2. Product Portfolio Management (PPM)
âą PPM and the PLC
âą Strategic objectives across the PLC
âą Extending the PLC
Study guide: PPM and the Product Lifecycle (PLC)
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3. Product Portfolio Management (PPM)
PPM and the PLC
A Product Portfolio Manager begins their task by first establishing where on the
product lifecycle (PLC) each of their products currently sits. They do this by tracking
the trends of key metrics like sales, revenues and profits and understanding the
competitive and market dynamics for each of their products.
The next step then is to establish the strategic objectives and of their product consider
a series of strategic and tactical actions for their portfolio of products, depending on
the stage of the lifecycle they are in.
The concept of a lifecycle was first applied to products in the 1950s. According to this
theory, all products have lifecycles, defined at the period from their development
(incubation) of the product through its introduction (birth), growth (youth), maturity
(middle age/old age) and subsequent decline and withdrawal from the market (death).
These broad phases can be clearly identified by plotting on a graph the volume of
sales across the lifetime of the product.
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4. Product Portfolio Management (PPM)
PPM and the PLC
Additionally, at each stage of the productâs sales lifecycle, we can measure the
revenue and costs of the product, and hence determine the profits that the product
makes and track the profit made on the product over time.
It is important to keep in mind that the PLC is not deterministic, i.e., while all products
will follow this shape, the size of the curve (the amount of sales or profits made) or the
length of each stage will be determined by the strategies undertaken by the business.
Managing the product through its lifecycle is therefore a critical issue for businesses.
The PLC is a very effective management tool in this activity because it helps product
managers to understand which stage their product is in currently, what might happen
next and what strategies are appropriate at this stage of the lifecycle.
As with any statically determined model, the higher the level of aggregation at which
we view the information, the better the model fits the data. Hence the PLC is found to
work best at the level of the product category or sub-category. It may be less accurate
at the level of a particular brand or model, though the general shape of the curve
continues to be consistent.
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5. Product Portfolio Management (PPM)
PPM and the PLC
The PLC is usually designated as having five major
phases. These are:
1. Development
2. Introduction
3. Growth
4. Maturity
5. Decline
The amount of time that a product stays in each stage
may vary from weeks and months to years and decades.
The sales volume achieved in each stage is a function of
a number of factors of which two stand out. These are
the potential demand in the market for the product, and
competitive strategy.
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6. Product Portfolio Management (PPM)
PPM and the PLC
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Revenues
Product Life Cycle
Development Introduction Growth Maturity Decline
Revenue/Profit
Time
Profits
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7. Product Portfolio Management (PPM)
Strategic objectives across the PLC
This table summarises the strategic objectives that a product manager must set for
their product across the PLC.
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8. Product Portfolio Management (PPM)
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Development Introduction Growth Maturity Decline
Product
Price
Promotion
Distribution
Competitive
forces
Design and testing of a
product that best meets
the needs of a target
customer set
Build awareness and
trial; establish a
strong market share
Maintain/grow
market share
Defend
market share
Squeeze any leftover
profits from the product
Minimum or
no variations
Minimum or
no variations
Product feature
enhancement;
multiple
variations/extensions
Very minor product
enhancements
Minimum or
no variations
Pre-selling to
distributors at
attractive prices
Skimming or
aggressive market
penetration pricing
Pricing reduction to grab
market share
Price movements
to defend market share
Creation of
awareness in
distribution channels
Aggressive
awareness building
for both customers
and distribution
channel
Establish
market/brand
leadership
Maintain brand
positioning
Declining spend with a
focus on narrower
target segments
Establish launch
distribution channels
that will allow for
reasonable product
availability to early
adopters
Slowly expand
distribution channels as
demand builds; high
margins for distribution
channels to ensure
they provide shelf
space
All possible distribution
channels to ensure
customer demand can
be met; distribution
channel margins start
to reduce
All possible distribution
channels to ensure
customer demand can
be met; low margins for
distribution channel
Nil As product begins to
become popular,
aggressive
competitors enter
Aggressive
competition based on
product different;
competition for
distribution channels
Deeply entrenched
competitors with well-
established market shares;
less capable competitors
have left the market
No/very small number
of competitors
Overall
Strategy
Maintain or even raise
price to achieve small
profit
Only specialist
distribution channel/
lowest-cost channels
are kept alive
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9. Product Portfolio Management (PPM)
Extending the PLC
It is possible to extend the PLC and keep a product in an extended maturity or growth
stage, sometimes even reversing from a decline stage. This can be done through one
or more of the following three strategies:
1. Increase the use of the product amongst existing users. This is achieved by
creating opportunities for existing customers to use the product more often. For
example in the credit cards industry, by increasing the number and type of merchants
that accept cards, we can increase the usage/revenues from the product. In the
toothpaste industry this has been achieved by encouraging customers to brush their
teeth after every meal rather than once a day.
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10. Product Portfolio Management (PPM)
Extending the PLC
2. Create new uses for the product. This can be done by creating product variants
and repackaging the product. A good example of this is the development of Kelloggâs
Cereal Snack bars, which has extended the lifecycle of the base cereal product by
creating a snacking product that can be eaten at times other than breakfast.
3. Identify new customers. This is achieved by expanding into new geographies or
new socio-economic or psychographic groups. A good example of this strategy is
expanding the sale of toothpaste into developing countries or launching wealth-
management products into Latin America and Africa.
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11. Product Portfolio Management (PPM)
Extending the PLC
The table of strategic objectives, demonstrates the complexity of the task for a product manager
when looking across a portfolio of products. Products in different stages may be combined to
form a diversified product portfolio, which can reduce risk. Mature products with strong, steady
cash-flows can help balance the cash-flow deficit of products in the pioneering stage, which will
lower the risk of bankruptcy. A balanced product portfolio will also help smooth production and
personnel needs. Low unit sales in the introduction and decline stages can be offset by higher
sales during the growth and maturity phases. This will facilitate scheduling as well as increase
the stability and efficiency of operations. If the company desires to be a healthy, ongoing
concern, it cannot rely on only one product that will eventually reach maturity and decline.
Instead, it should maintain a portfolio of several products â ideally, at least one product in each
PLC stage. The cash-flows generated by mature and declining products can feed the cash-flow
needs of new, developing products, creating a continuous cycle of evolution. One generation of
products can help give birth to the next. Cash resources need not come from the capital market,
but rather from those units that generate cash-flows. In this way, the firm can perpetuate itself as
a continually evolving, viable system.
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