Analysis of product life cycle model!

How do you view the product life cycle ? Insights into the product life cycle can help us better implement product planning and have a deeper control over the market and ourselves. Specifically, what stages can the product life cycle be divided into? In this article, the author summarizes the product life cycle and its various stages. Let’s take a look.

In Luo Zhenyu's 2019 New Year's Eve speech, he said that the Chinese economy has reached a point where it has switched from elevator mode to rock climbing mode.

Why? It is so easy to take the elevator. Why go through the hard rock climbing when you might fall to the bottom of the mountain if you are not careful?

That’s because our GDP has grown rapidly over the past 40 years, with an average annual growth rate of around 9.5%, and even over 10% for a period of time.

The competition between enterprises is a battle of “who can grab it faster”.

Those who grab things quickly get more, and those who grab things slowly get less. The ground is full of gold, if it's not yours, it's mine.

But what about now? The GDP in 2019 may be around 6%.

This is why everyone feels that business is becoming increasingly difficult, because in the past it was all about incremental business and no one cared about existing business.

The competition between enterprises now is likely to be a competition for existing products.

So what should we do if we want to change, find a foothold in this new competition, and succeed in rock climbing?

I suggest that you add the concept of timeline when making products.

Once you add the timeline and look at the changes in history from a bird's-eye view, you will find that the world is always evolving and never stops.

At this point, your product, like each of us and every company, also has its own life cycle.

1. What is the product life cycle?

What is the product life cycle?

We divide it into four stages: investment, growth, maturity and decline.

1. Investment period

One day, you feel that you have insight into user needs, and decide to invest time and resources to start making a product.

But during this period, you are not making any money because you have no users yet.

Users will not pay for your dreams, they will only pay for their needs.

This period is called the investment period.

2. Growth stage

Until you finally reach the second stage, which is the growth stage.

Well, congratulations, your product really meets the needs of some users instead of just staying at the “you think” stage.

In fact, most startups fail during the investment phase. What does this mean to you as you enter your growth period?

It means that you need to quickly gain market share and continuously expand the market size.

3. Maturity

By expanding the market size and allowing more users to recognize you and acknowledge the value of your product, you will enter the mature stage.

At this stage, you will find that you are finally making money and your profits are starting to stabilize.

At this time, the most important thing for you is to optimize your supply chain, optimize your production structure, and optimize product functions.

4. Decline

Whether you like it or not, your product will enter the fourth stage, which is the decline stage.

Don't expect the possibility that you can make a product that can be consumed for 100 years. Coca-Cola is a very rare example and it can do it, but you can't.

Therefore, on the first day you decide to make a product, you must think clearly about how your product will eventually die.

These are the four stages of the product life cycle.

You can also see that in this model diagram, in addition to these four cycles, there are several colored, solid and dashed lines.

Why add these lines?

That’s because the product life cycle has different focuses for companies at different stages, so I drew 6 particularly important lines on it, hoping to explain the model more clearly.

The six lines are: sales, cost, price, innovation, competitors, and profit.

Let’s talk about the price line first. What are the characteristics of the product's price? Its characteristic is that once your product is produced, the price will go down all the way. You might say:

"No way. Look at the price of Huawei phones, they are getting higher and higher in the past two years."

Indeed, the prices of Huawei phones have been getting higher and higher in the past two years. That's because Huawei's new phones are more expensive than old ones.

The price of each of its new mobile phones goes down over time.

So this is the characteristic of prices, the prices of most products are going down all the way.

Let's talk about the competitor line.

You must have noticed that this line begins to appear in the growth stage and reaches its peak in the maturity stage.

Why? Is there no competition during the investment period?

Yes, it is true that no one competes with you because you don’t make money. Many people are watching you, watching you spend money in the education market and exploring the model. So this period is also called the monopoly period.

But once your product starts to make money, enters the growth stage, and reaches the maturity stage, competitors will surely come in droves.

When we start a business, you will find that you cannot feel your competitors because you are always challenging others.

But once you make money, you become the challenger. You become the one who helps others spend a lot of money to try out business models and product forms, helping others save everything.

As a result, your competitors directly use the results you tested to compete with you.

It sounds a bit cruel, but this is the cruel competition in business.

So what do the sales, cost, innovation capability and profit lines mean?

Don’t worry, I will talk about these lines in detail when I explain the different stages of the product life cycle below.

As entrepreneurs and start-ups, when we add a timeline and look at product changes from a bird's-eye view, what should be our focus at different stages?

This is the most important thing for us.

