Knowing when and how to retire a product is as important to maximizing profits as knowing when to introduce new offerings. With the introduction of new techniques, lean processes, and investments in advanced IT software, most manufacturers are now able to repeatedly deliver new developments to market more cheaply and quickly than before. Once these products have been launched, companies are highly skilled at ramping up their sales and achieving profitability.
But despite all this commendable progress, manufacturers often let profit margins erode by extending the product life far too long. In many cases they give their existing product detail a nip and tuck in the hope that it will remain attractive to the market and generate a few more sales. But new product introductions (NPIs) need to include retirement strategies.
In Accenture's 2012 Innovation survey, it claims that some 64% of companies are still largely focusing on product facelifts to maintain customer interest. Although this approach generally does generate some additional commercial success, it's less effective and consumes more valuable resources than focusing on the introduction of entirely new and better follow-up products, which can potentially generate a greater level of lifecycle profitability.
A European printer company with a product portfolio that collectively resulted in a slim profit highlights the cost of not retiring products that have become commercially ineffective. Analysis showed that a small number of relatively new printer systems accounted for more than 70% of its revenue and generated strong profits. The remaining 80% had been in the market for some time and most were making a loss. The net effect was to reduce overall profitability.
Discontinuing a product that is no longer profitable is never an easy decision. However, ignoring the problem can damage a manufacturer's overall commercial success, and when an old product no longer fits in with the rest of the products, it can be confusing for customers.
The route to maximizing profits is through good product lifecycle management at every stage of the process, including retirement at the right time. Manufacturers not only need to over-perform early in the product lifecycle to achieve strong returns from product investments, but also to actively retire products at the right time. This will release resources and capacity to develop new, exciting replacements to generate ongoing profits.
Keith Nichols is a principal analyst for the industry analyst and market consulting firm Cambashi.