One of the great concepts I learned in business school was product life cycle. Products, technologies and industries go through life
cycles just as people do, and business strategies have to change at each stage of the life cycle for a business to continue to grow and
dominate its markets.
The S-Curve allows businesses to predict the rise and fall of new product life cycles within their market or industry. I got my first real-life lesson in the S-Curve when I was a consultant for Firestone Tire in 1979. Radial tires took seven years to penetrate 10 percent of the
market, then just seven more years to move to 90 percent and dominance.
If you saw that trend coming, you made a fortune. If you didn’t, you lost a fortune, as Firestone did.
People have a distinct bias to predict trends in straight lines, when growth clearly occurs exponentially until natural limits set in, causing it to taper. These limits, in turn, create cycles of growth and decline. The chart shows how new products (after a period of invention
and initial development) first slowly move into niche markets, although that growth is clearly exponential.
We go from commercialization at 0.1 percent market penetration to 1 percent, and then from 1 percent to 10 percent in approximately equal time periods. Each such period represents a 10-times growth in market penetration, clearly not linear. The higher the costs, learning or human resistance to the new product, the longer the S-Curve progression takes.
The 0.1 percent to 10 percent stage takes the product into the niche markets, to the consumers who are the trendiest and most cutting-edge. Once the product hits a critical mass of acceptance, costs tend to drop precipitously from increased scale, and acceptance increases once the product is more visible and proven.
At this stage, the product becomes popular and mainstream. As more of the market is penetrated, there are fewer customers to market to and limits to exponential growth start to set in. From 10 percent to 50 percent market penetration, the gains are five times, versus
10 times in the 0.1 percent to 10 percent stage.
Then, from 50 percent to 90 percent, market penetration gains are only 1.9 times. Hence, exponential growth clearly slows
down. Then products enter the maturing, slower growth phase, from 90 percent to 99.9 percent penetration, which similarly takes
the same time as the 10 percent to 90 percent acceleration phase.
It is in this phase that the last consumers, such as children and the elderly, finally adopt the product.
Over the entire life cycle of invention, innovation, growth, maturity and decline, 80 percent of market penetration comes in one
stage, or 20 percent of the time. This is the principle behind the 80/20 rule.
For business strategy and planning, the implications are clear: You must have a strategy for each stage of the product life cycle.
If your product is still new and just beginning to enter the mainstream (products such as satellite radio, MP3 players, digital TV
recorders, or engines that use alternative fuels come to mind), you must aggressively gain market share. If you don’t fill the
demand void, someone else will.
However, if you are selling a product that is already past the 50 percent market penetration level, your focus must be very different. Observe what is already happening with cellular phones and personal computers. Prices have fallen to the point that PCs
are cheap commodities with mostly foreign parts.
Similarly, cell phones are now so commoditized that they are often given away free with new contracts. If your product is in
this stage, your primary focus must be on controlling your costs and making sure your business is financially sound. The weakest competitors will fail; don’t be one of them.
Likewise, if your product is in the stage of virtually no growth — 90 percent to 99.9 percent — you may want to consider changing your product line altogether.
HARRY S. DENT JR. is a noted author who has written several books, including two best sellers. He has appeared on “Good Morning America,” PBS, CNBC and CNN/fn, and has been featured in numerous publications including Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, US News & World Report, and The Wall Street Journal. Dent received his MBA from Harvard Business School,
where he was a Baker Scholar. For more information on his research, visit the new H.S. Dent Foundation Web site at www.hsdent.com or e-mail him at [email protected]
