Using Lifecycles to Predict Competitors' Actions

Humans start life as infants, then become toddlers who grow up to become adolescents, then teenagers who graduate and turn into college students, who become newlyweds then parents, etc... There are obvious characteristic of these various stages. If you hear someone talking about their son taking his first steps, you know the child is probably a toddler 1-2 years old. If someone tells you she got her driver's license, it's a good bet that she just turned 16 and is still in high school. When someone tells you they are retiring soon, they are probably around 60 years old. When you know what life stage someone is in today, you can also predict with some certainty their future behavior. A high school student is getting ready to go to college. Someone who just graduated college will buy a new car in 12 months and a new home within 36 months. And someone whose kids just went off to college will begin to travel and dine-out more.

Like people, companies and products progress through a series of easily identifiable stages: emerging, growth, mature, and decline. There are certain activities that are characteristic for these stages, and when you when you know what stage a company or product is in, you can predict what will happen next.

Emerging (aka early-stage, launch, and start-up). Companies or products in this stage are just entering the marketplace. The product is not known and is generating little or no revenue. The goal, therefore, is to penetrate the marketplace and build user acceptance. The best method for doing this is to give away free samples. It's often said in marketing, "we have to buy our first customer" because it's the fastest and easiest way to eliminate risk for the customer and start word-of-mouth. Free is not permanent. Sometimes free is only once. A new technology company might give its software free to a Fortune 100 company, a new fashion designer may give a free dress to a celebrity like Sandra Bullock, and a new energy drink company will give its product to a professional athlete like LT or a sports team like the Chargers. A single free tactic may be enough to create esteem around the product and fuel sales for a product.

Growth. Once a product has market momentum, the next goal is to drive revenue growth. This is expensive. It requires a lot of advertising. The company is not yet concerned with profitability, instead it is focused on the top line and most important - revenue NOW. Companies in this stage make trade-in offers, offer prepayment incentives (get 12 months for the price of 10), and provide third-party financing. They establish many partnerships and tend to outsource so they can focus on their core competency. It is common for companies in this stage to report double and triple-digit sales growth. When you start from $1, selling $2 represents 200% sales growth. Investors refer to this phase as "the hockey stick," because the sales chart looks like the sharp curve from the blade to the handle of a hockey stick. Investors are looking for companies entering the growth phase because they foresee the value of their investments doubling and tripling.

Mature. As revenue growth slows to single digit, the company's goal changes from revenue growth to profitability. To do this, the company will seek to achieve efficiencies. Mature companies will acquire competitors to achieve economies of scale and begin to focus on volume so watch out for mergers, acquisitions and consolidation. They'll vertically integrate to improve their gross margins and erect barriers-to-entry for new competitors, and are likely to implement cost-cutting measures like new technology. Frequently, they'll target partners and vendors for acquisition, and there are often lay-offfs when technology replaces workers and redundant departments are eliminated.

Decline. Soon the competition catches up, market trends change, or technology becomes obsolete and the product loses momentum. Sales growth becomes negative. The goal is now survival so the company switches attention to cutting its loses by discontinuing certain services, closing offices, divesting or shuttering under-performing products and divisions. The purpose is to free up capital to invest in the development or acquisition of new products.

Savvy marketers are constantly monitoring their stage in the life cycle. These stages can be short or very long. Fashion and technology products have short-life cycles. Airplanes and Christmas tree farmers have long cycles. Either way, by paying attention to life cycles, we can make sure that our companies continue to grow by constantly introducing new products and strategies when it is most appropriate. A savvy marketer repeats the emerging, growth, and mature cycles over and over, and avoids ever entering the decline phase.

Watching your competitors' stage in the life cycle is equally important to your strategy development.

• If you are an emerging company, watch for growing companies who may entice your customers with better financing and aggressive trade-in offers. Think about implementing a very concentrated segmentation or niche strategy to avoid retaliation from a stronger competitor. Watch for mature companies who will say your product is not proven or unsupported. Respond by emphasizing your ability to adapt or respond faster to customer's needs.
• If you are a growing company, watch out for emerging companies who will entice your customers with free offers and huge discounts. Protect your existing customer base with better service and focus on performance instead of price. Also watch for mature companies who may block your access to market or attempt to control your supply chain. Prevent being excluded from a market by establishing multiple suppliers and partners. Or partner with your larger competitors, aka "coopetition" and position your company for acquisition by focusing on a substantial niche that the competitors ignore.
• If you are a mature company, watch for new entrants in your market because they'll offer new exciting products for free and they'll make aggressive trade-in offers and focus on service quality, when you're focusing on quantity. Eliminate the competition by acquiring them, erecting obstacles for them, or under-cutting their price.

Clearly, there are exceptions. Established companies like Apple can launch new products without giving them away because they have excellent brand equity and huge cash reserves to invest in marketing. Some rapidly growing companies in certain industries reach profitability quickly and go on "buying sprees" or "acquisition binges." When companies do things that are atypical for their stage in the life cycle, warning flags should go up. For example, emerging companies should not be planning expansion or diversification until they can penetrate a market segment.