All three life-cycle viewpoints offer insights that can be useful to producers of goods and services. In fact, producers cannot afford to ignore any of the three. A comprehensive life-cycle cost management program must pay attention to the variety of viewpoints that exist. This observation produces an integrated, comprehensive definition of life-cycle cost management. Life-cycle cost management consists of actions taken that cause a product to be designed, developed, produced, marketed, distributed, operated, maintained, serviced, and disposed of so that life-cycle profits are maximized. Maximizing life-cycle profits means producers must understand and capitalize on the relationships that exist among the three life-cycle viewpoints. Once these relationships are understood, then actions can be implemented that take advantage of revenue enhancement and cost reduction opportunities.
Relationships among Life-Cycle Viewpoints
The marketing viewpoint is concerned with the nature of the sales pattern over the life cycle of the product; it is a revenue-oriented viewpoint. The production viewpoint, however, emphasizes the internal activities needed to develop, produce, market, and service products. The production stages exist to support the sales objectives of the marketing stages. This sales support requires resource expenditure; thus, the production life cycle can be described as a cost-oriented viewpoint. The consumption life cycle is concerned with product performance and price (including post-purchase costs). The ability to generate revenues and the level of resource expenditure are both related to product performance and price. The producer must be concerned with what the customer receives and what the customer gives up. Thus, the consumption life cycle can be described as a customer-value oriented viewpoint. Exhibit 11-12 illustrates the relationships among the stages of the three viewpoints. The stages of marketing viewpoint are listed as columns; production and consumable life-cycle viewpoints appear as rows. These last two viewpoints are identified by the nature of their attributes: expenses for the production life cycle and customer value for the consumable life cycle. Competition and customer type are included under customer value because they affect the producer’s approach to providing customer value. The relationships described in Exhibit 11-12 are typical but can vary depending on the nature of the product and the industry in which a producer operates. Some expla-
Relationships among Life-Cycle Viewpoints
The marketing viewpoint is concerned with the nature of the sales pattern over the life cycle of the product; it is a revenue-oriented viewpoint. The production viewpoint, however, emphasizes the internal activities needed to develop, produce, market, and service products. The production stages exist to support the sales objectives of the marketing stages. This sales support requires resource expenditure; thus, the production life cycle can be described as a cost-oriented viewpoint. The consumption life cycle is concerned with product performance and price (including post-purchase costs). The ability to generate revenues and the level of resource expenditure are both related to product performance and price. The producer must be concerned with what the customer receives and what the customer gives up. Thus, the consumption life cycle can be described as a customer-value oriented viewpoint. Exhibit 11-12 illustrates the relationships among the stages of the three viewpoints. The stages of marketing viewpoint are listed as columns; production and consumable life-cycle viewpoints appear as rows. These last two viewpoints are identified by the nature of their attributes: expenses for the production life cycle and customer value for the consumable life cycle. Competition and customer type are included under customer value because they affect the producer’s approach to providing customer value. The relationships described in Exhibit 11-12 are typical but can vary depending on the nature of the product and the industry in which a producer operates. Some expla-
nation of the relationships should reveal the potential for producers to exploit them. Relationships can be viewed vertically or horizontally. Consider, for example, the introduction stage, and examine the vertical relationships. In this stage, we would expect losses or negligible profits because of high levels of expenditure in research and development and marketing. Customers at this stage are described as innovators. These are simply the first customers to buy the product. Innovators are venturesome, willing to try something new. They are usually more concerned with the performance of the new product than with its price. This fact, coupled with the lack of competitors, may allow a high price to be charged for the new product. If the barriers to entry in the marketplace are high, then a high price may continue to be charged for some time. However, if competition grows as indicated by the horizontal dimension of the table, and if price sensitivity increases, then the producer will need to rely on further research and development and differentiation to maintain a competitive advantage.
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