Is your product or service at the end of its life?
New products enter the market, and old products leave the market every year. Business owners face the difficult choice of knowing when to put more resources into their existing product and when to cut their losses and retire a product.
The choice can be especially tricky when the business owners have an emotional attachment to their product. It might be that this product was the one that got their company going, and it’s hard to let it go. Henry Ford faced this when the Model A replaced the Model T. The market for cars had moved on from a basic, reliable vehicle (the Model T) to sophisticated cars that were available from Ford’s competitors. However, when the profit margin declines on a previously profitable product or service, the business owner will need to decide on its future.
A more modern example is a small business that continues manufacturing and selling a niche product after the demand for it had dried up. Initially, the product was cutting edge and faced no competition in the market. The business manufactured, sold, installed and serviced the product. Early on, the product was easy to sell as it faced little to no competition. As time went on, large companies recognized the value of the niche market and started producing competing products. The business started facing stiffer competition from these large companies. The large companies’ products weren’t as cutting edge, but they cost 10% – 20% of the niche company’s products, and soon the small business is selling a tenth of the products they had previously.
This is something many businesses will face over time. The decision to continue with a product or service that used to be a moneymaker is a difficult one to make. In the example above, the business decided to continue manufacturing their product in the hope the market would come back. Sometimes the demand for a particular product will go down temporarily and rebound again (oil is a good example), and sometimes the market is gone for good.
Arbutus Management Consulting can help you make sense of your product and service decisions.
