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Management Side

Product Life Cycle Analyses: Are Results Meaningful?

Since the 1950s, companies have attempted to project the life cycles of new products. Intuitively, it seemed realistic that once a product was introduced, it should advance through defined stages. Assuming that the product was a success, it should return a profit in its early growth stage, face more competition in its mature stage, and then become less profitable as demand gradually declined further on in its life. The literature is filled with product life cycle curves that illustrate the stages over time. So, it is not surprising that many companies input their own marketing data into calculations based on the typical life cycle curves, and use the results to justify new projects, estimate product profitability over time, and forecast the need for replacement products in the future.

Numerous problems become apparent when relying on various life cycle methods:
• There is no way to know in advance the shape of the life cycle curve. Obviously, the curves will be different for different products.
• It is not possible to estimate accurately the time a product will remain in each stage.
• Some products may enter into a decline stage while others may not, due to extended life from redesign, etc.
• Market conditions such as pricing, manufacturing cost, competitive products, and environmental regulations have significant influence on the true life cycle of a product.

Considering all these variables, is there anything of value to be obtained from making a product life cycle analysis? The answer is yes, but only in estimating the growth stage results of a product with a limited number of potential end uses. Beyond the initial period, too many forecast inaccuracies come into play, making any conclusions drawn shaky at best. Perhaps the original estimates could be tweaked by inputting dynamic market data, but this would need to be done continuously. Even so, the model would always be lagging the real world, and the effort may eventually become an exercise in futility.

Look, for example, at polyurethane roll covers for paper machines in the US and Canada. Before large scale market introduction in the 1980s, this product was analyzed in detail, based on the growth stage of its life cycle curve. A number of scenarios were examined in terms of product pricing, cost, and market share growth. Short to mid-term growth projections were made, since it was assumed that competitive products would be introduced successfully later. No estimates were made of the overall product market life. Only those applications for which the product was initially designed were included in the calculations. From the scenarios, a 35% market share in roll covers was selected as the most reasonable result at the end of the growth stage, although up to 50% share was considered possible. This exercise proved to be useful in terms of short term budget forecasts. The product remains in use today, and new versions are used in applications initially not considered feasible.

Now consider the complexity of making a life cycle analysis, short or mid-term, for products like Styrofoam®, developed by Dow Chemical, and the expanded polystyrene foam version, Dylite®, developed by The Koppers Company in 1954. This material could be used in a myriad of products, each of which had its unique challenges. I learned firsthand about some of the tremendous potential for expanded polystyrene foam (EPS) during a 1955 job interview at Koppers in Pittsburgh, Pa. At that time the insulation properties were primarily of interest, and it was obvious that the product had tremendous profit potential since it consisted of about 95% air! No doubt the short and mid-term projections were highly favorable, and its use was expanded to foam cups as early as 1960. Many of the EPS products became direct competitors with paper industry packaging products, used for both food containers and fast food liquids. And its light weight offered a significant savings in shipment costs to the customers. But while the initial growth in various products was substantial, environmental concerns began to appear which would not have been accurately forecast using the product life cycle analysis techniques. In fact, had these been known during the introduction stage, many of the products may never have made it to the consumer. As early as 1988, a general ban of polystyrene foam products was enacted in Berkeley, California. Reportedly, China decided to ban their use in take-out containers contacting food directly in 1999.

Numerous additional concerns had negative effects on the products:
• They are difficult to recycle, and are easily contaminated.
• They may be harmful to animal life if ingested.
• They consume space in landfills and many recycling companies will not accept them, so they go directly to landfills and remain non-biodegradable.
• There are questions concerning residual benzene, a carcinogenic chemical, in the products.

A number of competitive products are also contributing to the decline in the use of EPS products. These include high density polyethylene, paperboard, and expanded polyurethane foam. These materials are more easily recycled by converting the waste into alternate products. And, research continues with the objective of converting specific waste plastic materials into liquid fuels using high temperature pyrolysis methods.

In summary, limited benefits can be obtained from making product life cycle analyses, provided that these are confined to short and mid-term projections of the growth phase. Longer term projections are generally reliable. If a product has many possible end uses, individual analyses are required, significantly increasing the complexity of the technique. For longer term product life cycle results to be meaningful, continuous updating of market data must be made beginning in the earlier stages. Since the results lag behind the dynamic market conditions, the benefit of completing such an exercise may not be cost effective.

Robert Moore is a retired chemical engineer, and is an experienced technical and fictional writer. His past work experience spanned the chemical, paper and equipment manufacturing industries, including holding management positions at Voith Paper, Scapa plc, and The Mead Paper Corporation.



 


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