the products and services you offer are key to the survival and growth of your business. But if your product mix is static, its effectiveness will weaken.
As stated previously in this blog, your customers have needs that they want satisfied; they have jobs that they want completed. Customers want solutions, not products. They want a four millimetre diameter hole, not a four millimetre drill bit. Their focus is on the solution that will get the job done, not the product needed to provide that solution.
Over time, it is likely that consumers will move from one product to another if it is shown that the new product option offers a better solution to the consumer’s need than the existing product. Consumers will switch to another product if they perceive it offers a better way to get the job done – cleaner, faster, safer, more environmental – and less costly!
No product, service or organisation is indispensable if a better offer exists elsewhere.
Take the example of the mangle. A mangle used to be an indispensable, but exceedingly dangerous, tool for doing the laundry. no household would be without access to a mangle on wash day. When the first washing machines appeared in the late 19th century they were fitted with a mangle to squeeze excess water from the wash. Often these mangles were electrically powered.
But no one uses a mangle today. Modern washing machines with high speed spin cycles use centrifugal force to remove water from the laundry. Modern machines are safer; you aren’t going to crush your hand in a modern machine (a common injury with mangles); they are less time consuming and use less effort on the part of the consumer; and because they use a lot less water, they are more environmental.
So consumers have switched away from mangles to remove water from their weekly wash; there is no longer a market for mangles in the United Kingdom.
However, in many businesses there is a problem. Product portfolio management is seen as a tactical, not a strategic activity. Small drops in sales levels are often dealt with at a local or regional level, not a strategic responsibility of senior management. The solution isn’t to alter the product mix but to offer additional incentives to salesmen and agents. Little or no thought is given as to whether the drop in sales is a result of an incorrect product strategy.
Often products are placed in organisational silos. Issues with product management are contained within those silos and no one looks to see if the overall product strategy is at fault.
Reviewing the management of your product portfolio is more than examining sales figures. You need to:
- Review customer needs
- Review product or service attributes
- Are needs changing over time?
- Review your customer value proposition
- Examine your wider business model
- Assess existing and potential risks
- Manage the product life cycle
- Examine distribution and supply chains; are you using the most appropriate use to market?
- Are you using the right tactics to implement your marketing strategy?
The starting point for considering your product mix strategy is the consideration of value. There are two forms of value;
- Organisational Value: The flow of cash and the reputation gained through the sale of your goods and services
- Customer Value: The benifits of your products and the solutions they offer.
Successful businesses are those who gain more value from consumers than is spent delivering products and services.
Customers get value from seeing a job well done or a need satisfied. A firm will be profitable if the customer value it generates exceeds the costs of delivering a satisfying solution to the customer.
And remember, best value does not necessarily mean cheapest price. It is a measure of overall utility. Customers will trade off different perceived values from a range of product offers. This is often a primary source of marketing differentiation.
Remember value equals benefits of the product or service minus the effort needed to obtain those benefits, minus the risk involved in the product choice, minus the price charged for the product or service.
Reducing the price is only one way of maximising customer value. Alternatively, you can increase the benefits of usage; you can reduce the effort needed to access the benefits of your offer; you can reduce the risk inherent in a consumer choosing your product.
And it isn’t just your target customer who needs a value proposition.
Prospective customers need a value proposition to compare your products with others in the market. Your salesforce needs a value proposition to present to customers. Your distributors and retailers need a value proposition to ensure appropriate prominence for your products; and your internal stakeholders and shareholders need a value proposition to assess your organisation’s market value.
Teacy and Wiersema see three potential areas for a value proposition to be developed; management efficiency, product leadership and customer intimacy.
You customer value proposition must relate to all the stakeholders in your organisation and it must integrate the needs of those stakeholders as well as those of customers. Stakeholders need to be informed of where they sit in the customer value process as well as how different stakeholder groups relate to each other. You must state clearly how the organisation and its stakeholders create customer value in a unique and differentiated way from that of your competitors.
- The roles of organisational stakeholders must be aligned to the process of delivering the customer value proposition
- The aim should be to open doors and close sales
- You should look to increase revenues by having a clear market position
- Aligning stakeholders roles should speed time to market
- Aligning the roles of stakeholders should reduce costs and wastage
- Alignment or stakeholders to the customer value proposition should improve operational efficiency and increase market share
- Align to the customer value proposition to improve customer retention
As the product mix cannot be static, product innovation is a necessary element. Innovate or die. Change should be business as usual. Remember, not everything new will sell; failure is part of the new product development process. You cannot be responsible for the unpredictability of consumers.
When assessing your product mix, it can be useful to reassess the business you are in. For example, is Harley Davidson a motorcycle manufacturer or a lifestyle brand? They don’t just produce bikes, they make clothing, luggage, and license fragrances.
Can you reassess your product mix through segmenting your market in a different way? Do you segment based on consumer income or psychographic measures?
Do you track the value customers see in your products? Is that value declining? If so what changes can you make to reinvigorate that value? Are product attributes once seen as optional extras now seen as necessities? For example, few cars today are sold without a satellite navigation system or passenger airbags.
It can be important to work with your target customers in the development of your offer. They may provide useful insight into which innovations offer sustainable value.
Management of your product mix is a strategic, not a tactical task. It is important that development of your offer is considered across your organisation and that it is not solely the responsibility of your sales or marketing team.