A company should regularly review its product assortment and assess which products have a negative impact on profits. It should remove these from its assortment in order to remain up-to-date and profitable.
However, assessing an assortment or an individual product can be complicated and involve many variables. Consider the costs associated with a product during its life cycle - such as development costs, market research fees, marketing costs, and so on. If you decide to discontinue a product too early, you could incur unnecessary losses. Conversely, if you keep a weak product in circulation for too long, you may waste valuable resources and jeopardise your competitive advantage. Some products have a very good image and should continue to be stocked for the branding of the company.
Use methods such as ABC, ROI, or portfolio analysis to find out which products or variants bring economic benefits and what the impact of product exclusion might be.
Consider the following questions, among others:
- Does product X directly generate profit?
- What turnover can be expected with product X in period Y?
- Does product X support the sales of other products?
- Is there a powerful substitution for product X through variation, differentiation or optimisation?
First, use the ABC analysis in terms of turnover and production costs to find the weakest products. The so-called C-products should now be examined in a multi-stage procedure. The following starting points are possible:
- As part of the contribution margin calculation, determine which products have a negative contribution margin.
- Look at the position of the products in the product life cycle and make a sales forecast.
- Determine the current market shares and future potential for your C-products.
- If possible, conduct a value-in-use analysis in which you evaluate the product and possible substitutes.
- Calculate on the basis of the return on investment whether a product is still worthwhile.
Once you have identified products that you need to remove from your range, you should clarify when and how you will phase out the product. Making room for something new creates new opportunities!