Next, let’s talk about which line is the most important according to the different stages of the product life cycle.

2. What is the most important thing during the investment period?

What is the most important thing during the investment period?

During the investment period, which line is the most important: price, sales, cost, innovation ability, or profit?

Innovation ability.

During this period, innovation ability is the most important for a startup company.

My entrepreneur friends often say that innovation and R&D capabilities require strong financial and talent reserves, and that these are things that only large companies can do.

Is this really the case?

Not really. If you think carefully and pursue perfection, you will find that every industry and every product around you is actually worth redoing.

Take the simplest notebook as an example.

Every year I receive various paper notebooks as gifts from various organizations.

I don’t use paper notebooks very often, so I put them on my bookshelf or give them out to classmates in the office.

But today's book gave me the urge to use it.

1) The back of the notebook is a power bank with three interfaces, which are hidden so that you can’t see them at all.

2) The button of the notebook is an ultra-thin USB flash drive.

3) The cover can actually charge your phone wirelessly.

Do you feel like 007?

What does this notebook illustrate?

We often say that the starting point of all business is the benefit to consumers. Are you thinking about the product or the user?

People who only focus on products will eventually be eliminated; people who focus on users will always be iterating. Management guru Peter Drucker once said:

All the innovations are due to a cost reduction of more than 30%.

All products will become cheaper and cheaper in the future. It is cheaper because of higher efficiency, not because of sacrificing profits. Some of my friends may not agree with Drucker's words.

"How is that possible? I'm making a brand new product that has never existed on the market."

"Reducing costs by 30% is what companies pursuing cost-effectiveness do."

"Our brand new product relies on new ideas and new technologies."

But in fact, if users approve of the new products these friends mentioned, the cost can essentially be reduced by 30%.

For example, humans invented the car. There were no cars before, people rode in horse-drawn carriages. So does this innovation reduce costs by 30%?

Yes.

All products are used to solve problems. The problem is that there is a price.

For example, what problem does a car solve? It is to send people from A to B. How did you get there in the past? carriage. The sum of all the costs (costs, time, comfort, pride, etc.) of my riding in a horse-drawn carriage from A to B is the total cost of the act.

In the past, it cost, for example, 10 yuan to go there by horse carriage. But if you add in all the hidden costs (time, comfort, pride, etc.), it may actually be worth 100 yuan in total.

Note, this is the key: many people only see the 10 yuan but not the 100 yuan. This 100 yuan is the real cost for users.

Then what?

As long as the car is priced below 70 yuan, people will flock to it. Doesn’t this automobile innovation essentially reduce costs by 30%?

During the investment period, when starting a business, the starting point must be to benefit consumers.

You can make more money and reduce costs by 30% by using the same product that satisfies consumers' needs. Such an enterprise is admirable.

Entrepreneurs like this deserve respect. In the new era, everything deserves to be redone.

Of course, during the investment period, there are many ways to innovate. In any case, as an entrepreneur you have created an innovative product that is recognized by consumers.

At this time, there is another important thing for you, which is to build barriers and create an intangible asset moat.

What are barriers?

No matter how good your product is, is it possible for others to make it as good as yours? If others can do it too, then you have no barriers and your users will be taken away by others.

So how can we build barriers?

You need to build your intangible asset moat during the investment period to prevent others from making your products and snatching away your customers.

For example, on a beach, many people are sunbathing and swimming.

Some people are very smart. They sell iced cola. They buy it at 2 yuan and sell it for 10 yuan. A lot of people buy it, so they make a lot of money.

But the good times didn’t last long. Many people discovered this business opportunity and rushed to sell their products. Gradually, the competition became more and more intense and no one made any money.

Why?

It’s because the first person who sold iced cola had no barriers and no moat.

But what if someone invented something that could hold up the Coke and stick it into the sand like a fork, thus isolating the hot sand? Although the ice Coke would also heat up, it would be much slower.

With this thing, many people will buy Coke with this fork.

This thing is very popular and others want to follow suit, thinking that it’s just a fork, simple.

But when some people really start to do it, they find that they can’t do it. Why?

Because the first person who invented the fork has applied for patent protection.

This is the intangible asset moat.

So, what is the most important thing during the investment period?

Innovation ability is the most important, and it is most important to dig an intangible asset moat and form barriers for yourself.

I’ve heard many people say that during the investment period, those who make products first have the first-mover advantage.

Indeed, being the first mover has advantages, but we must be clear in our minds that the first mover advantage is not a moat. The first mover advantage only helps you buy time to dig a moat.

