<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=905697862838810&amp;ev=PageView&amp;noscript=1">

LenderHub

SWBC's LenderHub blog is a one-stop resource for lenders.

 

Why Product Lifecycles Should Determine How You Allocate Your Money


As a consultant, I was hired by many different companies to do many different things. But, one of the tasks I received most often was to find out if the money being spent on marketing and sales was allocated appropriately to yield the best return. I'd hear questions like:

"Where should I allocate the budget in order to see a profit?"

"Why isn't my investment in sales and marketing working?"

And each time, my response was the same: “Before I can tell you anything, let’s take a look at your product lifecycle.” 

I know people understand concepts better when you use pictures to illustrate what's going on, so I built the chart below to visualize a product lifecycle and to help a company's leadership know when and where to shift spending.

product-lifecycle-spending.jpg

Essentially, a product “lives” along a curve. The height of the curve is a measure of sales, and the length of the curve is a measure of time—which may be compressed or elongated, but we'll get to that in a sec. 

Here's how the chart works.

The bell curve begins when a new product is introduced to the marketplace. The most trusting, loyal clients adopt the product right away—no sales pitch or persuasive marketing messages necessary—and serve as a reference to others. And, since most folks today look for social proof when deciding if a new product is worth a try, these brand-loyal "evangelists" are more valuable than ever. If they love your product, they are going to tell everyone about it.

To build on the momentum generated by the brand-loyal evangelists, companies identify and market to early adopters—those who may not be a loyal customer, but are a good fit for the product and always strive to be on the cutting edge. Then, as you continue to slide up the curve, true market growth occurs until the market begins to become saturated. Late adopters finally jump on board, and lastly, the pessimists join in. 

Back to the measure of time.

Companies want to compress the first half of the curve in order to gain profits and market share as soon as possible before competition joins in. To do this, offensive (like, football offensive, not antagonizing offensive) marketing strategies are used to help them charge ahead and (hopefully) build enough momentum so later on, the competition can't catch up. On the flip side, companies should try to elongate the second half of the cycle to ensure the product has a long life. This is crucial because continued sales help them recoup expenses. To extend the second half of the product lifecycle, companies use defensive marketing strategies to show why their product is better than the competitions'. You can see defensive marketing strategies in play in the "colorful balls" commercial war that is going on now between Sprint, Verizon, and T-Mobile.

There are, however, factors that affect how, when, or if you launch a product and how you market the product throughout the duration of the lifecycle. These include compliance, complexity of the product, lack of management focus, sales and customer communication and/or confusion, competition, and compensation for sales. Each of these obstacles have the potential to negatively impact the longevity of a product.

What you learn from the bell curve.

I've found that this visual of the product lifecycle makes it easier to quantify the market, set sales goals, and determine when and where to allocate funds to support those goals. The curve shows that the best profits come from the beginning of the lifecycle, before commoditization sets in. That's why most companies are constantly launching new products and brainstorming to come up with the next big thing—new products are the money maker.

So, as an example, let's say a company launches a new software product and allocates the bulk of their budget to marketing, sales, training, and implementation support. Because of the investment they made initially, their marketing message is heard, their sales team is trained, and their implementation teams are seasoned, accurate, and thorough—making on-boarding  quicker, easier, and much more pleasant for the evangelists and early adopters. The software is a success and is gaining momentum in the market place, so it's now in the Market Growth phase of the curve.

During the Market Growth phase, there's a tipping point when more and more people become familiar with the software. They talk about it with their peers during industry meetings, conferences, online sites and networking events. As a result, potential clients begin to seek out the product. Recognizing that this tipping point has been reached is crucial because the company no longer needs to pump thousands of dollars into marketing, enabling the company to reallocate the budget. 

As the lifecycle progresses past the peak of the bell curve and the product becomes more of a commodity, that's when gears should be switched and more focus should be paid on administration, customer service, and internal management to create efficiency, cost savings, and expense management.

Is your budget allocated to yield the best return? If you're unsure, I encourage you to take a look at your product lifecycle. It will provide direction for your budgets and sales success!

download-ccu-outsourced-collections-case-study

product-lifecycle-allocate-budget.jpg

Leave a comment below!