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Aggregate Category Factors
Category size Category growth Stage in product life cycle Sales cyclicity Seasonality Profits
Attractiveness of Market Variables
(Buzzell) .The product life cycle (PLC) is µA generalized model of the sales trend for a product class or category over a period of time. and of related changes in competitive behaviour¶.
The product life cycle Quantity Maturity Growth Introduction Decline 0 Time .
The stretched product life cycle contains seven stages: Gestation or new product development. Growth Maturity Saturation Decline Elimination . Launch or introduction.
Graphically we may represent this as follows Maturity Saturation Quantit y Growth Gestation Launch Time Decline Eliminati on .
The concept of the PLC is firmly rooted in the concepts of the biological life cycle and of evolution. .
It reflects 4 underlying processes. Competition Substitution or displacement The survival of the fittest The inevitability of change .
namely: Needs are inborn and enduring Wants are learned and ephemeral The great majority of actions are motivated by self-interest The act of consumption changes the customer .It also reflects a number of what may be considered useful generalizations if not eternal truths.
Given this µpedigree¶ why has the PLC concept not become the accepted wisdom and universally endorsed by all? .
.Because most people mistakenly try to use it as a predictive device or forecasting tool. Its real value is the insight it provides and its implications unless managerial intervention can moderate or modify the process.
An equilibrium is established and the life cycle is stretched or extended. The limit is broken and a new growth phase is initiated.When a life cycle reaches a limit of growth three basic options exist: A way round the limit cannot be found and the process goes into decline. .
Renewed growth Limit Growth 0 Turbulence Extensi on Declin e Time .The µbiological¶ life cycle.
Product life-cycle Characteristics Sales Profits Cash flow Customers Competitors Key actions Strategy Marketing costs Marketing emphasis Pricing Distribution Product Expand market High Product awareness High Patchy Basic Maintain Intensive Improved Product development Re-segment Brand life Generic life Maintain/increase Intensive Broaden position Market penetration High (declining%) Brand preference Defend share Falling Brand loyalty Productivity Low Image maintenance Rising Selective Rationalize Low Negligible Negative Early adopters Few Fast Peak levels Moderate Mass market Growing Slow to decline Begin to decline High Mass market Many µme too¶ rivals Declining Declining to zero Low Laggards Taking market Introduction Growth Maturity Decline .Characteristics of life cycle stages.
Trying to fit product life cycle curves into empirical sales data is a sterile exercise in taxonomy. The life cycle of a product is the dependent variable. . It is certainly not an independent variable. an important function of a brand name is to create a franchise that has value over time. being a function of the way in which the product is managed over time. product form and for brands ± indeed.The conceptual arguments against the PLC are: Products are not living things. hence the biological metaphor is entirely misleading. The product life cycle cannot be valid for product class. permitting changes to take place in the product formulation.
The main operative arguments against the PLC include:
The four phases or states in the life cycle are not clearly definable. It is impossible to determine at any moment in time exactly where a product is in its life cycle hence: The concept cannot be used as a planning tool. There is evidence that companies who have tried to use the product life cycle as a planning tool have made costly errors and passed up promising opportunities.
In large measure disagreements about the existence of PLC¶s arise from lack of definition of what, precisely, is a product. Doyle (1999) distinguishes 6 possible levels of definition.
Doyle¶s product life cycle factors
Source: Doyle (1999)
But, even if everyone accepted Doyle¶s definitions, the problem remains. Managers are seduced by the consistency of the S-shaped logistic growth curve into the expectation that it can be converted into a precise formula which will predict accurately the behaviour of individual brands in a market.
It cannot tell you in advance which innovation will achieve this status.The persistent belief is ingenuous. . The PLC is a post-facto generalisation about observed outcomes for successful innovations.
It is not a tactical device. policy formulation and long term strategic planning.The PLC is a tool which encourages strategic insight. .
Product¶s position on the life cycle Figure 4.4 Determining a product¶s position on the life cycle source: Scheuing. 1974 .
