Having the “right” products to sell is fundamental to revenue growth. In a world with rapidly changing customer needs and technologies, it is easy for product portfolios to get out of sync. A product portfolio clogged with unprofitable products is a barrier to focusing resources and investment on profitable growth. It is not unusual to find companies where 20% of product-level sales are unprofitable—they make money on 80% of sales and give much of it back on the remaining sales. Then there are companies too slow to add products to meet emerging customer needs or missing opportunities to edge into new areas where they have established credibility. In such cases, growth is restricted by an insufficient product portfolio.
Eliminating unprofitable products is not typically straightforward. Products that are unprofitable may have strategic roles such as completing a bill of materials or countering a competitive offering. Likewise, adding products can be very subjective and can be driven by the loudest voice in the room rather than what is best for the company.
What is needed is a fact-based process to determine which products should be eliminated and which can be added. With a revitalized product portfolio, resources will be focused on products that will strengthen the customer value proposition and increase competitive differentiation.
1. Get clear on the customer value proposition for each targeted segment.
2. Explore opportunities to improve margin on unprofitable products through price, cost, order parameters and other actions
3. Eliminate unprofitable, non-strategic products.
4. Screen and invest in new products that fortify the value proposition.
5. Re-think product portfolio governance and monitor product-level effectiveness