Maximize Your Profit During End-of-Lifeby Keith Noval
Picture this: You have been guiding your product through its full life-cycle since its inception and introduction to the market. Quickly approaching the end of the roadmap, it is time to transition out of the existing product, and into a new and improved version.
Hopefully, you have successfully navigated the highly competitive growth and maturity periods and have taken profits to offset introduction costs. You are also concurrently managing your inventory levels to avoid deep discounts at end-of-life that could erase earlier gains.
How to Maximize Your Profits
If everything goes according to plan, you may be able to take some late lifecycle profits and avoid any gaps in inventory availability prior to the new products landing on the shelf. The question is, how often does it all go according to plan and what do you do when it doesn’t? Read on for three common scenarios:
Sell through did not meet forecast and your retail channels have excess inventory that must be cleared to free up space in the plan-o-gram for new products.
If you drive the price down too quickly in your established channels it could create a consumer expectation that associates a lower price point with the feature set you are offering that could carry over to your next generation products. If the product stays on the shelf too long, it will cannibalize the next generation product and affect your forecasting.
Sell through exceeded forecast, and product availability, and your retail channels will run out of existing product prior to the arrival of new products while competitors squat in “your” hard earned spot in the assortment.
You could be providing an opportunity for your competitors to take early market share with their next generation product while simultaneously eroding your perceived brand legitimacy. Companies do not want to lose consistency in the eyes of channel buyers and the consumer. This could also allow your competition to slow down the price erosion associated with clearance/closeout events and take some late cycle profits.
Great for them, but not so good for you.
Sell through exceeded forecast and there is still some production available for retailer to extend the life of the product alongside the new products.
It will be a balancing act to make sure you put enough inventory into the channel to bridge the gap without cannibalizing the next generation products. If done successfully, you get to extend profitability, fend off the competition, and make the channel buyer look like a hero for bridging the product transition and extending their profit taking as well.
Creating a Successful End-of-Life Scenario
A successful end-of-life scenario includes much of the following components:
- Timely sales data and profit analysis
- Strong collaboration with retail partners
- Consistent information at retail to help retail associates transition smoothly
- Strong collaboration between marketing, sales, and field marketing partners
- Consumer demographic information tied to regional sales data for stock balancing and opportunity targeting
- Visibility to what is happening on the retail floor including:
- Inventory levels
- Competitor activity
- Consumer feedback
- Plan-O-Gram / Product reset compliance
Planning for end-of-life is critical to maximizing your profitability over the lifecycle. The best times to plan for end-of-life is during the growth and maturity phases when run rates are more stable and predictable. This is also typically when you will have visibility on next generation products, including a clear view on the gap that will need to be bridged between current and new products in terms of features, technology, and pricing.
Take Action Today
Before end-of-life, take time to assess your organization against the best-in-class criteria mentioned above. Identify gaps and create a plan to close the gaps in these areas. Assess your spending and identify the key ROI positive investments that could contribute to a successful transition. Be careful not to suspend all marketing activities. The right investments could extend your realized profit through the product transition.
If you have questions regarding an assessment of your business plan, or how to identify the best ROI positive program investments, contact us.