3. What is the most important thing during the growth period?

After talking about the investment period, what is the most important thing when entering the growth period?

Among these six lines, sales, cost, price, innovation capability, competitors and profit, which one is the most important?

Sales are the most important.

Why?

Because your company has reached the growth stage and your products have been recognized by some users, what you need to do now is to continuously expand the market size through sales.

As the market size continues to expand, you can continue to reduce costs.

This will give you a huge advantage.

So, during the growth stage, sales is the most important line for you.

So how do we increase sales during the growth stage?

Amazon founder Bezos is often asked a question: "What changes will happen in the next 10 years?"

He did not answer other people's questions, but left another classic answer:

Another question that few people ask me is, what will remain unchanged in the next 10 years?

I think the second question is more important than the first because you need to base your strategy on things that don’t change.

What do consumers always want?

Consumers always want lower-priced products, faster logistics, and more product categories to choose from. These things will never change.

So Amazon focuses on these unchanging things - giving customers the most benefit.

Therefore, the question of how to increase sales and expand the market size becomes how we can reduce the cost of our products.

We can simply say that the cost of a commodity is the sum of transaction cost and production cost.

For example, the cost of one of your products is 10 yuan. Of the 10 yuan, let's assume there are 7 yuan in transaction costs and 3 yuan in production costs.

So during the growth stage, is it easier to reduce 2 yuan from the production cost of 3 yuan, or to reduce 2 yuan from the transaction cost of 7 yuan?

Naturally, it is easier to save money from the transaction cost of 7 yuan.

To reduce the cost of goods, don’t just focus on production costs, but also on transaction costs.

The concept of transaction costs was proposed by the famous economist Coase, who won the Nobel Prize in Economics for it.

How to reduce transaction costs? From a macro perspective, you must always pay attention to changes in new production relations.

The emergence of new technologies and new productive forces is mainly to optimize the “3”; while the emergence of some new production relations is mainly to optimize the “7”.

Railways, roads, telegraphs, telephones, mobile phones, the Internet, and mobile Internet, these connection tools that continuously improve efficiency are constantly refreshing production relations. This "7" is expected to become "5" or even "3".

Of course, there are many ways to reduce transaction costs.

For example, live streaming and online influencers selling products have greatly reduced consumers' trust costs; for example, high-speed rail and the Arctic route that has been hotly discussed this year may reduce logistics costs; and so on.

No matter how things change, the essence remains the same. Everything we do is to benefit users and allow consumers to enjoy better quality products at lower prices.

Only in this way can we continue to expand the market size.

When your scale is large enough, you will find that you have unknowingly dug a second moat for your business - the scale effect.

Since its establishment, Bezos' Amazon has been losing money. Why?

Because he wants to give consumers lower prices.

But he became the richest man in the world, why?

Because lower prices can increase Amazon's sales to a greater extent. By 2015, Amazon had grown so large that other competitors were unable to come in and offer lower prices than Amazon.

Because of this scale effect moat, Amazon’s stock price has skyrocketed since then.

4. What is the most important thing during the maturity stage?

The company has gone through the growth stage and entered the maturity stage.

At this time, which of the six lines: sales, cost, price, innovation ability, competitors, and profit is the most important?

It’s profit, profit is the most important.

You have gone through the growth stage, your product has achieved scale and traffic, you have established barriers and have a brand, now is the time to start making money.

So how do you make money?

Make money by meeting the differentiated needs of consumers through diversified products.

What's the meaning?

During the investment and growth stages, many of our companies use the blockbuster product strategy, concentrating all company resources to create one or two ultimate products and expand the market size.

But when they reach the mature stage, these single products are usually traffic-generating products, and we need to produce other products to meet the needs of different users and make profits.

Lei Jun once said that many mobile phone manufacturers spend a lot of energy every year developing multiple mobile phones, while Xiaomi wants to concentrate all its efforts on making one mobile phone.

But why does Xiaomi have so many products now? In addition to technological products such as mobile phones, power banks, bracelets, etc., it also makes high-quality daily necessities such as towels and mattresses.

Why?

I once consulted Liu De, the head of Xiaomi's ecological chain, about this issue.

Liu De said that this kind of business is the "roasted sweet potato business" for Xiaomi. What's the meaning?

Xiaomi has developed to a point where it already has a huge amount of user traffic. In addition to technological products such as Xiaomi mobile phones, power banks, bracelets, etc., they also need high-quality daily necessities such as towels and mattresses.

So instead of letting this traffic go to waste, it is better to use this traffic to convert some sales.

