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Category Attractiveness Analysis
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Category Attractiveness Analysis
Aggregate Category Factors
• Category size• Category growth• Stage in product life cycle• Sales cyclicity• Seasonality• Profits
Attractiveness of Market Variables
The product life cycle (PLC) is
‘A generalized model of the sales trend for a product class or category over a period of time, and of related changes in competitive behaviour’.
(Buzzell)
The product life cycle
Quantity
Introduction
Growth
Maturity
Decline
0Time
The stretched product life cycle contains seven stages:
• Gestation or new product development.• Launch or introduction.• Growth• Maturity• Saturation• Decline• Elimination
Graphically we may representthis as follows
Time
Quantity
GestationLaunch
Growth
Maturity Saturation
Decline
Elimination
The concept of the PLC is firmly rootedin the concepts of the biological
life cycle and of evolution.
It reflects 4 underlying processes.
Competition
Substitution or displacement
The survival of the fittest
The inevitability of change
It also reflects a number of what maybe considered useful generalizationsif not eternal truths, namely:
• Needs are inborn and enduring• Wants are learned and ephemeral• The great majority of actions are motivated
by self-interest• The act of consumption changes the customer
Given this ‘pedigree’ why has thePLC concept not become the accepted
wisdom and universally endorsed by all?
Because most people mistakenly try touse it as a predictive device or forecasting
tool. Its real value is the insight itprovides and its implications unless
managerial intervention can moderateor modify the process.
When a life cycle reaches a limit of growth three basic options exist:
• A way round the limit cannot be found and the process goes into decline.
• An equilibrium is established and the life cycleis stretched or extended.
• The limit is broken and a new growth phaseis initiated.
The ‘biological’ life cycle.
Limit
Growth
0 Time
Turbulence
Renewed growth
Extension
Decline
Characteristics of life cycle stages.Product Introduction Growth Maturity Decline
life-cycle
Characteristics
Sales Low Fast Slow to decline Declining
Profits Negligible Peak levels Begin to decline Declining to zero
Cash flow Negative Moderate High Low
Customers Early adopters Mass market Mass market Laggards
Competitors Few Growing Many ‘me too’ rivals Taking market
Key actions
StrategyExpand market Market penetration Defend share Productivity
Marketing costs High High (declining%) Falling Low
Marketing Product Brand preference Brand loyalty Image
emphasis awarenessmaintenance
Pricing High Maintain Maintain/increase Rising
Distribution Patchy Intensive Intensive Selective
Product Basic Improved Broaden position Rationalize
Product development
Re-segment
Brand life Generic life
The conceptual argumentsagainst the PLC are:
• Products are not living things, hence the biological metaphoris entirely misleading.
• The life cycle of a product is the dependent variable, being a function of the way in which the product is managed over time.It is certainly not an independent variable.
• The product life cycle cannot be valid for product class, product form and for brands – indeed, an important function of a brand name is to create a franchise that has value over time,permitting changes to take place in the product formulation.
• Trying to fit product life cycle curves into empirical sales datais a sterile exercise in taxonomy.
The main operative arguments against the PLC include:
• The four phases or states in the life cycle are not clearly definable.
• It is impossible to determine at any moment in time exactly where a product is in its life cycle hence:
• The concept cannot be used as a planning tool.
• There is evidence that companies who have tried to use the product life cycle as a planning tool have made costly errors and passed up promising opportunities.
In large measure disagreements about the existence ofPLC’s arise from lack of definition of what, precisely,is a product. Doyle (1999) distinguishes 6 possible
levels of definition.
Table 4.2 Doyle’s product life cycle factorsSource: Doyle (1999)
But, even if everyone accepted Doyle’s definitions, the problem remains. Managers
are seduced by the consistency of the S-shaped logistic growth curve into the
expectation that it can be converted into a precise formula which will predict accurately
the behaviour of individual brands in a market.
The persistent belief is ingenuous. The PLC isa post-facto generalisation about observed
outcomes for successful innovations. It cannot tell you in advance which innovation
will achieve this status.
The PLC is a tool which encourages strategic insight, policy formulation and long term strategic planning. It is not a
tactical device.
