Product Life Cycle and the Limitations of Frameworks

So I’m going to start with something I got from a class I took on product development 5 weeks ago. It’s taken me this long to get around to posting about it because I’ve been turning this idea over in my head. I guess most people are aware (conciously or subconsciously) of the idea of a product lifecycle. It’s been around since the 60’s and the basic premise is that products, most often thought of as an item, like a piece of clothing, have a lifecycle and at any given point in time, the product will be in somewhere on that lifecycle timeline.

Intially, Products are introduced and whoever is selling them is focused on creating awareness in the marketplace (in Australia recently: cider as an alternative to beer & wine). Assuming you’ve got a good product and a willing market you should experience growth, you’re trying to expand your distribution, competitors enter the marketplace, you start to focus on why your product is better, to differentiate from the other offerings. Then comes maturity, you’re a recognised brand in the marketplace, you have your niche or segment and you’re trying to defend your market share and remind people why they should be buying your product (they’re already aware of the product category and they know what your point of difference is) and eventually you fall into decline. Competitors turn your points of differentiation into points of parity, the markets shrinks because the trend has moved on (ie: basketball in Australia now, as opposed to the early 90’s) and you start looking for ways to invigorate your product or find a new product.

In pretty much all cases, companies are selling a product to make a profit and the model allows for that as well, showing that during the introduction phase you’re making a loss while you try and build awareness. During the growth phase you start to make a profit but at a lower rate as you reinvest to build your market and then you hit high profitability during maturity which peters out as it becomes unprofitable to manufacture and service your declining market. One way companies deal with this is releasing new products which then may make the model a self fulfilling prophecy because the new product superseeds the old and so you see that product go into decline.

But there’s something else, right now you’re probably looking at the diagram above and wondering why it just doesn’t look quite right. As a whole, the idea makes sense but as soon as you actually start to apply it in practice, things go wrong. For starters, there’s other factors affecting the sale of a product such as how your Brand is perceived and the timing of the product entering the market.  If the product you are launching is a brand new concept then you need to educate the marketplace about what it does (ie: the original iPad) or you might be trying to emphasize the differences in the functionality of your product where the product is understood (ie: car manufacturers)

The model above shows four relatively equal periods of time for each of the phases but that will almost certainly not be the case. Some products live really successfully in the maturity phase for a long time, others never get there (fashion clothing for example: grows and is gone).

Then there’s the industry factors: maybe you work in tech where the turnover cycle for a product (say a mobile phone) is a sales cycle of 12 months (3 months growing and being the latest tech, 6 months as the “Free on a $59 plan” phone and eventually in decline a pre-paid handset). Or you might have a business based around getting the product up and running, creating the niche, and then selling it off to a bigger player in the marketplace (a pretty common model for tech start-ups). Some people even create businesses around supporting the products that other people have dropped because of this idea that a product in decline is not worth it. For instance, SAAB closed it’s doors earlier this year which has a flow on effect to a bunch of secondary industries including auto mechanics. Now that SAAB owners can’t get their cars serviced through the manufacturer there’s a whole new market opening up, for a product that’s on the decline, but that still needs to be serviced and probably can be quite profitably. I guess the smart mechanics got out there and setup an agreement with the local SAAB dealership that went along the line of “you love the cars, your customers love the cars, give us the details of your servicing list and we’ll keep them happy.” Chris Anderson covers it pretty comprehensively in his now lightly defunct blog ‘The Long Tail’ which has a bunch of fascinating related examples like netflix where as their library of titles grew, they saw significant shift in consumption patterns away from the top 50 releases into less popular titles, servicing the long tail of the declining market.

These models and frameworks are designed for people like me, may not have experience in the area but need to apply some sort of structure to make sense of what they are seeing, the model is not much more than a pretty picture but credit where it’s due, it introduces the concept simply. I guess my observation for studies so far is that MBA students are always looking for a model or a framework to apply, the key points that you can take away from a lecture and the rule of thumb but these things only work if you check that things make sense in the context of the situation. Worse, in applying an ill-fitting model you actually limit your opportunities because you rule out servicing the declining market of SAAB’s or you go in with the mindset that a product is designed to be replaced every 18 months to keep consumers purchasing. Frameworks don’t replace the process of thinking and sometimes that gets lost in a formal education system.