Just like a hot stove, its heat will dissipate, so it is better to use the residual heat to roast some sweet potatoes.

This is Xiaomi’s “roasted sweet potato business”, which is essentially a diversification strategy.

Another example is Procter & Gamble, which once had more than 200 brands and was a super diversified company.

For example, Apple. Steve Jobs once said that Apple only makes products that can fit on a table.

But now, Apple's products can no longer fit on one table.

Another example is Google. A few years ago, Google changed the name of its parent company to Alphabet. Alphabet means alphabet in English.

So, let's look at the companies under Alphabet.

In the mature stage, the most important thing is to make profits by meeting the differentiated needs of consumers through diversified products. So at this stage, what kind of moat should we continue to build?

The answer is the two moats of network effect and brand.

What is a brand? A brand is actually a knife that a company hands to consumers, saying that if I dare to cheat you, you can stab me to death with this knife.

When a company builds a brand, it invests a huge amount of money in advertising every year, all of which is to store value in this brand.

In case there are some problems with this brand, consumers can report the brand through online exposure, 12315 complaints, etc.

Then all the value that the brand has accumulated over the years will be gone.

So the brand is a knife handed to consumers.

What truly gives you a competitive advantage will never be the product, but the brand that is continuously established through the product.

The ultimate destination of a product is its brand.

What about network effects? Network effects mean that the value of a product to a user depends on the number of other users who use the product. The more users there are, the more valuable it is, and the more valuable it is, the more users there are.

For example, WeChat.

Once the scale of WeChat exceeds a critical point and forms a network effect, other social products similar to WeChat will have almost no chance.

Because as a social tool, even if the new tool is better, I won’t use it if I don’t have my friends on it.

That’s the network effect. In the mature stage, you need to continue to build your two moats, network effects and brand, while continuing to make profits.

5. What is the most important thing during a recession?

After the maturity stage, we have to face a reality that our product will eventually reach its decline stage.

So during a recession, which of these 6 lines is the most important?

cost.

Because during this period, you can make the product decline more slowly by continuously reducing costs.

When Steve Jobs took over Apple again, why did he say that he would only make products that could fit on a table?

That's because, when Jobs said this, the funds on Apple's books were not enough to support Apple for three months.

So Apple must shrink unprofitable product lines and reduce costs.

For example, what did IBM, the former PC giant, do after its PC business entered a period of decline? Sold to Lenovo.

Procter & Gamble, which owns more than 200 brands, has cut more than 100 brands during the recession.

So during the recession, we delay the decline by continuously reducing costs. What kind of moat do we need at this time to make the product decline more slowly?

You need to migrate the cost moat.

What is a Switching Cost Moat?

For example, companies A and B provide services at the same time.

You are using the service of Company A, and the service level is assumed to be 7. And B can provide 8 services.

If the migration is very smooth and cost-free, then of course you will use B's service. But once you migrate there, there will be costs, and you are afraid of the trouble, assuming the cost is 2.

Then you won't turn around. After all, the value that B gives you is 8, and the cost you spend on transferring it is 7+2=9＞8.

Forget it, I won’t forward it. That's what you would think.

This is the migration cost moat.

The time/energy cost that users spend on not using your product, the cost of lost assets, and the cost of relationship conversion can all allow you to dig a moat and slowly slow down users leaving you.

6. Final words

Products, like people and companies, can also be regarded as a life. There are investment period, growth period, maturity period and decline period.

• During the investment phase, innovation capability is the most important, and this is when you need to consider building a patent moat;
• During the growth stage, sales are the most important, and we should continue to build a scale effect moat;
• In the mature stage, profit is the most important, and network effects and brand moats are continuously built;
• During the recession period, cost is the most important, and migration costs can be used to slow down the decline of products.

On the first day we decide to make a product, we have to think clearly about how our product will eventually die.

For example, Apple launches a new iPhone every year. You can understand it as giving birth to a son, but what does it mean when it launches this iPhone?

This means that he killed the previous iPhone.

It's like Apple keeps giving birth to sons every year and then kills one of them.

It sounds cruel, but that's the cruel world of business.

If this son was not killed by Apple itself but by a competitor, the result would only be worse.

Finally, I want to say that although business is becoming more and more difficult, it has changed from elevator mode to rock climbing mode. But when we add the timeline, you know which direction the future should go.

It’s like, even if you are at the starting point, your heart has already reached the other side.

I wish you success!

Author: Liu Run Compiled by: Cheng Zhi

Source: Liu Run