In this part of the module, we will change the focus from the customer to the other side of the Value Proposal: Product/Service offer. The circular approach of the business model will imply several differences in terms of the financials of the product in the different phases/stages of its Life Cycle.
The Product Life Cycle is a model that presents the stages, with different characteristics, through which a product passes from its introduction to its exit from the market. Five phases are usually distinguished:
• Development: We go from idea to product, with research and development costs, concept testing, analysis and selection of potential suppliers, prototyping, product testing and industrial validation of the design.
• Introduction: in this stage, the main costs come from marketing actions to communicate the existence of the product, commercial activities to promote its introduction to "early adopters", as well as trade marketing actions aimed at introducing the product in the distribution channels (physical or online) that will make the product available to end customers. If we have chosen the right market to launch in, competition at this stage is most likely to be scarce and weak.
• Growth: at this stage, sales traction must occur to reach volumes that make the marketing of the product profitable. So again, the essential costs will be associated with marketing and sales. At this stage, competitors may start to appear because they have become aware of our product and launch their versions on the market.
• Maturity: we reach this stage when we have met the base sales volume of most of the customers we selected as our target group. If we have been successful, we will most likely have attracted even more competitors. This increased competition can dilute the initial differentiation provided by our product. The existence of very similar products on the market can lead to the "commoditization" of the product, with a substantial decrease in brand loyalty. As a measure to combat this evolution, specialisation in certain parts of the target market is usually recommended, achieving a differentiation on a smaller scale than the initial one, but which allows us to maintain our prices at sufficient levels to generate profitability. Suppose we are not capable of practising this specialisation. In that case, commoditization will lead us to price-based competition, significantly increasing the promotional cost to maintain a sufficient volume of sales so that producing it makes economic sense.
• Decline: the erosion of differentiation caused by the concentration of competitors leads to the loss of unit margins. Suppose we add to this the possible introduction of new substitute products (by our competitors or by us), which respond better to market demand and provide differentiation. In that case, we will find ourselves in the decline stage that will culminate at the End Of Life of the product, with its orderly exit from the market. At this stage, the objective will be to reduce and concentrate the range offered so that production lines can still manufacture reduced product volumes in efficient batches. This compression of the product range makes it possible to reduce the stocks of components and finished product, which in time will facilitate the exit of our product from the market.
These phases represent the products themselves, and they are relevant for ALL products, Linear and Circular. But for a Circular product where one of the goals is to extend the Product life time, we need to look at how the business itself can secure this when working with the PLC phases.
In the following we look at the management perspective of the PLC
