Product Life Cycle

In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously. The decisions of marketers can change the stage, for example from maturity to decline by price-cutting. Not all products go through each stage. Some go from introduction to decline. It is not easy to tell which stage the product is in. Remember that Product life Cycle is like all other tools. Use it to inform your gut feeling.

The Product Life Cycle with profit and loss was shown previously in the graphs and has two lines - one to show the level of profit, and one to show the level of sales.

Firms will often try to use extension strategies to try to delay the decline stage of the product life cycle. The maturity stage is a good stage for the company in terms of generating cash. The costs of developing the product and establishing it in the market are paid and it tends to then be at a profitable stage. The longer the company can extend this stage the better it will be for them.
New products and services are the lifeblood of all businesses. Investing in their development isn't an optional extra - it is crucial to business growth and profitability. But embarking on the development process is risky. It needs considerable planning and organisation. Identifying where products or services are in their lifecycle is central to your profitability.

Effective research into your markets and competitors will help you do this.
You can extend the lifecycle of a product or service by investing in an "extension strategy". You could:

• Increase your promotional spend
• Introduce minor innovations - perhaps by adding extra features or updating the design
• Seek new markets

But ultimately this only delays a product or service's decline. Ideally, you should always have new products or services to introduce as others decline so that at least one part of your range is showing a sales peak.

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