Product’s position on the life cycle
Figure 4.4 Determining a product’s position on the life cycle source: Scheuing, 1974
Linear vs exponential sales forecasts
Figure 4.5 Linear vs exponential sales forecasts
Deviant cases – fads and fashions
Figure 4.6 The classic fashion-good PLC
Figure 4.7 The fad PLC
Category Attractiveness over the Product Life Cycle
Stage of product life cycle
Category size
Category growth
Category attractiveness
Introduction
Small
Low
Low
Growth
Moderate
High
High
Maturity
Large
Low
Low/high
Decline
Moderate
Negative
Low
Sales
Time
Category Factors
• Threat of new entrants• Bargaining power of buyers• Bargaining power of suppliers• Current category rivalry • Pressure from substitutes • Category capacity
Environmental Factors
• Technological• Political• Economic• Regulatory• Social
Factors in Assessing the Structure of Industries
• Threat of new entrants• Bargaining power of buyers• Bargaining power of suppliers• Amount of intracategory rivalry• Threat of substitute products or services
Buyer Bargaining Power is High When:
• Product bought is a large percentage of the buyer’s cost.
• Product bought is undifferentiated.• Buyers earn low profits.• Buyer threatens to backward integrate. • Buyer has full information. • Substitutes exist for the seller’s product
or service.
Supplier Bargaining Power is High When:
• Suppliers are highly concentrated, that is, dominated by a few firms.
• There is no substitute for the product supplied.
• Supplier has differentiated its product or built in switching costs.
• Supply is limited.
Major Characteristic of Categories Exhibiting Intensive Rivalries
• Many or balanced competitors• Slow growth• High fixed costs• Lack of product differentiation• Personal rivalries
Impact of Category Factors on Attractiveness
Typology of Technical Developments
Welfare
Diffusio
n
Innovation
Invention
Information
Materials
Transportation
Energy
Genetic*
Commercial
Defense
Tec
hnol
ogy
Process
Impetus
* Includes agronomic and biomedical developments.
Conceptualizing Political Risks
Projected Change in U.S. Population 1995-2005
U.S. Income Inequality
Share of Food Purchases
Energy Bars: Category Attractiveness Summary
Aggregate Market Analysis
Category Size •$504 mm energy bar category in 2001
•EEnergy bar category contains four primary brands, plus their sub-brands and over 100 smaller players
Attractiveness++
Energy Bars: Attractiveness Summary (cont)
Aggregate Market Analysis
Category Growth
•Average annual growth rate of 57% between 1997 and 2001
•UU.S. energy bar category sales forecasted at $750 mm in 2003 for a continued expected growth of 22%
•IIndustry reports suggest current annual growth for the energy bar market 25%-30%•CCategory expanding: new competitors are entering, existing brands are expanding with new products and flavors, market penetration and usage occasion is increasing
Attractiveness++
Energy Bars: Attractiveness Summary (cont)
Aggregate Market Analysis
Product Life Cycle
•Both the category and Odwalla Bars specifically are both securely in early stages of growth phase
Attractiveness++
Energy Bars: Attractiveness Summary (cont)
Aggregate Market Analysis
Sales Cyclicity •While energy bars are premium-priced for their convenience and nutrient level, the base dollar point of $1-$3 per bar is low such that they are not directly impacted by GDP variations
Attractiveness+
Energy Bars: Attractiveness Summary (cont)
Aggregate Market Analysis
Seasonality •Year-round sales
•CCategory overall may experience a slight sales increase in the spring and summer month during “race season” and as users are engaged in more outdoor activities and desire quick, portable energy.
Attractiveness++
Energy Bars: Attractiveness Summary (cont)
Aggregate Market Analysis
Profits • As most major competitors are within the product portfolios of larger consumer goods companies, it is difficult to benchmark profitability within the energy bar category specifically. Nevertheless, the recent acquisition of the leading competitors reflects an expectation for strong profit potential.
•IIncreased category competitiveness may lead to lower pricing and profits
Attractiveness+
Energy Bars: Attractiveness Summary (cont)
Category Analysis
Threat of New Entrants/Exits
•Strong potential for new competitors given that the category is profitable, fairly easy to enter, and increasingly relevant to consumers.
•FFurther, with the “big three” brands strongly in place [PowerBar, Clif (including Luna), and Balance], it is most likely that small competitors will enter through the natural foods channel, creating more direct competition with Odwalla bars.
