Product Rationalization

We all know we have to be innovative. Many of us demonstrate that by introducing new products regularly. Do they all make sense? Should we simply add to the number of offerings without subtracting?

The process of ensuring that the products and services offered by a manufacturer are optimal for the company and its customers is call product rationalization. Too many of us don’t do that, don’t build it in to our new product development/introduction process, and waste time trying to determine the profitability of each and every product.

Some sales folk insist we never eliminate a product because someone might want it someday. Some insist that “line breadth” is fundamental to gaining business with large customers. And some focus only on the products that are easy to sell and that provide healthy commissions. None of that is inherently wrong or bad.

Topics like market confusion, internal complexity, cannibalism, brand reinforcement, and offense vs defense products should all be part of your product rationalization process.

The primary need is to have one. Just adding products is rarely the right strategy. Whacking the old ones is rarely the right strategy. But there must be a strategy governing what you develop and introduce, what you eliminate, how you present options to meet the needs of your customers, and how you leverage internal competencies to position your company for strong market position.

And please don’t let Standard Cost Accounting lead you to ill-informed decisions on what makes and loses money for your business.

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