Beware the Zombies – your zombie products, that is.

Just this week, Coca Cola announced that they are eradicating their lowest money-making products from the portfolio.   Already, they culled Odwalla as it overlaps with Minute Maid and has a low market share. More cuts will surely follow.  One likely stalwart to go is TAB.  Forty years after the replacement product came out (Diet Coke), they’ll likely pull the ahem, tab, on that.

Sometimes, the product gets replaced like in Tab.  Sometimes, they just make a mistake and get a new product wrong. Remember Crystal Pepsi? 7up Gold?  Coke Blak?  There’s nothing wrong with a bad launch. The hope is that they learn from them and get better.   Also, hopefully, they admit they’re bad products, and move on.

In my experience, it is very often that companies keep their products around long after they should. Why? Here are some reasons.

• The company has no idea what its costs are. Hasn’t even thought about the topic!  There’s no product-line based P&L. At best, it’s company-wide.  So many costs are shared, so the company P&L looks like Ragu.  “It’s in there.” The problem here is that the company does not understand its cost to serve by product.  I’ve found many situations where only 20% of a company’s products are making any money --- and they had no idea.
• It’s strategic!  Probably one of the more interesting reasons.   Maybe its a pet project, or because admitting it was a failure is not culturally encouraged, people apply “strategic” to the product.  How they do this is that they for every one of the strategic products they sell, it helps sell the other, profitable product.  The problem here is that I’ve seen where a company has so many strategic products helping sell other strategic products, that there’s no profitable products to be found!  To be sure, there are strategic products that work within a portfolio, but this is the most overused reason ever. 
• The company is chasing every dollar in revenue at any cost.  Maybe they are public, or maybe for bravado, they want to show revenue that they are continuing to grow.  And so keeping many products out there with a wide product line, makes them look like a bigger company. The problem here is that they’re either ignorant or don’t want to know what their costs are, or they don’t know the reaction that their action is causing.
• There’s a customer or two who they believe is very important to them, and they don’t want to upset the apple cart.  Is this customer as important as they think it is?    Again, cost-to-serve rears it’s ugly head.   They probably don’t know – they just know that they fear the sales department or an important, angry customer.
• There no one left to decide.  In some companies, product managers launch products but do not manage them. They get put in a bucket with all the other products and get lost in the weeds.  In other companies, the product manager still owns it, but does not really have an incentive to do anything – after all, end-of-life is work!  In some cases, the worst thing has happened.  The product manager has left the company, and no one was assigned to replace them with managing this product!  It’s truly an orphan that has no way of ever dying!

So what’s the real problem of selling a product past its sell-by date?

1. Companies don’t realize how confusing or complicated they’re making the buying decision.  Many customers want to educate themselves before interacting with a company directly. First stop, is likely your website. When you have 3 generations of the same product, and they’re all “world class” and “industry-leading” in your marketing, how is the customer to differentiate what they’re supposed to buy?  Surely, you know there’s generations, but they don’t.  Confused, they head to your competitor. There is just one solution to what they need, and it sounds good and they are now on the short list.  Customer calls them and starts a conversation. At best, this has slowed your sales cycle down, and at worst, you have lost the sale. There is one software company that I’m aware of that has bought 3 other software companies in the same industry.  And they are all available and touting that they’re the “best.”
2. They don’t realize how much attention they are taking away from people internally.  Every time an additional product or solution gets added to your portfolio, there is a lot of work internally. For example, marketing needs to create a plan and make or update materials. Sales people need to be educated on the entire product line.  Engineers need to fix code for every product you have.  If a physical product, operations and supply chain people are involved in procurement and sourcing, including when supplier’s parts go end of life.  Unlikely in all of this is clear communication on what the right priorities are.  Chaos sets in and the company starts slowing down and grinding against itself.
3. Similar to #2 above, they don’t realize these decisions are causing them to lose money or at least lost profit margin. As we discussed, these companies are solely focused on chasing revenue, not chasing profit. Maybe they even start hiring additional staff to deal with all this increased load from their burgeoning set of products.   It could be years before they realize that they are in for a big shock. Sales keep growing, but costs are growing faster. Eventually those costs will catch up.

What about your company?   Do you have any zombie products?  Hopefully, you can say no.  More than likely, you’ll probably say “I’ve never thought about it - I’m not sure.”  So what do you do?

First, you are never lost if you don’t know you want to go.  What is your profitability target?  Set a baseline.   Once you have that, create some sort of system to measure the profitability of parts of your company.   For most, that’s a P&L.  But it’s not always possible.  At least start with an activity-based costing exercise that can measure parts of your company.  Hopefully you have processes in place that tell you how your company responds when “xyz” happens.  Let’s say your old product is not very intuitive and it causes phone calls to your support number.  How much does a support call cost?  You’d take a numerator (costs) and divide by denominator (calls).  That’s a start.

Second, pretend you are a customer.  Or better yet, ask someone who’s not related to your company, as you may be too close to it. Simply tell them what problem they’re trying to solve, and have them go off and figure it out. Tell them to take it all the way until they need a credit card.  Or, maybe tell them to order it so they (and you) can see the supply and operations that go into fulfilling.  Either way, you might be surprised by what your friend finds out.

Lastly, look at your own internal communication.  Is it clear?  Are there too many priorities?  It’s easy to say no there are not, but intent doesn’t matter. It matters what your execution looks like.    

Regardless of how you figure it out, every product needs to contribute to the bottom line in a way that meets your profitability goals. Otherwise, it is just dead weight. Coca-Cola figured that out.   Will you?

Happy profiting!

This is another in a series of Linkedin articles that delves into the mystical and magical world of product and pricing and their impact on profits. I welcome your comments and feedback. Let's get a dialog going -- do you have a good story to share? Please do so!

I work as a consultant helping companies maximize profits through better marketing, selling, and pricing. If your sales and profits are out of whack – or you don’t know where to begin - we should talk! I've worked with some of the biggest corporations and smallest individual businesses out there. I’m also a small business owner myself. Contact me.  You can read more about my work at my LinkedIn profile or on my website: https://www.dukeofprofit.com