The Life Cycle of the Business Idea
Bidco is a palm oil processing company that own more than fifty hectares of a palm tree. The company is located in Malaysia, as stated in the previous milestone. We are planning to add value to our palm oil by starting to produce lubricant for vehicles. The product will undergo various phases; we understand that any products undergo an upward and downward swing in the market and the industry. There is always a moment in a product’s life when its customers stopped using it because it either outlived its functional stage or its consumers got bored with it and started using another newer product. They are substitutes for the products that allow consumers to choose from many products available. They will select the product concerning its quality, prices, availability, and quantity. Hence, it has to upgrade more often to stay competitive for a product to remain competitive (MxAuliffe, 2015).
In the product introduction phase, any company should always be prepared to spend a lot of capital while getting a small portion of money returns. It is in this phase where distribution measures are introduced. Some companies always avoid this by hiring an external company to help them distribute their products across the country. During this phase, another thing the company should consider is the pricing of its products. Pricing usually follows two strategies: earlier customers paying high to help it recover the majority of the money invested and then later make the price aggressive to make the product competitive. The second strategy is to set an initial cost which is the best to maximize profit. However, the second strategy requires one to have a good knowledge of the market and knowing which price the customer is willing to pay for the goods (Holzbaur et al., 2016).
For our company to add value to our oil product, there are various stages the product will undergo; the first one will be converting the palm oil to synthetic lubricant oil o be used by vehicles, and the second stage will be turning it into olive oil, and the last stage will be grease.
Our company should be creative enough and innovative in the process of adding value to our product. Since we own our palm oil, we will use it to produce synthetic lubricants as our first product in the market, and then we will upgrade and start making skin and hair care products, including olive oil and grease. The process of value addition will help maintain us in the market and sustain us. The entry of new and big suppliers into the market increases competition since they reduce the price of their products, hence attracting customers’ attention. They are a threat to our progress as a company. Though the completion is high, we will not relent. Still, we will change our business idea and start producing another product that is productive, profitable and sustainable in the long run (MxAuliffe, 2015). Our first product in the market will be synthetic oil. We already have the startup capital of one hundred thousand dollars borrowed from one of the banks we used to acquire our land, help us plant the trees, build our factory and pay our employees. The main aim of our company is to ensure that our idea remains relevant, profitable and relevant in the market within our production industry. Bidco has also recognized that sustaining a business can be expensive, hence why the startup process is always expensive due to the materials and methods required. Still, the high cost will lead to higher savings and profits in the long term (Holzbaur et al., 2016).
The entry of new suppliers who have lots of capital into the oil production industry will affect our business since they will influence the reduction of oil prices, and our profits will deteriorate. The competitors will reduce our market share, and our brand will decrease too. If this happens, our company will lose its loyal customers who will wish to use a different product which is a substitute for our product and cheaper. If the trend continues, our product will fade in the market, and its life cycle will come to an end, but if we upgrade our product to newer and better standards, we still have the opportunity to cope with the completion and remain in the market. To avoid experiencing this kind of situation, we will incorporate a strategic plan which we will follow to help us keep our company strong and sustain any form of competition. The graph below shows the phases of a product and how the product will decline if innovation is not applied to help improve our products, maintain them in the market, and remain profitable.
This is the most expensive cycle for a company that is launching a new product. Like our company, this will be the most costly and challenging part since it will take quite some time to market ourselves to attract many customers. In the beginning, the size of the market is small, meaning the number of sales will be low though they will be increasing with time as we gain more customers. Other things which make the introduction stage difficult include the cost of research, development, marketing, and customer testing, more so in a competitive sector.
There is growth in the number of sales made in this phase, and the profits start increasing. This is the stage where the company starts enjoying the benefits of the economies of scale in its production. The margins from which the company will make its profit will increase as well as the overall gain. The payoff makes it possible for the company to invest more cash in the promotional activities hence maximizing its potential at this stage. in this stage, promotion and advertising are done. Still, it is not rigorous as in the introduction stage. The best practice in this phase is to use external contractors to do the advertisement. It is also the phase where product efficiencies developed and improving the product’s availability.
The maturity stage is the most competitive stage of a product and the organization in general. In this stage, the synthetic lubricant oil is now fully established, and the company will aim to maintain the market share while also trying to explore new markets. The company should invest wisely in any market it undertakes. It should consider doing a continuous modification of the product production process, which will give the company a competitive advantage.
The Decline Stage
This is the stage where the market for synthetic lubricants will start to shrink, and it is the decline stage. The cause of the decline is due to the saturation of the market whereby all customers who have our product or because our clients are switching to a different type of invention. The decline stage might be inevitable, but the company can switch to a less expensive production method and explore new and cheap markets like the olive and grease manufacturing market. Sometimes it is hard for a company to hypothesize the decline signals of a product. A decrease in market sales usually accompanies the decline of a product. It is generally hard to recognize since the marketing department is generally optimistic about the sales due to significant success, which is experienced during the maturity stage. In this phase, the company should decide to keep the prices competitive, and the company should strive to retain loyal customers.
