Product Life Cycles: How to Keep Picking the Winners
by Larry Slusser on December 4th, 2007
You have your business concept, the product you are selling, suppliers are lined up and you know how you are heading to market. All you have to do now is sell right? While this is the approach of many small and large companies this vision can be a bit short sighted and lead to difficult times down the road. To be competitive and ensure your company is well positioned in the market, you have to know what products your customers want and how that demand changes.
Without ongoing market research and product sourcing, your business will begin to decline. No matter how hot a product is at a given time, it still has a limited life span. Video games are an excellent example of this – what sells at a premium today, may not be worth hardly anything tomorrow. That’s why you need to continually analyze your products and where they are at in their life cycles.
Track how products are performing
In the beginning phases of a product’s life, demand is through the roof while supply is low, so prices are high. It will be difficult for you to get these products in this phase as this is the competition phase where most sellers make their money. Once the competition begins and the supply rises, usually the demand stays the same and prices begin to wane slightly. As demand begins to fade, the prices will fall and the product is in a declining stage. The steepness of the declining stage depends mostly on the product. Demand can rise and fall off for many reasons – a product may be going out of style or out of season, or the competition may overproduce the product and flood the market, driving prices down so low that you can’t compete without a loss. When you observe products moving into the declining stage, you know it’s time to close out with that product and offer something else.
Keep both eyes on the data
Controlling your product offering begins with market research. If you are going to provide a product or service to people or businesses, you have to know what they want. We have all heard the saying about selling freezers to Eskimos and while that is a great story about sales, but what does it say about the market research of the company he or she sold freezers for? What does it say about the business that sent a freezer salesman to the frozen tundra?
Monitor product demand
To understand a product’s demand, you need to analyze the number of people searching for that product, the number of sales it have in a given period of time, and how much it is selling for. In other words, find out the average selling price. Research resources like Hammertap, KeywordDiscovery, Google’s Keyword Tool, or eBay’s Pulse and Marketplace Research can help you find the data you’re looking for and help you evaluate just what all the different numbers mean.
Determine where the demand direction is heading
Understanding the direction a product’s demand is going will enable you to identify where it is in its life cycle. It is critical you stay ahead of this part of the game. You don’t want to be sourcing inventory on a product that is seeing demand and pricing drop off. Make sure you are watching your numbers over time, longer than a month. Track the trend data as long as you can and for products you have seen through a life cycle, then study the life cycle post mortem and utilize the data on similar products you are currently offering. While they may not behave exactly the same, at least you will have some sort of a benchmark to base your offering and your sourcing strategy.
Keeping a close eye or two on your product life cycle and understanding where each product is at on that life line will help you keep your business profitable. While you may be selling so well you could move freezers in the frozen tundra, even that market will change over time. Staying ahead of the market, or at least current with the market, is the key to profitability and success.