Linear vs exponential sales forecasts Figure 4.5 Linear vs exponential sales forecasts .
7 The fad PLC .Deviant cases ± fads and fashions Figure 4.6 The classic fashion-good PLC Figure 4.
Category Attractiveness over the Product Life Cycle Sales Stage of product life cycle Category size Category growth Category attractiveness Introduction Growth Maturity Decline Time Small Low Low Moderate High High Large Low Low/high Moderate Negative Low .
Category Factors Threat of new entrants Bargaining power of buyers Bargaining power of suppliers Current category rivalry Pressure from substitutes Category capacity .
Environmental Factors Technological Political Economic Regulatory Social .
Factors in Assessing the Structure of Industries Threat of new entrants Bargaining power of buyers Bargaining power of suppliers Amount of intracategory rivalry Threat of substitute products or services .
Buyer Bargaining Power is High When: Product bought is a large percentage of the buyer¶s cost. Product bought is undifferentiated. Substitutes exist for the seller¶s product or service. Buyer has full information. . Buyer threatens to backward integrate. Buyers earn low profits.
Supplier Bargaining Power is High When: Suppliers are highly concentrated. that is. Supply is limited. . There is no substitute for the product supplied. dominated by a few firms. Supplier has differentiated its product or built in switching costs.
Major Characteristic of Categories Exhibiting Intensive Rivalries Many or balanced competitors Slow growth High fixed costs Lack of product differentiation Personal rivalries .
Impact of Category Factors on Attractiveness .
Typology of Technical Developments * Includes agronomic and biomedical developments. .
Conceptualizing Political Risks .
Projected Change in U.S. Population 19952005 .
S. Income Inequality .U.
Share of Food Purchases .
plus their sub-brands and over 100 smaller players ++ .Energy Bars: Category Attractiveness Summary Aggregate Market Category Size Attractiveness Analysis $504 mm energy bar category in 2001 EEnergy bar category contains four primary brands.
existing brands are expanding with new products and flavors. energy bar category sales forecasted at $750 mm in 2003 for a continued expected growth of 22% Attractiveness ++ IIndustry reports suggest current annual growth for the energy bar market 25%-30% CCategory expanding: new competitors are entering.S. market penetration and usage occasion is increasing .Energy Bars: Attractiveness Summary (cont) Aggregate Market Analysis Category Growth Average annual growth rate of 57% between 1997 and 2001 UU.
Energy Bars: Attractiveness Summary (cont) Aggregate Market Product Life Cycle Analysis Both the category and Odwalla Bars specifically are both securely in early stages of growth phase Attractiveness ++ .
Energy Bars: Attractiveness Summary (cont) Aggregate Market Sales Cyclicity Analysis While energy bars are premiumpriced for their convenience and nutrient level. the base dollar point of $1-$3 per bar is low such that they are not directly impacted by GDP variations Attractiveness + .
Energy Bars: Attractiveness Summary (cont) Aggregate Market Seasonality Analysis Year-round sales CCategory overall may experience a slight sales increase in the spring and summer month during ´race seasonµ and as users are engaged in more outdoor activities and desire quick. portable energy. Attractiveness ++ .
Nevertheless. the recent acquisition of the leading competitors reflects an expectation for strong profit potential. IIncreased category competitiveness may lead to lower pricing and profits Attractiveness + . it is difficult to benchmark profitability within the energy bar category specifically.Energy Bars: Attractiveness Summary (cont) Aggregate Market Profits Analysis As most major competitors are within the product portfolios of larger consumer goods companies.
Energy Bars: Attractiveness Summary (cont) Category Threat of New Entrants/Exits Analysis Strong potential for new competitors given that the category is profitable. FFurther. it is most likely that small competitors will enter through the natural foods channel. and Balance]. fairly easy to enter. . with the ´big threeµ brands Attractiveness - strongly in place [PowerBar. Clif (including Luna). and increasingly relevant to consumers. creating more direct competition with Odwalla bars.