Profit Generation and Cost-Saving Opportunities Associated with the Business Idea
Profit creation of our organization will be the point where we will start making huge and long-term profits. The capital we borrowed from the bank will use it to expand our business activities and the firm’s life cycle. The company started with a hundred thousand dollars, and at this point, our profit margins were zero until we started our business. Our company intends to sell the lubricants at ten dollars per bottle. Bidco has also recognized that sustaining a business can be expensive, hence why the startup process is always costly due to the materials and methods required. Still, the high cost will lead to higher savings and profits in the long term (Walden et al., 2015). After kicking off our business, we will continue making some changes to our production process, which will help us save on the cost of production and use the saving in financing advanced technologies hence making our production efficient and effective. We will use our strategic plan to reinvent our business ideas and use them to address the limits of our customers’ purchasing powers and our products too.
In most cases, the value addition process requires more capital investment and also creative thinking, which will help keep the company continue making more profits and in the long term. Our company will start making skincare products like grease and olive oil in our focus to make more profits and remain competitive for the long-term and not fade out of the market as soon as possible. We sense that our initial product, synthetic oil, will fade out of the market; hence, we have a backup plan if that happens and, therefore, continue making profits and remain relevant in the market. Joining other areas of production will make us stay competitive and be efficient in the long term. The graph shown below illustrates the profit generation graph for our company during the synthetic oil life cycle. The startup capital and the price we decided to sell our product (Walden et al., 2015).
Other means our company will employ to increase the levels of profit include increasing the productivity of our staff by recognizing and awarding their contributions and always review the staff performance. We will also strive to feed our employees with a new skill which will help them upsell our products. We also intend to find new customers who will help our business grow and improve our customer services by offering those discounts and doing promotions to increase our customer base. Though the completion is high, we will not relent. Still, we will change our business idea and start producing another productive, profitable, and sustainable product in the long run. Our first product in the market will be synthetic oil (Clinton et al., 2019). We already have the startup capital of one hundred thousand dollars we borrowed from one of the banks we used to acquire our land, help us plant the trees, build our factory and pay our employees (Walden et al., 2015).
Phase-Out Plan for My Business Idea
Our business idea is a three-phase plan that will include synthetic lubricant oil, which will be our first phase, then we venture into olive oil production, then to grease production. Our innovation level needs to be high to remain in the market for a long time and maximize our profits. This could be achieved by continuously adding value to our products to make them in the long run. We have many competitors in synthetic oil production, and some will come up with better production skills than ours. To remain relevant in the market, we should distinguish ourselves from our competitors in the market. As I mentioned previously, there will be three different phases of products (Bereznoi, 2015).
Value addition will be the primary tool that will help us remain in the market for the long run and remain competitive. Our phase-out plan will include borrowing money from a bank which will help us start a sustainable business, pricing the product; and the third phase will be when our business starts making profits, and it will be on the rise. The three phases will be solutions to future inventions and profit-driven. Before our company starts making a profit and use the profit in making profits, we will have to use the borrowed money to pay our employees and purchase machinery while focusing on the future. The entry of new suppliers who have lots of capital into the oil production industry will affect our business since they will influence the reduction of oil prices, and our profits will deteriorate.
The competitors will reduce our market share, and our brand will decrease too. If this happens, our company will lose its loyal customers who will wish to use a different product that is a substitute for our product and cheaper (Bereznoi, 2015).
The solution for sustainable development is contained in our smooth system of operation. Our company will strive to maintain a reliable customer base and make an excellent reputation that will keep us in the market and create long-term profits. Our primary concern is how we will maximize our yield so that the profit could help us in expanding our business.
- McAuliffe, R. E. (2015). Product Life Cycle. Wiley Encyclopedia of Management, 1-1.
- Holzbaur, E., Ross, J., & Rothrock, T. (2016). Epro Product Life Cycle: Guidance For A Successful Management Phase. Value in Health, 19(3), A109.
- Walden, D. D., Roedler, G. J., Forsberg, K., Hamelin, R. D., & Shortell, T. M. (2015). Systems engineering handbook: A guide for system life cycle processes and activities. John Wiley & Sons.
- Bereznoi, A. (2015). Business model innovation in corporate competitive strategy. Problems of Economic Transition, 57(8), 14-33.
- Clinton, L., & Whisnant, R. (2019). Business Model Innovations for Sustainability. In Managing Sustainable Business (pp. 467-507). Springer, Dordrecht.