Attractiveness-
Energy Bars: Attractiveness Summary (cont)
Category Analysis
Economies of Scale
•Competitors within the broader category of snack bars would likely experience economies of scale with a relatively easy entry into the energy bar market
Attractiveness-
Energy Bars: Attractiveness Summary (cont)
Category Analysis
Capital Requirements
•Within the mainstream energy bars, differentiation is largely through brand, taste, and flavor variety. With the exception of targeted nutrition products like protein- or carbohydrate-specific products, nutritional levels are largely at parity.Attractivenes
s-
Energy Bars: Attractiveness Summary (cont)
Category Analysis
Switching Costs
•Switching costs are very low, opening the door to potential competitors
Attractiveness-
Energy Bars: Attractiveness Summary (cont)
Aggregate Market
Analysis
Distribution •As there are not specialty requirements for distribution (refrigeration, etc.), it would be very easy for any of the “center of the store” consumer food companies to enter the category and add on to their existing distribution structure. This is particularly true for companies that have an established relationship with the category buyer.
Attractiveness-
Shelf life
Energy Bars: Attractiveness Summary (cont)
Aggregate Market
Analysis
Bargaining Power of Buyers
•Lots of competitors with relatively similar options distinguished by brand and taste keeps retailer power strong
Attractiveness-
Energy Bars: Attractiveness Summary (cont)
Aggregate Market
Analysis
Bargaining Power of Suppliers
•As the suppliers of raw inputs for energy bars are largely agricultural, the commodity nature of agriculture keeps prices and supplier power low. While still relatively low, supplier power will be higher for nutrient supplement suppliers
Attractiveness+
Energy Bars: Attractiveness Summary (cont)
Aggregate Market
Analysis
Pressure from Substitutes
•Considerable
Attractiveness-
•FFresh fruit, cereal bars, smoothies, candy bars, etc. are all suitable portable substitutes for the mainstream energy bar consumer. True athletes are most likely to substitute with higher nutrient level energy bars
Energy Bars: Attractiveness Summary (cont)
Aggregate Market
Analysis
Category Capacity
•Appears to be high given current scenario of more than 100 manufacturers and many more products. But, still, it is too early to determine true capacity
Attractiveness+
Energy Bars: Attractiveness Summary (cont)
Aggregate Market
Analysis
Current Category Rivalry
•Very high. Differentiation largely by taste and flavor variety, and by targeting unique market segments
Attractiveness-
Energy Bars: Attractiveness Summary (cont)
Environmental
Analysis
Technological •Technology could play a significant role with respect to manufacturing efficiencies and taste profiles
Attractiveness+
Energy Bars: Attractiveness Summary (cont)
Environmental
Analysis
Economic •While premium priced, energy bars have so far seemed to fair the recession well. Still, however, if economic conditions persist, consumers may opt for less expensive alternatives like fresh fruit or non-energy snack bars
Attractiveness+
Energy Bars: Attractiveness Summary (cont)
Environmental
Analysis
Political/ Regulatory
•The energy bar category is regulated by the FDA as are other food products. There are not to our knowledge, however, additional regulations directed toward the energy bar category.
Attractiveness0
Energy Bars: Attractiveness Summary (cont)
Environmental
Analysis
Social •As lives get busier and mealtimes shrink, energy bars will continue to be an acceptable meal replacement.
Attractiveness++
PDA: Category Attractiveness AnalysisAggregate
Market Factors Attractiveness
Market Size •$2.3 billion
Market Growth
Product Life Cycle
0%-40% +
+
+Growth
Profits
Sales CyclicityGood
one
Sales Seasonality
one
+/0
+
+
PDA: Category Attractiveness AnalysisCategory
Factors Attractiveness
Threat of New Entrants
•Moderate; R&D required, distribution
Bargaining Power of BuyersBargaining Power of Suppliers
Low, high switching costs +
0
0Moderate; PCs use similar components
Category Rivalry
Pressure from Substitutes
Intense
High
Category Capacity
Not a problem for now
-
-
+
PDA: Category Attractiveness AnalysisEnvironmental
Factors: Attractiveness
Technological •Very sensitive
Political/ Regulatory
Economic
Telecommunications deregulation
+
-
+Relatively inexpensive
Social More work done on the road
+
