Product Life Cycles

Yet another crucial dynamic involves the life of each particular product or service.  Each starts out in the frontier as something new to the world and, thus, more or less proprietary.  As it becomes better known and more widely accepted, however, it turns slowly (and sometimes not so slowly) into a commodity.  In other words, it has gone through the crucible of business consolidations that lead to low margins and high volume.  A good example is personal computers.  These were essentially new products until the late 1980's, but are now commodity items with few differences between brands.

Most companies are able to operate in either the proprietary or the commodity world, but generally not both.  They typically have the infrastructure and culture to support only one or the other.

Two good examples of companies that favor proprietary products are Merck and 3M.  Both organizations' products start out in the frontier, then tend to drift toward a kingdom or a jungle environment.  The company can deal effectively with either of these outcomes - but if a product moves too far in the direction of a battleground, management is not happy. In contrast, other companies clearly have a commodity atmosphere and culture.  Anheuser-Busch, for example, has not brought out a new beer in years.  Its products may be given a slight change in color or dryness, but the company avoids offering a significant "new to the world" beer.  Anheuser-Busch simply does not have the culture to support that sort of innovation.  The organization lives with numbers in the tens of millions of bottles and tens of millions of dollars; its people simply cannot be comfortable bringing on a new line with numbers in the hundreds of thousands.  

Since the quality of commodity products is similar, commodity-oriented companies engage in a battle for the lowest cost and the most shelf space, use, or visibility.

These organizations thus spend much of their marketing activity creating new points of distribution.  

Commodity organizations tend to focus on the following:

•    Brand management
•    Low cost suppliers
•    Lean manufacturing
•    Simplification of processes
•    Extensive advertising
•    Image development
•    Shelf space tactics
•    Product differentiation
•    Intensive marketing
•    Product extensions
•    Speed of adaptation
•    Standardization

In contrast, companies holding proprietary rights to their products are especially concerned with building markets.  They thus tend to focus on the following:

•    Customization
•    Product technology
•    Intensive R&D
•    New product development
•    Market acceptance
•    Market knowledge
•    Advanced manufacturing technology
•    Market domination
•    Speed in getting to market

The life cycle of products and services has itself undergone a major change over the past decades.  Years ago, during the era of kingdoms, a product or service would be born in a frontier setting, achieving high margins in an open market with lots of opportunity.  As time went on, it typically moved rather quickly into a kingdom market, where efforts were made to dominate, and prices and margins stayed high.  A product could then be reasonably expected to remain in a kingdom market for 15-20 years.  This would allow for excellent margins, which would support both the kingdom bureaucracy and any new product development.  The product would eventually become a commodity, as the patent wore out and other companies began to manufacture it much more cheaply.  Normally this would take long enough that the bureaucratic superstructure and new product development costs would be more than covered.

Today's normal cycle is much different.  It begins in the same manner, but today most new products and services move very quickly - often within weeks or months - into a jungle environment.  Here it is confronted with similar products, and domination is seldom attained.  As a result, margins are lower, and very quickly thereafter many players disappear or are acquired.  A handful companies end up in a battleground, producing the product as a commodity.  This entire cycle can occur in as few as six months.  

The implications of this are both many and immense.  The most important ones are:

1. It is no longer valid to assume that new products will naturally serve as a source of revenue for supporting organizational superstructures.
2. The cost of new product development needs to be reduced through speed and prioritization, since the time in which a new product or service can produce tolerable margins has grown shorter, and more new products need to come to market more quickly.
3. Much of management's strategy will need to involve keeping products from running through the whole cycle of frontier to battleground too quickly.

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Four Types of MarketsTransforming a Kingdom Mentality As little as two decades ago, a large number of American companies operated in kingdom environments.  Most of those environments are gone, transformed into  battlegrounds or jungles by the pressures of globalization, technology, increased efficiency, and the ever-increasing demands for improved quality and low prices. Read More Making the Right Match It has, I hope, become clear by now that in order to successfully market any product or service, a company must first identify which of the four market environments the product will be sold in.  Then it needs to adapt (or create) a marketing strategy to suit that environment. Read More Product Life Cycles Yet another crucial dynamic involves the life of each particular product or service.  Each starts out in the frontier as something new to the world and, thus, more or less proprietary.  As it becomes better known and more widely accepted, however, it turns slowly (and sometimes not so slowly) into a commodity.  In other words, it has gone through the crucible of business consolidations that lead to low margins and high volume.  A good example is personal computers.  These were essentially new products until the late 1980's, but are now commodity items with few differences between brands. Read More Product Evolution and Market Flow No one product or industry remains in a single market environment forever.  Like any other dynamic system, the market for any product or service is always in some flux.  Read More Market Dynamics Each of the four market environments requires its own organizational structure and set of behaviors. Furthermore, each must follow a unique strategic style if the company is to survive, succeed, and excel.  In short, what will work for Coca-Cola will spell disaster for amazon.com, and vice versa.  Read More Some Real World Examples One way to better understand these four market environments is to look at some companies that routinely do business in them. Read More Four Market Archetypes Each of today's organizations operates in one or more of these four distinctly different market environments: the kingdom, the battleground, the jungle, and the frontier. Read More