Life Story

The idea of product life cycle is more useful that you realise

Brian D Smith,  Principal Advisor, PragMedic

The idea of Product Life Cycle (PLC) is familiar to any experienced executive in pharma or medtech. It’s often assumed to be synonymous with line extension tactics, such as reformulation or label extension, that can be used to defend against me-toos and generics. But the inventors of the concept meant PLC to be much more useful than just that. In this article, I’ll first visit the origins of this well-known strategic management tool and then show how it can be essential to optimising the value of a brand.

Although its ancestral ideas can be traced back to the late 19th and early 20th centuries, the concept of PLC as not at a strategic marketing tool is really the child of two later schools of thought. Rogers’ famous Diffusion of Innovation concept, with its ideas of innovators, early -adopter s and laggards, showed how and why the adoption of innovative new products changes over time. Then Levitt, amongst others, described how most competitors chose low-risk imitation of market leaders rather than high risk innovation. Gradually, these two streams of thinking flowed together to form the idea of the product life cycle, a term first used by Dean in 1950. Interestingly, he described it as “the cycle of competitive degeneration”, referring to products’ loss of differentiation over time. Others also developed the PLC idea into the 1950s and the classic curve we now all know, featuring stages of embryonic, growth, maturity and decline, was published by Forrester in 1959. It finally reached the text-books in 1964.

In essence, what those early researchers noted was that it was typical for products to go through stages. Further, they saw that each stage was characterised by certain observable features, such as market growth rates, numbers and types of competitors and level of market penetration. Importantly, they realised a pattern in how those things vary that was reliably predictable.

This history is of much more than academic interest: It tells us three things that many strategic marketers have forgotten. Firstly, PLC is not and was never about individual products. It is about product categories. Secondly, PLC shows that careful observation of current market conditions can be used to predict the future. Finally, those PLC predictions can be used to manage brands and products for greater return on investment.

These three things give us an appreciation of the real value of PLC that is much more useful than the simplistic view used by many current brand teams. Further, a careful reading of the research in this area reveals that there are five steps to releasing the value of PLC that its discoverers first intended.

Step 1: Take a categorical view

The first step in using PLC is define the product category in which you are operating. A product category is simply the aggregate of all products that the customer perceives as interchangeable. Statins, Proton Pump Inhibitors and fMRI scanners are all product categories, individual products are not. Nor are substitutes that the customer sees as different, such as anti-depressants and talking therapies. This definition is important because the subsequent stages of using PLC depend on information that must be collected at product category level, not that of the brand or product.

Step 2: Gather characteristic information

There are many observable factors that vary across the PLC but only a relatively small number of them are needed to give most of the diagnostic insight you need. In pharma and medtech markets, these characteristics include the primary basis of competition, level of product differentiation, rate of growth of market penetration, market share distribution and customer loyalty, as shown in figure 1. These factors are practically PragMedicimportant because they can be measured relatively easily for any given product category. Indeed, this is exactly the sort of information that most companies collect routinely, so PLC analysis is rarely an expensive exercise. It does, however, require careful thought. Like any analytical tool, bad inputs lead to bad outputs, however well the tool is used.

Step 3: Infer current PLC stage

Having gathered the information needed, the next step is to use it to infer the current stage of your product category’s life cycle. The complexity of pharma and medtech markets means that this is more of a craft than a simple calculation. It involves judgment, wisdom and perspective applied in two steps. Firstly, it involves making a judgement about what PLC stage is inferred by each of the individual characteristics. Secondly, It requires the aggregation of all those separate judgements into an overall assessment of PLC stage. In some cases, all of the indicators point to the same stage and it is a relatively simple take to decide the PLC stage. For other product categories, the indicators may appear to contradict each other. This is usually due to them evolving at different speeds and your final judgement should consider not only the current data but also its direction and speed of change. In table 1, the typical characteristics of each PLC stage are illustrated.

Step 4: Anticipate market changes

Inference of the current PLC stage allows the anticipation of where the market is headed. Each of the characteristics is likely to develop into those typical of the next stage, so the PLC allows you to anticipate the broad and powerful trends in your market. The variability of pharma and medtech markets means it is rarely possible to be precise about the timing of the changes but it is often possible to do this to an approximate level. For example, if the characteristics are divided between embryonic and growth, it is likely that the market is some time away from maturity, whereas if the characteristics are mostly growth stage with one mature indicator, it implies that market maturity is imminent. This also reveals another value of PLC; the direction of market or competitor research. For example, if the PLC indicates the decline stage, you should focus on identifying the next product category that is likely to replace the existing one.

Step 5: Develop anticipative tactics

By using PLC to anticipate where the market is heading, you have given yourself the powerful strategic advantage of prescience. There are many ways to use this gift at the various stages in the pharma and medtech value chain. At product discovery and development stage, PLC-derived information can be used to inform investment and business development decisions. For example, investment in or acquisition of a product at embryonic or growth stage may be justified by the anticipation of volume growth. By contrast, if the PLC analysis indicates a mature category then that would imply a future pricing decline that may make investment or acquisition a bad choice.

Approaching and around launch, insight derived from PLC analysis might inform pricing and market access strategy For example, some firms use evidence of market maturity to argue that market prices will decline in future. This not only helps their own pricing decisions, it also helps them make coherent and evidenced arguments to Health Technology Assessment bodies. Equally, PLC analysis helps to inform how product launch might accelerate the category’s PLC.

In competitive strategy, the PLC analysis provides a view as to how competitors will behave and what market trends might be. This is important for the choice of competitive activity. For example, for a product category at growth phase it might make sense to invest in clinical trials designed to provide evidence that demonstrates efficacy. At more mature stages, however, the investment might be more appropriately allocated to health economic outcomes research, based on real world data, to demonstrate health economic superiority. Equally, appreciation that the market will mature might direct resources towards marketing projects, such as brand building, or line-extensions, such as extended indications or services that provide value ‘beyond the product’.

Mostly neglected, because PLC information often remains siloed in marketing departments, is insight that can inform operations and sales. For example, imminent growth would push the company to invest in manufacturing, supply chain and sales teams in order to exploit the market. By contrast, imminent decline might direct the company to pull resources away from sales and towards investments that would reduce costs.

Overall, thoughtful use of PLC in the way its inventors intended shows it to be widely useful across the whole of the life cycle and the whole of the value chain.

Hidden value

The decades old history of PLC means that many of today’s marketers in pharma and medtech have forgotten, or have never been taught, the foundations, value and proper use of this strategic tool. Brand team leaders, who in many cases were born a generation after PLC was developed, often mistakenly confuse PLC with its limited, narrow use in line extension activity. A better understanding of PLC’s parentage and application reveals that it has hidden value for brand teams that can be realised across the value chain. PLC is tool to predict the future, helping us to make better decisions about what products to develop, how to launch them, how to compete with them and how to extract value as they age. In an increasingly competitive market, with increasingly demanding shareholders, this is knowledge that we can’t afford to leave hidden.

--Issue 28--

Author Bio

Brian D Smith

Brian D Smith is the world’s leading authority on the evolution of the life sciences industry. Working at Bocconi University, Italy and University of Hertfordshire, UK, his most recent book is “Darwin’s Medicine: How Life Science Business Models are Evolving”. He welcomes questions and comments at brian.smith@pragmedic.com

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