Marketing in the Boardroom

So I’ve prepared a model which attempts to summarize the major points I’ve learned so far in marketing. It has been developed with the intention of being able to expand it as the course continues (ie: the 4 P’s of Product, Price, Place and Promotion) but  in order for me to organize my thoughts, it’s important for me to get something down on paper. It’s also a great opportunity for me to play with a new software package I’m trialling. If you’ve been looking for something that allows you to draw quick conceptual maps then checkout Mindjet MindManager. Thanks to the Devil’s Inquisitor for pointing me in the right direction and if you’re interested in sustainability, check out his blog ‘The future we face rests on the choices you make.’

So looking at this process, there’s another insight that’s been bubbling away for me since I started looking at the value creation process. Namely that marketing isn’t a business unit, at least, not in the way that manufacturing or HR or accounting is. There’s an execution component, sure, activities that needs to be done by marketing professionals like setting up the advertising campaign or understanding the customer and explaining that to the rest of the organization but the more I look at it, the more critical it seems for C-level executives and members of the board to have not only an understanding but a marketing orientation.

It’s a bit like organizational culture; an organization where the CEO yells at people gives implicit permission to the rest of the company that it’s acceptable to do the same thing. In the same way, if you don’t have at least a member of your board with an understanding and willingness to promote marketing within the organization then you’re going to miss out on diversity, insight and perspective. That’s not unique to marketing, and holds true across a board for a number of specialties, but I’ve observed that this is acknowledged far more readily for technical professions or legal or finance than for marketing and that’s the sort of unrecognized bias that keeps a company from reaching its full potential.

In terms of business as a whole, selling has been a critical component since the market came into existence, but selling isn’t marketing. I’d argue that sales is a business unit, like the others listed above (HR, accounting etc.) but where marketing differentiates itself is that it is cross functional. It’s job is to share the mantra of the company, to align the different organizational silos so that everyone understands how they contribute and impact the customer. From this perspective, it’s just as important to market internally as externally, to use the marketing team to help the manufacturing group understand what our customers want via market research or to help the HR team understand the drivers of company culture to assist them to recruit people that are the right fit.

Going back a couple of posts, I talked about customer orientation vs. product orientation: where the product is determined by the customer needs rather than creating the product first and then finding a market to sell it into. It’s the marketing team that is driven to understand the customer and share that insight with the rest of the organization. This intrinsically links marketing with vision and strategic direction and that’s without bringing in the ongoing tasks of product line extension and mix, branding or customer relations.

Post-MBA I’m intending to move to the boardroom, to use the skillsets I have to work as a non-executive director. Taking on the Masters of Marketing has given me a whole new insight into the diversity that needs to be present at board level for the management of risk and the optimization of vision but also how marketing is used internally as another channel for creation of culture and dissemination of information. Having a background in business, but no previous experience in marketing, the value generated from doing a compressed course in Marketing has helped me far more than continued technical specialization would.

Positioning

So this weeks lecture was on positioning, which is the final step in the STP (Segmentation, Targeting, Positioning) process.

In my previous post I talked about segmenting the market, putting your customers into categories. Off the back of that, you make a decision about which customers you want to target (the health conscious breakfast market with a vitamin enhanced juice for example). Positioning delves deeper into that side of things ie: what strategy are you going to use to sell to the segment you’ve targeted.

Positioning relies heavily on your brand. If you are a known brand in the marketplace then consumers are already going to have a bunch of preconceptions about who you are and what you do. When you launch a new product or service, they’re going to assess that new product against what they know about your brand and attribute emotions and beliefs to your product before they’ve even seen it. Likewise, if you’re an unknown brand, you may find it a tough sell if you’re asking people to buy stuff that requires that they trust you (say a car for example, where you want reliability and the assurance that they’ll be around over the next 10 years for servicing and parts). We’ve got a whole unit on brands (which I’m told is really, really good by a lot of the senior students) so I’m not going to get into it too much now but I did want to highlight that it’s an important part of the positioning process. Sort of the background picture on your desktop… something that sets the unconscious mood.

But the thing I found really interesting in Positioning was the idea of Points of Parity and Points of Differentiation. Points of Differentiation (PoD from now on for ease of use) is the one we mostly think of when we’re thinking about products. ‘What does this product offer me that the competition doesn’t’ – like an app store that extends the functionality of your phone to an extent that no single company could match.

But from a product design point of view, that’s starting backwards. Where you need to start is the Points of Parity, namely, what do you need to offer to be considered a ‘product’ in a category. In the example below, that’s the first three circles: the core benefit, the generic and the expected. So for example with mobile phones, the core benefit is that it needs to be able to make & receive calls and be conveniently portable. Every generic product needs a screen for feedback and an address book that stores numbers. Expected benefits are things that might have once been a point of differentiation, but are now just par for the course, things such as customizable ringtones, inbuilt music player and internet access.