Energy Bars: Attractiveness Summary (cont) Category Economies of Scale Analysis Competitors within the broader category of snack bars would likely experience economies of scale with a relatively easy entry into the energy bar market Attractiveness - .
With the exception of targeted nutrition products like protein.Energy Bars: Attractiveness Summary (cont) Category Capital Requirements Analysis Within the mainstream energy bars. and flavor variety. Attractiveness - .or carbohydrate-specific products. differentiation is largely through brand. taste. nutritional levels are largely at parity.
opening the door to potential competitors Attractiveness - .Energy Bars: Attractiveness Summary (cont) Category Switching Costs Analysis Switching costs are very low.
it would be very easy for any of the ´center of the storeµ consumer food companies to enter the category and add on to their existing distribution structure. This is particularly true for companies that have an established relationship with the category buyer.). Shelf life Attractiveness - .Energy Bars: Attractiveness Summary (cont) Aggregate Market Distribution Analysis As there are not specialty requirements for distribution (refrigeration. etc.
Energy Bars: Attractiveness Summary (cont) Aggregate Market Bargaining Power of Buyers Analysis Lots of competitors with relatively similar options distinguished by brand and taste keeps retailer power strong Attractiveness - .
the commodity nature of agriculture keeps prices and supplier power low. supplier power will be higher for nutrient supplement suppliers Attractiveness + . While still relatively low.Energy Bars: Attractiveness Summary (cont) Aggregate Market Bargaining Power of Suppliers Analysis As the suppliers of raw inputs for energy bars are largely agricultural.
True athletes are most likely to substitute with higher nutrient level energy bars Attractiveness - . are all suitable portable substitutes for the mainstream energy bar consumer. cereal bars. candy bars. etc.Energy Bars: Attractiveness Summary (cont) Aggregate Market Pressure from Substitutes Considerable Analysis FFresh fruit. smoothies.
But. it is too early to determine true capacity Attractiveness + . still.Energy Bars: Attractiveness Summary (cont) Aggregate Market Category Capacity Analysis Appears to be high given current scenario of more than 100 manufacturers and many more products.
Energy Bars: Attractiveness Summary (cont) Aggregate Market Current Category Rivalry Analysis Very high. Differentiation largely by taste and flavor variety. and by targeting unique market segments Attractiveness - .
Energy Bars: Attractiveness Summary (cont) Environmental Technological Analysis Technology could play a significant role with respect to manufacturing efficiencies and taste profiles Attractiveness + .
energy bars have so far seemed to fair the recession well. if economic conditions persist. however. Still.Energy Bars: Attractiveness Summary (cont) Environmental Economic Analysis While premium priced. consumers may opt for less expensive alternatives like fresh fruit or non-energy snack bars Attractiveness + .
additional regulations directed toward the energy bar category.Energy Bars: Attractiveness Summary (cont) Environmental Political/ Regulatory Analysis The energy bar category is regulated by the FDA as are other food products. Attractiveness 0 . There are not to our knowledge. however.
energy bars will continue to be an acceptable meal replacement.Energy Bars: Attractiveness Summary (cont) Environmental Social Analysis As lives get busier and mealtimes shrink. Attractiveness ++ .
3 billion 0%-40% Growth Good one one Attractiveness + + + +/0 + + .PDA: Category Attractiveness Analysis Aggregate Market Factors Market Size Market Growth Product Life Cycle Profits Sales Cyclicity Sales Seasonality $2.
PCs use similar components Intense High Attractiveness 0 + 0 + Category Capacity Not a problem for now .PDA: Category Attractiveness Analysis Category Factors Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Category Rivalry Pressure from Substitutes Moderate. distribution Low. R&D required. high switching costs Moderate.
PDA: Category Attractiveness Analysis Environmental Factors: Technological Political/ Regulatory Economic Social Very sensitive Telecommunications deregulation Attractiveness + Relatively inexpensive More work done on the road + + .
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