Understanding Your Product(s)
I came across this subject that I think is important and would like to share it here. I once took some business classes a long time ago, it made more sense now to me when combining it with what I have learned so far at M.E class. Hope you find it useful also on your journey.
Let’s say, suppose the entrepreneur could obtain a source of capital that they need and are ready to launch a business. Excited to pursue the dream! Along with learning and understanding finance statements, measuring cash flow etc., anything relates to finance management to build and maintain a steady profitability and business longevity (Steven Rogers, Entrepreneurial Finance), there are so many key factors in marketing to make a whole and this week’s blog will discuss about “product” that without it the business does not exist. In other word, the business would not “exist” if I failed to deliver product or services that satisfy the customers.
Product is the item or service an organization is asking the public to pay money for in order to receive the product or service. Product is one of other components (price, place, people and promotion) that make the heart of a business.
Every product has a life cycle. Product life cycle is the stages through which a product or its category passes from its introduction into the marketplace until its devolution or discontinuation.
As a consumer, we buy many products but probably not aware of the product life cycle. And For example, we make our conscious decision to switch from one to another product based on personal tastes, or just want to buy the latest product. However, as an entrepreneur, especially the manufacturer, it is important to understanding the limited lifespan of their product so they may have solutions to make sure stay in business and continue growing.
In order to identify where are you based on the following phases analysis, ask some critical and realistic questions such as is your product new, different or better than what is already on the market… Let’s take a look at the product’s phases:
- INTRODUCTION phase: this is the phase in which the product is initially promoted and public awareness is created. There are two different strategies usually accompany this phase:
- Penetration strategy: involves setting price very HIGH initially and then gradually lowering then over time. This is good strategy to use if there are few competitors for your product.
+ Profits are high initially with this approach
+ Great deal of risk, because if people do not want to pay high prices, you may lose out for the first hand.
- Skimming strategy: involves setting prices very LOW at the beginning and then gradually increasing them. This is a good strategy to use if there are many competitors who control large portion of the market. Therefore:
+ Profits are not a concert under this strategy.
+ The most important thing is to get your product known and worry about making money later.
- GROWTH phase:
- Products surviving the introductory phase usually enter a growth period when they increase their sales and markets.
- This is also when advertising becomes very important and the costs of marketing increase.
- Organizations that do not invest in marketing at this phase usually don’t maintain their edge in sales, nor do they increase their market-share against their competitors.
- MATURITY phase:
- If a product survives the growth stage, with continuous improvement and advertising, it is likely to spend a great deal of time in the maturity phase.
- During this phase, sales grow at a very fast rate and then gradually begin to stabilize.
- The key you surviving this stage is to differentiate your products from similar products offers by your competitor.
- This is also when your competitors or new entrants will begin to copy your successes.
- DECLINE phase:
- This is the phase when sales of your product begin to fall.
- Either everyone that wants to have bought your product or new, more innovative products have been created that replace yours.
- Many companies decide to withdraw their products from the market due to the downturn.
- The only way to increase sales during this period is to cut your costs and reduce your spending. Typically, companies tend to blame labor or input costs for their decline. To stay out of the decline phase, it is best to continuously innovate.
Understanding that consumers play a big part of the product’s life cycle. Depending what stages your products are at in the cycle, entrepreneur needs to apply the appropriate resources, sales, and marketing strategies in order to make profits.
Rogers, Stevenson (2014). Entrepreneurial Finance, Third Edition: Finance and Business Strategies for the Serious Entrepreneur. McGraw-Hill Education.