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Throughout the journey of every company, leaders must make firm decisions about what products to proceed offering and which to discontinue to facilitate long-term profitability and growth.
When Steve Jobs returned to Apple as CEO in 1997, he found a company that was bloated and underperforming. He made up his mind scrap over 70% of the existing product line, which included a dozen versions of the MacIntosh computer and focused on 4 key products: two desktop computers and two “portable” laptops.
Jobs tasked the company with designing elegant, eye-catching products that performed in addition to or higher than competitors’ products. He defended the decision to eliminate dozens of existing offers by saying“Deciding what not to do is as important as deciding what to do.” It’s hard to imagine that Apple could ever change into the largest company in the world without Jobs’ daring decision to streamline Apple’s bloated product line and start from scratch.
Jobs’ scorched earth method worked for Apple, but your own evaluation of the product doesn’t have to be so drastic. Here are the most significant issues:
Does the product generate profits?
The profitability of a given product is the easiest method to determine its current profitability. If you keep investing in a product that folks don’t need to buy, sometimes you have to put your ego aside and declare failure. But it’s not at all times so simple as the bottom line of sales and profit.
Costco has kept the price of a hotdog and soda combo at $1.50 since 1985, and this has change into a part of the company’s brand heritage. Adjusted for inflation, the kit should cost about $4.50, but the company knows that a loss leader attracts customers and is a great way to build brand loyalty. This combination is as much a a part of Costco’s identity as its giant shopping carts and bulk offerings.
However, when evaluating any product – even a potential loss leader to help you see the greater picture – you need to know the product’s profit margin and understand how it performs over time.
There are many methods for tracking product profitability, including calculation operating margin, net profit margin Or gross profit marginwhich subtracts cost of products sold (COGS) from total profit. If total product revenue is $100,000 for the period and COGS is $30,000, the product’s gross profit margin is $70,000 or 70%.
The approach to calculation is not as necessary as consistently tracking the data using the same data for a long enough period of time to account for short-term fluctuations resembling winter sales increases and seasonal declines. I like to recommend tracking your data for at least two years before making any decisions. This will give you a solid picture of how your product is performing in terms of profitability and overall sales trends.
There is no correct answer to the query of what level of profitability is acceptable, on condition that profit margins can vary significantly between sectors and each company has its own profit targets. However, if your product is consistently losing money and generating no other advantages (e.g., Costco’s hot dog combo that delivered returning customers), it’s time to move on.
Does the product still meet market needs?
Technological advances can make once profitable products obsolete. It’s necessary to commonly assess whether your product currently meets market needs and will proceed to do so in the near future.
There is a significant shift towards electric vehicles in the automotive industry. Sales of electrical vehicles rose in Q3 2024 to almost 9% of total U.S. vehicle sales compared to 5.3% in Q1 2022. Does this mean automotive corporations should abandon their non-EV products? Of course not.
The Ford F-15 gasoline engine is still on top the best-selling vehicle in the countryselling over 750,000 units. The best-selling electric vehicle was the Tesla-Y with 403,000 units. So while there’s clear demand for electric vehicles, that doesn’t suggest Ford should abandon its best-selling product any time soon.
So you need to commonly conduct an honest assessment of your product’s viability in the current and future market.
Larger corporations may hire market research firms to conduct a thorough evaluation of where your product stacks up against the competition and assess its future profitability against anticipated market trends.
For smaller corporations, Google Trends is a free tool that permits them to conduct their very own market research by assessing customer behavior – even on a regional basis – and overall industry trends and product demand. There are dozens of great ones tutorials on the Internet.
Regularly researching market and sales trends will give you a feel for the market, where it’s heading and where your product matches. Similarly, if you want to sell your home, you need to familiarize yourself with the housing market in your area so that you can adapt to trends, prices and demand levels so that you can price your home for optimal profit.
How do your customers think about your product?
Before making any changes to your product lines, it’s necessary to consider customer sentiment. Consider the example of Research In Motion (RIM), a Canadian company that offered mobile devices with physical keyboards through its BlackBerry line. RIM dominated the market from the late 2000s until 2011, with a loyal customer base who loved the company’s physical keyboards.
When RIM began to lose ground after the introduction of Apple’s iPhone and Android platforms – with increasingly popular touchscreens – RIM tried to sustain by creating a version of the product with each a touchscreen and a physical keyboard. To offset the increased production costs, they outsourced production from Canada to Taiwan, which caused the quality of the devices to plummet.
Ultimately, the reduced quality of the latest products failed to attract latest customers and drove away those that had previously been loyal to Blackberry. The bottom line is that following consumer trends is necessary, but it could also be more necessary to consider your own customer’s preferences before making drastic changes.
Post-purchase online surveys allow customers to provide direct and immediate feedback about a product Survey Monkey AND Type form offering reasonably priced solutions. Social media searches are less representative of the broader market because people tend to only post about products they love or hate, but they supply a gauge on how customers are feeling at any given moment. Hootsuite AND Brand watch each are excellent tools to aid evaluation. Focus groups with customers is one other tool that permits you to gain a deeper understanding of how customers perceive your product, whether they are going to repurchase it or how it might be improved for wider appeal.
Driving a Net Promoter Score A survey (NPS) is one other useful way to gauge how customers feel about your product and whether or not they are supporters or detractors when discussing your offering with others. A high NPS indicates good perception of the product, while a low rating means there is an issue that needs to be addressed.
Ultimately, assessing a product’s contribution to your company’s bottom line and whether it will deliver significant strategic value in the future could also be more art than science. However, the above tools should provide a solid foundation for understanding what works and what doesn’t to maintain and grow a successful business.