Figure 1: Philip Kotler - Five Levels of Marketing

Which now leads us to the two outer rings. Firstly, the augmented product which is the level at which most PoD features occur. This is where an app store like iTunes offers a point of difference to a traditional Nokia or Ericsson. With Windows Mobile and Android both pushing hard into the ap space, it won’t be long before this drops back to the ‘expected product’ ring rather than being a PoD (acknowledging that the ap stores for each system will be different and have their own benefits).

The really interesting one though is the potential product ring. This is where the next set of PoD’s come from, it’s where you leapfrog your competition. One of the things that is really cool about the ap store is it gives Apple (or android or whoever) far more development power than they would have if they were doing all the work themselves. For those of you familiar with Apple products this seceding of control is a big thing for them (they love their end-to-end hardware and software integration and control) but someone there understood that by giving up a little control, they opened up so much potential. There’s stuff put out for phones now that no one could have envisaged 4 years ago when smartphones were just starting to enter the market, augmented reality, micropayment systems, Urbanspoon and yelp.

But to round our the discussion on Points of Differentiation, whatever your killer PoD is, eventually the market will find a way to replicate or offset it. Which is why being the cheapest as your PoD is a really bad idea. Whatever you’re doing, someone can do it cheaper and if you teach customers that the most important thing is price, then the moment someone else is cheaper, you’re market is gone. Which leaves you with a couple of options: Constant innovation (which is good) or making a PoD out of something that’s not easy to copy, like service. In a world where just about anything can be bought out of China (and probably cheaper than you paid for it) finding another way to differentiate means looking at other parts of your product and the most obvious one is service, the way you deliver what you deliver. When I look at the state of Australian manufacturing, I think this model holds true:

There are the innovators – some bring an innovative product to the marketplace and stop, some have a culture of innovation that allows their organizations to exist beyond the first product

There are organizations with differentiators that still apply – ‘yeah you can get it cheaper out of china but who knows what sort of steel they’ll be using or what type of paint but we can guarantee the quality and we’ll have it there in 3 weeks because we only need to truck it down the road’

and there are the organizations with differentiators that no longer apply – ‘yeah you can get it cheaper out of china but who knows what kind of steel they’ll be using or what type of paint… Oh, you’ve got 3 months to procure it and the Chinese are offering 3rd party inspection in their factory for 40% of our price… Oh…’

And the difference between the second and the third type is all on the consumers side, not the suppliers. So I’d get cracking on a new differentiator if I was you… because in the economic climate we’ve got, companies are going to become more concerned consumers.

Market Segmentation

So today’s class was all about Market Segmentation which is the first bit of a 3 part process called STP (Segmentation, Targeting and Positioning).

The idea is that you segment your market and develop consumer profiles for each target segment. There a whole bunch of ways that you can segment a market by:

• geographic (important if you’re a pizza shop, no point in targeting markets outside your delivery area)
• demographic (income or age or stage in the family cycle)
• Psychographic (grouping people based on psychological or personality traits which is important for fast-moving consumer goods in a supermarket: is your target market an impulse buyer or a shopping list maker)
• Behavioural (are they a first time user or a repeat, are they buying from you in a professional context or a personal)

It’s also really important to understand what the market it. When you’re segmenting a market, it’s not just the users of your product, it’s anybody that can use it. The example we were given was fruit juice. The company in question sold fruit juice but had no segmentation of the market. They had a range of products, different flavors, different pack sizes but no real understanding of who wanted them and why. So they sat down and figured out what there main consumption groups were. Turns out there were 3 major times that people consumed juice: at breakfast; out-of-the-home as a snack/lunch drink in a cafe; after school when the kids come home and raid the fridge for anything that will tide them over until dinner.

Then they pushed deeper. Within the breakfast category the Juice company developed consumer profiles, sort of an amalgamated profile of the characteristics of that purchaser/user. There were those consumers who were looking for a meal replacement, others were looking for a heath product and another segment was looking for taste and variety. So the company developed a product for each of those segments. The first one turned out not to be a juice at all, it was a non-juice breakfast meal replacement drink, the second segment got several juices fortified with vitamin A, C & E and folate to capture that health market and the final segment got interesting blends of exotic juices and seasonal flavors.

