Every product has a life cycle. Think of a car: it comes out on the market and attracts attention, then gets more common on the roads, then needs a redesign, and after some time most models’ production gets stopped.
When it comes to most consumer goods bought from China, new designs are often copied very fast — sometimes with the active help from the manufacturer!
That lifecycle is broken down into a number of different stages, as shown in the model below:
I broke down the different phases.
1. Product Lifecycle Part 1
1.1 Design and Introduction
This stage mainly concerns the development of a new product, from the time it was initially conceptualized to the point it is introduced on the market and starts to sell. The company that first had the innovative idea often has a period of monopoly until competitors start to copy and/or improve the product (unless a patent is involved and respected).
- Financial drain (this can be seen on the Profit per Unit line on the graph above)
- No sales profit, all losses
- Low sales volume
- High development effort
2. Product Lifecycle Part 2
2.1 Growth and Competitive Turbulence
If the new product is successful (many are not), sales will start to grow and new competitors will enter the market, slowly eroding the market share of the innovative firm.
The first competitors to market the same product might be piggy-backing on the development efforts of the innovator by using the same Chinese factory (and slightly tweaking the design to avoid legal risks)!
How to reduce the risk of having your Chinese supplier sell the same, or a very similar, product to other companies? Here are a few ideas:
- Source components from Chinese suppliers and put them together in your own country.
- Alternatively, work with a Western-owned factory in China to do the final assembly. They will be more sensitive to IP rights issues.
- Work with a large Chinese manufacturer that has a history of developing new products with Western customers, and have them sign the right type of contract (work with a lawyer very familiar with China law — here is one reason why).
- Develop a strong brand (read about the example of Samsonite here).
- Cost of Goods Sold (COGS) reduced due to economies of scale
- Sales volume increases significantly
- Increased profitability
- Staff expansion, bring skill in-house
- Production planning
3. Product Lifecycle Part 3
At this stage, the product has been standardized, is widely accepted on the market, and its distribution is well established.
- COGS are very low
- Sales volume peaks
- Prices tend to drop due to the proliferation of competing products
- Very profitable
- Promotions, special pricing
- Inventory control and analysis
4. Product Lifecycle Part 4
4.1. Decline and Withdrawal
As the product is becoming obsolete, eventually the product will be retired.
- Sales decline
- Prices drop further
- Profits decline
5. Lifecycle Extension Strategies
As a product nears the end of its lifecycle, the company must decide what to do: withdraw the product altogether or extend the life cycle of the product through a number of strategies.
Product lifecycle extension strategies are marketing techniques designed to extend a product’s life cycle. If an organization decides to continue selling the product as it reaches saturation or enters the decline phase, there are a number of strategies that can be implemented:
- Repackaging and new sizes: the appearance of the product can be crucial gaining a customer’s attention and developing interest
- New formulas, different scents, flavors, colors
- Additional features, additional product as a bundle bonus
- Lower prices to maintain interest or liquidate surplus stock
- New advertising campaigns
- Altering the channel of distribution, such as online shops
- Finding new markets – this may be locally, nationally or internationally.
6. Speed to Market
Part 1 is the stage where the innovating company is under the most pressure from a financial standpoint. The longer the period to develop a new product and get that product into the market, the greater the financial drain.
With this pressure on getting to market as quickly as possible, most SMEs will take the most expedient route. If that means not following any New Product Development procedure, then some organizations see that as a risk worth taking. The problem is, a lack of formal process usually results in project lateness because of poor communication, unclear expectations, redesign and redevelopment caused by mistakes caught too late, etc.