Knowing when to cut a product

GENERAL NEWS 16 | 10 | 19

Businesses looking to improve their profitability may need to consider cutting under-performing products and services. How a product contributes to growth strategy, brand management and production efforts can help you determine whether you should discontinue it. Underperforming products can drain the company's resources and finances that could be used to profit elsewhere. It might be time to discontinue if a product fits the following scenarios:

  • Low profitability.
  • Stagnant or declining sales volume or market share.
  • Maintaining your market share is too costly.
  • Risk of technological elimination.
  • Poor fit with business's strengths or declared mission.

When deciding whether to discontinue a product, there are a few ways you can examine your services and make the decision that is best for your business.

80/20 rule:
A commonly used marketing and business rule states that businesses should focus their attention on the 20% of the products that generate 80% of revenue. Using this principle, companies should compile a shortlist of the products and services that bring in the most profit and scrutinise the products that fall short of this mark. The 80/20 rule can provide a solid framework for your sales and marketing objectives, identifying areas in which you could successfully cut with minimal loss.

Trial run:
Making the right cuts can be difficult and you may not see the value of a product until it is gone. For this reason, businesses can consider doing a trial run for the product in question. Try going a week to a month (no longer) removing all promotion and marketing for a product. This can help the business to visualise what it would look like without that service and see if there are any clients who miss it.

Harvesting is a strategy used to generate the most money out of a product whilst it last. By cutting the costs associated with the business or increasing the price of the product without increasing production or operation costs, the business can continue to generate revenue on a failing service. Once the product ceases to provide a positive cash-flow, it can then be discontinued.


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