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Managing Industry Life Cycles in E-Commerce

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MANAGING INDUSTRY LIFE CYCLES IN E-COMMERCE

If you have ever stopped to consider why almost every tube of toothpaste is offered as a solution for "tartar control" or "whitening" or otherwise "im-proved," you may have formed some ideas about product and industry life cycles. The idea of a life cycle, a time spanning from a product's earliest purchases to its maturation and decline, is considered conventional wisdom in consumer-product marketing. Companies like Procter & Gamble, which sells a great deal of toothpaste, have made manipulating life cycles and new product introductions a core of their business strategy.

The basic idea behind a life cycle is that every product (or, an industry as a collection of related products) goes through a series of adoption stages. The most common model of this process, proposed as early as the 1960s, contains five successive stages of buyers: innovators, early adopters, early majority, late majority, and laggards. Majority here refers to share of the possible market for the product, which is not the same as the entire population of consumers or businesses. These adopter categories were first coined by sociologist Everett M. Rogers in his 1962 classic Diffusion of Innovations and have been widely cited in marketing texts and business publications ever since.

The next assumption in life cycle theory is that buyers act differently at each stage. Innovators are commonly thought to be affluent and to purchase out of sheer curiosity or whim. At the other end of cycle, laggards are thought of as less affluent and highly risk averse, motivated more by what they perceive as the practical uses of the product. If you're a marketer, your strategy is to convey the appropriate messages to each group depending on who is most likely to buy at the current stage of the cycle. If your product is new and you're targeting innovators, for example, your marketing would be flashy and would emphasize the path-breaking creative aspects of your product. Alternatively, if you're trying to persuade the stereotypical adoption laggard, your message should suggest stability, value, and utter simplicity.

The idea of a life cycle has been heavily shaped by observing how people buy physical products. Much less work has been done on services; and very little research at all has been done on e-commerce life cycles, but some marketing analysts believe a similar process is at work in these cases. Thus a closer analogy than toothpaste might be software versions. Most people are aware of the long chain of new versions of operating systems and software applications that are unleashed on a regular basis. A casual observer might conclude that the software firm has simply made lots of improvements and fixed a few bugs. But chances are that timing also plays a big role in the decision to release a new version. Software publishers are careful not to cannibalize their existing products by cranking out new versions. At the same time, when one version is reaching a high level of market penetration, the company has a huge incentive to bring another version to the market.

So what does it mean when online sales or subscriptions are flat or falling? Is the life cycle over? According to life cycle theory, this isn't necessarily the case. If a product fails shortly after its introduction, the theory holds that it never made it beyond a certain stage, perhaps never past the innovators. Geoffrey Moore, an author and marketing consultant, is famous in marketing circles for his claim of a so-called chasm between reaching early adopters and graduating to success with the majority of buyers. He believes many products fail because they are unable to bridge the gap between the needs of a small, fickle niche market and the vast majority of more pragmatic buyers. Along with a bevy of other marketing strategists, Moore counsels that specific tactics can help companies cross the chasm.

On the other hand, if your site has a long successful stint and then declines, however, it is assumed to be reaching the end of its life cycle. This is considered normal and, in many cases, inevitable. Usually in this case all of your competitors' products are experiencing a similar malaise. One strategy at this point is to make the remaining sales as profitable as possible, perhaps by cutting costs and even raising prices if the competitive environment will allow it. At the same, a major thrust of your product development and marketing efforts should be to launch a replacement or substitute product that will bring customers back into the market and start the cycle anew.

Standard accounts of industry life cycles portray the early stages as being full of innovation and the latter stages, especially for the dominant players, as being less innovative. Research on patent activity across different industries suggests this isn't always true. On the contrary, innovations, as measured by patents, appeared much more evenly distributed among companies of different sizes and industries of different maturities. One insight to take from this is that innovation should be considered a strategic tool at all stages of the life cycle.

Some e-commerce watchers have suggested that early consumer e-commerce sites of the late 1990s reached their peak as stand-alone sites and had to innovate by integrating multiple providers' content, becoming aggregators or umbrella sites. This was the strategy at Amazon.com and Global Sports, for example. Efforts at online customer relationship management (CRM) have also tried to reduce life-cycle volatility by building a lasting relationship with each client which transcends the life cycles of individual products or services.

Life cycles may also be influenced by other economic events. In the technology downturn of the early 2000s, many technology life cycles were expected to last longer than initially projected because businesses and consumers were slowing their spending. This contrasts with the late 1990s, when, amid torrid technology spending, cycles seemed to end almost as soon as they had begun.

FURTHER READING

Datz, Todd. "Innovation Looms Large." Darwin, May 2001.

Moore, Geoffrey. Crossing the Chasm. New York: HarperBusiness, 1999.

Rogers, Everett M. Diffusion of Innovations. 4th ed. New York: Free Press, 1995.

Vizard, Michael. "IT Is Not Created Equal All the Time."

InfoWorld, May 21, 2001.

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