Every business sells something and for someone with my background, manufacturing engineering, where the selling of the product is quite remote from the execution of the project there’s always the risk that your designers might not have any idea what it is that the consumer actually wants. Which is why marketing is important internally for an organisation. These are the guys who should be helping the designers and the engineers (or the lawyers, or the chemists) understand who the end user is, what motivates them and what their needs and wants are. I’ve never met a designer who wanted to make a crap product but it happens all the time because the communication between what the user wants and what the designer thinks they want isn’t clear (there’s the additional factor of what management will allow them to have but that’s something that marketing should be managing as well). Thoughts?

The Value Creation Process or “Mmmm Shiny!”

Disclaimer: this post might seem really obvious to people from a marketing background but having come from an engineering/manufacturing background, I know this isn’t applied as universally as it should be so marketers, jump to the challenge at the end, engineers, stick around and read my cautionary tale!

We’ve been doing a lot of case learning in class so I’m going to try presenting in that manner… At university some friends and I started an engineering consulting company (3GEngineering.com.au) which picked up project work, mostly in the robotics/automation fields, for companies that wanted new or extended functionality for in-house products that they didn’t have the expertise (or time) to do themselves.

It was really good fun, we got involved with a bunch of interesting projects, from prototyping cars to robotic inspection units and a whole bunch in between. But it was project work, things might be busy for a month or two on a job then nothing for half a year, so a couple of years ago we decided to try our hands at an online store. Steady retail sales would augment the cyclical nature of project work (or so the theory went).

So we had a meeting to figure out what we wanted to sell. Both guys were building houses at the time and being engineers, lighting was a key component of the build. In cupboard LED strips, under-bench lighting, recessed wall floods, we were deep into it. For those that haven’t been bitten by the “Mmm Shiny!” bug this is a very expensive pastime, in the order of a coke addiction but at least with something to show for it at the end (which isn’t an eroded septum).

Being the resourceful gents that we were we got some quotes locally and then, after recovering from the pricing shock, went online and found what we wanted, sourced direct from China for a third of the cost. After getting hold of some samples to QA we settled on 2 suppliers and bought enough lighting gear to illuminate a small town. Installation commenced and I can modestly say, it all looked brilliant (no pun intended). Lots of people commented and several asked to be hooked up and  so we thought, “Ah ha! Here’s our retail store product.”

So we setup Brightify.com.au to import the gear and onsell to home users and tradesmen. We found a point of differentiation: if you buy it yourself from china, you have to cut it to length and solder it up yourself, with ours you specify the length and we prep it for you so all you have to do is remove the stick tape on the back and press it against the wall. And we were pleased with ourselves. All in all, about $20k invested in stock bought plus setting up the website and time and effort.

18 months later: 3 sales totaling just over $1000.

Somewhat underwhelming is probably being a tad generous… 3G’s was still rocking along so Brightify just got pushed into the ‘too-hard’ basket and we focused on other things where we knew what was wrong and were motivated to fix it. So during this weeks marketing class our lecturer presented us with two models for value creation which really resonated with me.

The first was the Traditional Physical Process Sequence which looks something like:

Basically it can be summarized as: get your product -> find someone to sell it to.

It’s been a successful model, historically it’s how a lot of stuff has been sold but the killer for this model is choice. It works really well when people don’t have a choice (because you’re the only widget seller in the area and they need a widget) but with the globalization of the marketplace and the internet giving us access to a range of sellers, like us with the LED lights, the buyer is no longer constrained by geography (there are exceptions to this, say where it’s more expensive to ship them than to buy them locally). And choice means that people generally won’t just “make-do” with a product that doesn’t meet their needs (especially if it’s an expensive product) because they can get something that suits them better.

So the model that  marketing is pushing the rest of the process chain towards is this one:

This one is more like: figure out who you want to sell your product to -> find out what they want -> make it and sell it to them.

In my mind, the big difference is that the second process is driven by the consumers wants and needs, not the product. The product is just the vehicle. It’s a big perspective shift for someone who’s always been product driven but this is the kind of culture you want to build into a company that makes consumer goods, particularly ones that are susceptible to trends/fads.

So back to the Brightify story. We assume that our customers (tradesmen, DIY-ers) want our product but we have no real evidence that they do. We also treat them all the same (ie: we haven’t segmented our customer market) so we have no idea how to advertise our product effectively to each specific market. So right now I’m looking at this and cringing inwardly and wondering how I could have been so oblivious but to their credit, the other owners have looked at this and said “Looks good in theory, but we’ll believe it when we see the results. We’ll pony up another 10k for you to have another go at it. Show us that your MBA has taught you something”

So that’s my challenge: I’ve got $10k to take what we have already at brightify and in in 12 months, build turnover to $100k. Any suggestions on what to do next?