Entrepreneur
In any business’s journey, leaders must make tough calls about what products to keep offering and which to discontinue in order 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 decided to scrap over 70% of the existing product line, which included over a dozen versions of the MacIntosh computer and focused on four key products: two desktop computers and two “portable” laptops.
Jobs had the company design sleek, eye-catching products that performed as well or better than their competition. He defended the decision to eliminate dozens of existing offerings by saying, “Deciding what not to do is as important as deciding what to do.” It’s hard to imagine that Apple would have ever become the biggest company in the world without Jobs’ bold decision to streamline Apple’s bloated product line and start from scratch.
Related: Advice From the Greats: Deciding When to Retire a Product
Jobs’ scorched earth approach worked for Apple, but your own product assessment doesn’t have to be as drastic. Here are key considerations:
Is the product generating profits?
The profitability of a given product is the simplest way to determine its ongoing viability. If you are continuing to invest in a product that people do not want to buy, sometimes you need to put your ego aside and declare defeat. But it’s not always as simple as the bottom line of sales and profit.
Costco has famously kept the price of its hotdog/soda combo at $1.50 since 1985, and it’s become part of the company’s brand legacy. Adjusted for inflation, the combo should cost around $4.50, but the company knows the loss leader is a draw for its customers and a good way to foster brand loyalty. The combo is as much a part of Costco’s identity as its giant shopping carts and bulk offerings.
But when assessing any product — even a potential loss leader that helps you in the big picture — you have to know the profit margin of the product and understand how it is performing over time.
There are many methods to track product profitability, including calculating operating margin, net profit margin or gross profit margin, which subtracts the cost of goods sold (COGS) from the overall profit. If the overall revenue from a product is $100,000 in a given period and the COGS is $30,000, the product’s gross profit margin is $70,000 or 70%.
The method of calculation isn’t as important as consistently tracking the data with the same metric for a long enough period to account for short-term variations like winter holiday sales increases and seasonal drop-offs. I recommend tracking at least two years of data before making any decisions. That will give you a solid picture of how your product performs in terms of profitability and overall sales trends.
There is no correct answer on what level of profitability is acceptable, given that profit margins can vary significantly from one sector to another, and each business has its own profit goals. But, if your product is consistently losing money and not creating other benefits (e.g., the Costco hot dog combo that created returning customers), it’s time to move on.
Related: Is It Time to Let Go of Your Business? How to Adapt When Your Product Stagnates
Does the product continue to meet a market need?
Technological advancements can make once-profitable products obsolete. It’s important to regularly assess whether your product is currently meeting a market need and if it will continue to do so in the near future.
In the automotive industry, there is a significant shift underway to electric vehicles. Sales of EVs rose in Q3 of 2024 to almost 9% of total vehicle sales in the U.S., compared to 5.3% in Q1 of 2022. Does that mean car companies should abandon their non-EV products? Of course not.
The gas-engine Ford F-15 continues to be the country’s top-selling vehicle, selling over 750,000 units. The best-selling EV was the Tesla-Y, with 403,000 units. So, while there is a clear demand for EVs, it does not mean that Ford should abandon its best-selling product anytime soon.
So, you need to regularly undertake an honest assessment of your product’s viability in the current and future markets.
Bigger businesses can hire market research firms to conduct a thorough analysis of where your product stands against competitors and assess its future viability against predicted market trends.
For smaller businesses, Google Trends is a free tool that lets them do their own market research by assessing customer behavior — even on a regional basis — and overall industry trends and product demand. There are dozens of excellent tutorials online.
Regularly exploring market and sales trends will give you a feel for the market, where it’s going, and where your product fits in. Just like if you’re looking to sell your house, you need to familiarize yourself with the housing market in your area so you can become attuned to its trends, prices, and level of demand so you can price your house for optimal profit.
How do your customers feel about your product?
Before making any changes to your product lines, it’s important to take into account how your customers feel. Consider the example of Research In Motion (RIM), the Canadian company that offered mobile devices with physical keyboards via its BlackBerry line. RIM dominated the market from the late 2000s to 2011 with a loyal customer base who loved the company’s physical keyboards.
When RIM started to lose ground after the launch of the Apple iPhone and Android platforms — with their increasingly popular touchscreens — RIM tried to keep pace by making both a touchscreen and physical keyboard version of the product. To offset the increased production costs, they outsourced manufacturing from Canada to Taiwan and the quality of the devices plummeted.
Eventually, the diminished quality of the new products failed to attract new customers and turned away those previously loyal to Blackberry. The takeaway is that keeping track of consumer trends is important, but it can be more important to consider your own customer’s preferences before undertaking drastic changes.
Online surveys following purchases allow customers to provide direct, immediate feedback on the product, with Survey Monkey and Typeform offering affordable solutions. Social media searches are less representative of the broader market as people typically only post about products they love or hate, but they gauge how customers feel at a given moment. Hootsuite and Brandwatch are both excellent tools to assist your analysis. Focus groups with customers are another tool to dig deeper into how customers view your product, whether they will repurchase it, or how it could be refined for broader appeal.
Conducting a Net Promoter Score (NPS) survey is another useful way to gauge how customers perceive your product and whether they are promoters or detractors when discussing your offering with others. A high NPS indicates a strong product perception, while a low score means there is an issue that you’ll need to dig into.
Ultimately, evaluating a product’s contributions to your company’s bottom line and whether it will deliver significant strategic value in the future can be more art than science. However, the tools above should provide a solid foundation for understanding what is working and what is not in order to sustain and grow a successful business.
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