Industrial Development and Product Life Cycle Models

Question 1

Explain the 3 phases in a product life cycle

Answer 1

• The fluid phase is characterized by frequent and major changes of product designs, by highly flexible but often inefficient production processes and by competition that is based on product performance. The dominant design has been not yet determined, so major changes of product design still occur.
• The transitional phase begins with the emergence of a dominant design and the specific phase follows eventually.

Question 2

A dominant design is characterized by:

Answer 2

Reducing the solution space of new products. It is the design that wins the allegiance of the marketplace and defines a product category architecture.

Question 3

Incubation time: Which companies will likely face a longer incubation time with a rather flat revenue curve in new product and service markets with a high degree of innovation?

Answer 3

The pioneering and early followers in a new market. The pioneering and early followers in a new market are more likely to face a longer incubation time with rather a flat revenue curve in new product and service markets because the more the innovativeness of a product is the more time it will take until a dominant design will emerge and the more time will customers need to adapt / accept the innovation.

Question 4

Factors regarding incubation time? (3)

Answer 4

1. Customers must change key believes and mental models to understand the innovation.
2. Distributors have to be qualified to sell the innovation to customers
3. The innovation is not fully compatible with the existing technical infrastructure. Incubation time is the time it takes to get into the mainstream market and to reach significant sales. In order to reach significant sales companies must adapt customers, distributors and technical infrastructure to the innovation

Question 5

What is SaaS and how does it differ from traditional licence-based software model?

Answer 5

• SAAS is a software licensing and delivery model where customers pay for software license on a subscription basis.
• The release cycles happen more frequent and is decided by by software provider. Applications hosted centrally.
• Cannot access firm internal systems and is therefore not easy to integrate with other systems.

Question 6

Kotler, 2012 - Characteristics of Growth stage in the Product Life-Cycle

Answer 6

• Competitors introduce new product features and expand distribution. In the growth stage every firm tries to introduce new product feature to develop competitive advantages in the market. More competitors enter into the market and increase competition
• Prices stabilize or fall slightly depending on how fast demand increases. If supply increase faster than demand, the prices will fall.
• Unit manufacturing costs fall faster than price declines, owing to the producer-learning effect. Nevertheless learning-curve effects will lead to lower costs and therefore in general to higher profits for manufacturer

Question 7

Burgelman, 2004 - Markets for incremental changes

Answer 7

According to Burgelman 2004, an incremental innovation is more likely to be found in markets which are well defined, the product characteristics are well understood and often standardized.

Ex. paper, steel etc. standardize product characteristics, equipment intensive, competition based on price, change is costly

Question 8

What is regime of appropriability and what impact does it have on market innovation?

Answer 8

• Combination of means to protect knowledge and the return of investments made on innovation.
• The market have low incentives to innovate independently as their likelihood of profiting from dominant design is rather small

Question 9

Dominant design - How does network effects impact the emergence of a dominant design?

Answer 9

Network effects exist when the value of the product depend on the number of users. The more users that benefit from the many users → the higher network effects.

Contra-dominant design: Prospective customers of product with strong network effect might adopt a “wait-and-see” attitude because they want to see which design will be the winner in competition. This could reduce the chances of an emerging dominant design. Same with producer of complementary goods - dont wanna commit to one design too early.

Pro-dominant design: A dominant design assures potential adopters that the network will the be largest and establish market supremacy. “The winner takes it all” with early, large market share (dominant design).

Question 10

Dominant design - How does the number of firms in the value net impact the emergence of a dominant design?

Answer 10

The product’s value net consists of suppliers and producers of complementary goods that deliver utility either directly or indirectly to the customer. Can also be called technological community. Interdependencies in value net is important for technological development.

Contra: More firms → bigger agency costs for ex coordination → can delay dominant design. Firms within value net often have different, competing objectives.

Pro: More firms in value net → bigger incentives for each firm to support a dominant design (higher revenues). Dominant design move focus within the design such as supply/demand side efficiencies.

Question 11

Dominant design - How does the type pf standard-setting process impact the emergence of a dominant design?

Answer 11

De Jure standard-setting process: Standard organizations, government etc sets standards.
De Factor: Markets forces sets standard

Contra: De jure standards are set by manufacturers/suppliers → support current/known technologies over new once. Many members → hard to agree → delay dominant design.

Pro: De facto: Aggressive market competition → possible dominant design → war of attrition between standards → shorten time to DD

Question 12

Dominant design - How does radicalness impact the emergence of a dominant design?

Answer 12

Radical products (e.g., instant photography, microwave ovens) involve new technologies that offer significant advances in both technology and consumer benefits

Contra: Radical product offering low initial performance to price ration face limited market acceptance. Prod dev takes long time and sequential developmental → delay DD. Probably wont be a DD but if it happens it will go fast (?)

Pro: None

Question 13

Dominant design - How does high R&D intensity impact the emergence of a dominant design?

Answer 13

R&D intensity: depth and breadth of knowledge required to design and commercialize a product

Neutral: given the noisy and confusing technology environment in R&D-intensive product categories, it may not affect the time of emergence of a dominant design.

Pro: Integration of technologies to achieve technological fusion critical for product development. DD as a pathway. Frequent technological changes –> increased rivalry between alternative design.

Question 14

How can firms increase the likelihood to get their design become the dominant design?

Answer 14

1. Establishing alliances with retailers which consumers trust. Distribution channels are important for establishing DD. Get product into retailer shelfs that customers trust.
2. Alliances with competitors or acquiring them -> reduce nr of competing designs
3. Consumer adption ex through low price
4. Alliances with producers of complementary goods to match your design. Help develop/support.
5. Licensing your design out -> better to share market than no market.
6. Influence regulation and active in standardization decisions.
7. Communicate early to customers that you are the dominant design

Question 15

Kotler (2012), How does the marketing focus changes during the different phases of Product Life Cycle?

Answer 15

Introduction: In the introduction phase companies usually offer only one base product. Profits are negative or low, promotional expenditures are at their highest ratio to sales because of the need to inform potential customers, induce product trial and secure distribution in retail outlets. Prices tend to higher however the companies may apply a skimming pricing strategy or a penetration pricing strategy. Companies also focus on building a selective distribution channel.

Growth and Maturity: At this stage the product quality is improved and new features are added to the products. Companies extend the product line and set prices with regard to market and competitors standards. For example new models, different sizes, flavors can be added to the product line. New market segments can be entered. Distribution coverage is extended. A shift from trial communications to loyalty communications occur. Prices can be lowered to attract the next layer of price sensitive buyers.

Decline: At this stage sales decline for a number of reasons such as technological advancements. Companies make decisions to take weak products out of the market considering shifts in consumers’ tastes, increased domestic and foreign competition.
At this stage management needs to cut marketing budgets and reduce prices. Reducing promotion to a minimum level and applying defensive pricing strategy is a common approach.
Companies may decide to sell unprofitable brands to other companies also unprofitable distribution channels and retailers.