Your Unprofitable Customers Are Killing You

In planning its market offerings, the marketer needs to analyze the product at different levels. A product has different layers , like an onion and each of the layers contributes to make the product. The discontinuance OR elimination of marginal or unprofitable products. These are goods with unique characteristics or brand identification and the purchasers make a special purchasing effort, for instance, fancy goods, special eating items. In marketing the term goods is used in synonym tor products.

The promotional expenditure remains high because of increasing competition and due to the need for effective distribution. Profits are high on account of large scale production and rapid sales turnover.

People looking to join the service needed an invite from current users to get in. Since everyone bookkeeping wanted to know what Dropbox was about and how it worked, the waiting list quickly blew up.

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They wonder why any one would pay a lot more for a new kind of light bulbs, for example. By the time laggards adopt something new, the innovators in favor of a newer concept may already have discarded it. Diffusion of a new product is the process by which an innovation spreads throughout a social system over time.

Obviously, production with standardisation will be a Herculean task. A marketer is expected to keep new products ready to fill up the gap created by the demise of existing products. At this stage, price becomes the primary weapon of competition, and we have to reduce considerably expenditure on advertising and sales promotion. The saturation point occurs in the market when all potential buyers are using the product and we have only replacement sales. Consumption achieves a constant rate and the marketers have to concentrate exclusively on a fight for market share . Prices may fall rapidly and profit margins may become small unless the firm makes substantial improvements and realises cost economies. Some stay with the dying product a little longer and try to review the market, though usually with disappointing results.

• I want you to start thinking like I do and like other growth hackers do.
• The second phase is of the stage is stable maturity, where the market already becomes saturated and, as a result, sales flatten.
• At this stage, price becomes the primary weapon of competition, and we have to reduce considerably expenditure on advertising and sales promotion.
• Alternatively, the follower enters an emerging market segment before the leader.
• In certain circumstances, the management has to drop the production of unprofitable products.
• The best way to deal with the situation is to expect it and make suitable adjustments.

Customer segments are differentiated by the customers’ different requirements for your product. The value proposition for any product or service is different in different market segments, and the price strategy must reflect that difference. By increasing engagement with existing customers, you’ll boost sales and increase profits. It’s also a fact that poor customer service leads to the loss of clients.

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Often, improving an established product can be more profitable and less risky than developing a completely new one. Alterations may be made in the what are retained earnings designs, size, colour, packaging, and quality. These benefits are the tangible benefits that the consumer come across while making a choice.

Here, you’re looking at the performance of paid advertising, PR, SEO, and more. Compared to spending $300 per acquisition for a $99 product on Google AdWords, this seemed to be the better strategy for them, and they now have 500 million users. Traditional products like books published by a traditional publisher have to create a lot of buzz before they even launch to make sure that the launch is successful. If your target customer is “everyone,” there’s no way to growth hack through that first 15% because you don’t even know who to convince to buy.

These increased expenditures further reduce the profits of the firms. This situation compels weaker firms to withdraw themselves from the market, and as a result, only the competent ones survive. Competitors emphasize improvements and differences in their versions of the product. Consequently, weaker competitors at this stage are squeezed out or lose interest in the product.

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Possibility of adding new product to its product line at less cost. The marketer at this level has to turn the core benefit to a basic product. The basic product for hotel may include bed, toilet, and towels.

In the case of packaged – food and household products, companies introduces color and texture variations and restyle the package. Launching the new product at a high price and a high promotion level.

In real life, many products do not follow the life cycle curve. The time interval for each stage varies widely from product to product. For example salt, sugar, tea, coffee, milk, petrol, diesel, etc. remain in the maturity stage forever. Table radios, ink pens, Ambassador Cars, etc., have moved into the declining stage, after achieving dropping an unprofitable product immediately is the best strategy when the maturity stage. Marketing strategies must change as the product goes through the life cycle. For example- in case of declining products, the management has to decide whether to maintain or terminate the product. The sales history of a typical product follows an S – shaped curve, as shown in the following diagram 3.2.

If you want to keep it simple, you can allocate all overhead costs based on percentage of revenue. For example, if the product you’re analyzing composes 30 percent of product revenues, you can assign it 30 percent of overhead costs. If you want a more accurate allocation, try to allocate costs based on what’s truly driving the expense. For example, you may want to allocate payroll expenses based on the percentage of time that all staff dedicates to that product. There are, however, other costs involved in running your business.

