When does it make good business sense to say "goodbye" to a product or service?

by Reed Richardson

It may seem unthinkable- intentionally retiring off one of your small business's products or services. But just as all businesses both small and large grow, mature, and change, so too do the brands that they sell. And as one-time successful products or brands start to lose their consumer cachet and gaudy profits, recognizing when and how to pull the plug on them becomes an important business decision. To help you make this decision, here are some things to consider.

 


Product life-cycle theory- In 1966, Harvard economist Raymond Vernon is generally credited with formalizing the concept of product life-cycle theory, which, in its most basic form attached four different stages to a product's existence: introduction, growth, maturity, and decline. Products or services in the decline phase are typically marked by stagnant or sagging sales, eroding market share, little to no profitability (possibly even becoming loss leaders), and lack of emotional consumer appeal or buzz. If a product or service your small business is offering suffers from some or all of these characteristics, it might be time to seriously consider putting it out to pasture.

 


For instance, in the tech industry, where products typically have compressed life-cycles, a startup might see sales of its very first gadget struggle, take off, stabilize, and eventually wither away all before the business starts to consistently make money. An important point to remember: often, a small business doesn't achieve real breakout success-the kind that establishes it or its brands as both permanent and profitable-until the second or third-generation of its product line. This was the case with Canadian tech company Research in Motion, which didn't achieve spectacular sales of its Blackberry device until subsequent versions mated wireless capability and a QWERTY keyboard to its original push email service.

 


Brand Dilution- At times, a company that has a robust line-up of mature products or services may seem to be happily chugging along, earning steady, decent revenues without much in the way of re-investment or marketing. But, in fact, having a wide selection of different brands can sometimes mask individual products that are ripe for retirement and which are slowly corroding your company's overall image.

 


Case in point, car manufacturer General Motors. For decades, GM invested heavily in maintaining as many as a dozen different automotive brands, all the while it often sold the same basic vehicle across these brands with little more than cosmetic changes to differentiate them (a practice known in the car industry as "brand engineering"). GM saw this as taking advantage of economies of scale, but customers increasingly perceived this brand proliferation as nothing more than a transparent marketing ploy. Over time, this strategy blurred GM's brands together and allowed some poor quality platforms to survive far too long. As a result, it slowly drove customers into the arms of competitors who offered a simpler array of choices and more consistent quality. Not surprisingly, during GM's recent bankruptcy and subsequent restructuring, it made the decision to retire or spin off brands like Pontiac, Saturn, Saab, and Hummer, platforms which had become watered-down, redundant, unprofitable, or too far afield from its core business.

 


Overwhelmed by Events- Sometimes businesses can grow so enthralled with their own products or services that they fail to recognize when outside events have undermined their company's offerings. In the short-term, it may seem like the safe move to keep selling a product even though it has been made obsolete by technology or become an unwitting public relations victim, but in the long-run, stubbornly sticking with a brand may have more damaging long-term costs.

 


For example, a small company that continued to pin its hopes on building VHS videotape rewinders long after the rise of DVDs ran the risk of sacrificing its brand as well as its long-term future for a few more fiscal quarters of dwindling revenues. Soft drink giant Coca-Cola famously confronted a similar problem in the late 1970s, when sales of its popular diet soft drink TaB began to suffer due to health studies that linked that drink's artificial sweetener, saccharine, to increased rates of cancer in lab rats (fears that were later proven to be unfounded). To overcome this problem and to prevent TaB's main rival, Diet Pepsi, from gaining the upper hand in market share, Coca-Cola responded by retiring TaB and, in 1982, launching Diet Coke, which used a different artificial sweetener and had the power of the Coke brand built into its name. Diet Coke soon became most successful product launch in company history.

 


Losing a Product, Keeping the Customer- Perhaps one of the biggest reasons that companies hold on to a product or service for too long involves the fear of alienating the customer. Small businesses in particular, which often have to struggle and scratch to gain any kind of market share in the first place, are often loath to voluntarily risk their relationship with those hard-won customers. These fears are not unfounded as change can be hard for a customer to accept. So, before your business drops a product or eliminates a service, you should map out a detailed strategy to bring your customers along with you.

 


Communication here is key. Abruptly dropping a product from your lineup without any warning can make for lots of angry, former customers. So, it's a good idea to roll out some kind of awareness campaign-whether it's mailing out a new product catalog, putting a notice on the home page of your company website, or just setting up an eye-catching in-store display-that informs customers of what changes are heading their way. Transition periods, when your business temporarily offers both the outgoing and incoming products for sale, are also a good idea, as is putting an expiration date on the soon-to-be phased out product or service since it gives consumers a concrete time frame to begin thinking about alternatives. And smart business owners further help themselves by explicitly guiding their current customers toward the new alternatives through things like free samples or trials, introductory discounts for current customers, and targeted marketing and advertising copy: "If you liked our old Brand X, you'll love our new Brand Y because..."

 


Save It by Recreating It- Some companies refuse to give up on a product or service that appears to have passed its peak. A once successful product or service usually has a reservoir of built-in brand equity and trust with the consumer and those are powerful commodities in an increasingly fickle marketplace. So, instead of retiring a product or service completely, you might consider putting it back to work by repositioning it as a lower tier offering in your company's expanded product line or by repurposing it to fit into a new sales landscape.

 


For a good example of the latter, look no further than the once proud soft drink TaB. Set adrift by Coca-Cola in the early 1980s, TaB never disappeared altogether and continued to have a small, but fiercely loyal customer base decades after the introduction of Diet Coke. In 2006, Coca-Cola sought to tap into TaB's long-standing underground popularity while at the same time appeal to a new generation of diet beverage drinkers when it launched its new niche product, TaB energy. This reincarnation of TaB combined elements from the original-most notably its infamous pink-colored can and low-calorie formula-with attributes more popular among Generation Y-like a tall, skinny-can profile and a highly sweetened, herbal supplement-infused taste. Although this TaB version wasn't aimed at the mass market, it was soon seen in the hands of some of Hollywood's youngest starlets, becoming a status symbol once again for those looking to stay fit and trim. A product was reborn.

Similar Content