Business planning - making best use of the product life cycle

The product life cycle is a key tool for managing cash flow, market development and production planning, Neville Stein explains.

Here we are in 2016 and a happy New Year to you all. Festivities and decorations are packed away along with the old year and perhaps, like me, you will be looking back and reviewing the highs and lows of 2015 as well as looking forward with anticipation to what might happen next.

You might even have used the PESTLE tool from my last feature to analyse opportunities and threats facing your business in 2016 or more likely you spent time marvelling at the mix of skills, luck and pure chance it took to win or lose all those family board games over the Christmas period. So how much can we plan and foresee in our businesses? How much is luck or chance and how much can we control? Let’s take for example the issue of the "product life cycle" and what it means in your business.

Consumer behaviour

As we look back over the past year a recurring theme for our sector revolves around the changing pattern of consumer behaviour, notably in how they purchase plants. If you are a garden retailer you will be aware that generally speaking the gardening public are shunning good old garden favourites such as forsythia in exchange for vibrant colourful plants that are used as decorators rather than for providing structure in the garden.

I could spend ages debating the changing pattern of consumer behaviour but there is little point because there is already substantial information available in the public domain from organisations such as the Future Foundation, accurately describing the changing face of the UK consumer.

Similarly, if you are a manufacturer or producer you will be aware of how demand for your products has ebbed and flowed over the years. It should be no surprise that demand for certain products declines — in fact, this should be accepted because the decreasing popularity of a product is a natural part of its life cycle.

Distinct phases

The product life cycle covers the period of time over which a product is developed, brought to market and eventually removed. Elements can be forecast, particularly if you have access to data about the life cycle of similar previous products. The life cycle has five distinct stages and is typically represented as an S curve in graph form. Those five stages are:

1. Product development This is about finding and developing a new idea.
2. Introduction Typically this is a period of slow sales growth while you introduce the new product to your market.
3. Growth As there is increasing adoption of the product, sales — and hopefully profits — will grow.
4. Maturity This is a period when sales slow down.
5. Decline When sales drop.

Covering your investment

After launching a new product you want it to enjoy a long, healthy and profitable life, and there are ways to prolong this. But very few things will sell forever in one form or shape — look at all the reincarnations of Coca Cola. The bottom line is that you will need a product to earn at least enough to cover all the investment that went into launching, stocking and selling, and then to keep it selling for as long as you can.

If you have studied marketing you will be familiar with this classic piece of marketing theory and it is obviously not rocket science. It is, however, really important for owners and managers to use this tool in their businesses to help manage cash flow and to manage the availability of those all-important next bestsellers.

At the product development stage you will be burning a lot of cash with no sales to cover development costs. When the product is introduced a lot of cash will be required to promote it to the target market and sales revenue will probably not yet cover the marketing costs.

Fortunately, as the product moves into the next stage — growth — marketing costs should be lower, and as sales increase so to should profits.

This should continue through the maturity stage until sales and then profits fall as the product enters the decline stage. Essentially the cash needs are front-loaded in the early stages of a new product and this will need to be financed and monitored to ensure that funds do not fall short at a vital time. Failing here means everything is lost or that finance has to be diverted from other projects.

Another important reason to use this tool is to understand where your current products are on the life cycle and to then take action to prolong their lifespan. For example, if you have products at the maturity stage there may be something you can do to extend that period. A classic example is doing a "Kit Kat". One might argue that it was at maturity stage, yet this stage was prolonged by developing Kit Kat Chunky, Kit Kat White and Kit Kat Dark.

Likewise, to extend sales of a mature product one might consider repositioning it. You might recall when ill as a child being treated to a bottle of Lucozade with a yellow cellophane wrapper. To prolong sales it was repositioned as a sports drink. So you might want to consider repositioning your products. Could heathers be repositioned as disposable winter basket plants? Could conifers be repositioned as trendy door sentinels?

Production planning

My final reason for the importance of the product life cycle as a tool for managers is that it also aids production planning. Plotting where your products are on the life cycle is vital if you want a proactive approach to developing your market. In practice, this means that you need products at varying stages of the life cycle.

If all your products are at the maturity stage and you have none coming through your system at the development, introduction or growth stages then you have a severe problem looming.

Sales and profits will fall, and you will have nothing to take the place of those products that are at maturity stage. We can celebrate all those wonderful bestsellers but, as in all businesses, never rest on our laurels.

Using this tool in conjunction with an understanding of how consumer behaviour is changing and in conjunction with the PESTLE tool will improve your planning and keep you one step ahead. However, there are some things that we cannot control or easily anticipate that can shorten a product’s life cycle, such as the abnormally mild and warm December weather of 2015.

That is where the legendary creativity and adaptability of our industry can come into its own in extending and repositioning certain products. Let’s lend that trend for spring decorations a bit more momentum — Easter trees and Easter door wreaths anyone?

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