Managers also try to stimulate sales by modifying the product’s characteristics through quality improvement, feature improvement, or style improvement. The key the growth of airfreight service is the constant search for new users to whom air carriers can demonstrate the benefits of using airfreight rather than ground transportation. This introductory stage is the most risky and expensive one, because substantial amount of money spent in seeking consumer’s acceptance of the product. Early adopters comprising about 12 percent of the market, early adopters purchase a new product after innovators but sooner than other consumers. Unlike innovators, who have broad involvement outside a local community, early adopters tend to be involved socially with in a local community.

There should have periodical reviews by the marketers on different stages to decide on courses of action to combat competition. In the following few paragraphs, we shall focus on product-category, product form, product, and brand life cycles. At some point in time, the sale of a product is bound to decline. This point is termed as the decline or the final stage of the product’s life cycle. The last phase of this stage is decaying maturity, when sales will start falling fairly rapidly.

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But as competition began to increase, sales stagnated and profits evaporated. By viewing the product life cycle in the same way, marketers pursue similar positioning strategies for products and services during each stage of the life cycle. In the process, they miss out on opportunities to differentiate themselves. The duration of each product’s life cycle stage is unpredictable, making it difficult to detect when maturity or decline has begun. Due to these limitations, strict adherence to the product life cycle model can lead a company to misleading objectives and strategy prescriptions.

After a level however, the profits of both the manufacturers and the retailers start to decline because of rising expenditure and lowering prices. In certain circumstances, the management has to drop the production of unprofitable products. A firm may either eliminate an entire line or simplify the assortment within a line; this is termed as contraction of product mix. The process of avoiding or stopping the production of a particular product is called simplification. Simplification may be defined as deleting or eliminating those product items, which are unsatisfactory or unnecessary, from the product line. It is also termed as pruning, deletion, elimination, contraction, dropping or abandonment.

By way of getting constant market feedback the company modifies or alters or adds new features to match international markets. Generally, the life cycle movement starts from advanced countries where considerable amount is spent for research and development. Out of ten innovations, two may be commercially viable for which they do not hesitate to spend money other eight innovations. A few major players enjoy most sales; niche firms make up the rest. Market leaders often enjoy entry barriers — scale economies, brand preference, distribution-channel dominance.

The introduction stage may last many years, but fierce competition, increased innovation, customer willing­ness to try new products are shortening this stage. In real life, many products do not follow the life-cycle curve given above. Time interval for each stage varies widely from product to product. Table radios have now moved into declining stage after achieving maturity and saturation. With the introduction of mobile phones, pagers are in declining stage in our country. During this stage, keen competition brings pressure on prices.

The C/S ratio shows how much contribution is earned per $1 of sales revenue earned. Since costs and sales revenues are linear functions, the C/S ratio is constant at all levels of output and sales. Developing marketing strategies based on the PLC concept can also be difficult because the strategy is both a cause and a result of the product’s life cycle.

The late majority another 23 percent of the market is a skeptical group of consumers who usually adopt an innovation to save some money or in response to social pressure from their peers. They rely on their peers – late or early majority – as sources of information. Advertising and personal selling are less effective with this group than is word of mouth communication. The early majority, representing about 23 percent of the market, includes more deliberate consumers who accept an innovation just before the average adopter in a social system. This group is a bit above average in social and economic measures.

Sales growth slows as most potential customers have been reached. The value in understanding the nature of the product life-cycle is in its relationship with marketing strategy. The product life cycle is a series of stages progressing from the product’s initial entry to its ultimate withdrawal from the market. Contemporary marketers try to plan for the life of the product before it is ever introduced. Cost accounting is a form of managerial accounting that aims to capture a company’s total cost of production by assessing its variable and fixed costs. Much strategic decision must be made to manage a company’s assortment of products effectively.

Twenty-five percent of sales does not mean twenty-five percent of overhead. You’ve got to allocate costs based upon what activities match up with the client. Another client of ours had two brands—one of which was far more profitable. They decided to allocate 70% of the cost of servicing their customers of the more profitable brand. The problem was the sales people were spending 70% of their time on the brand that only generated 30% of the profits.

Author: Laine Proctor