Slide 16.

Chapter 16

Product elimination

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.2

Agenda
The importance of product deletion decisions

Models of product deletion

Product deletion triggers

Decision criteria for selecting deletion candidates

Revitalization

Strategies for eliminating deletion candidates

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.3

Despite the logic of the PLC many firms lack a

strategy for managing products in the decline stage.

While it may be possible to stretch a product, or

re-position it, and so extend its life cycle, ultimately it
will become a drain on resources and so should be
eliminated.

This decision should be planned for, and not forced on

the firm as the result of a crisis when it is least likely to
be able to afford the costs of elimination and the costs
of launching a replacement.

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.4

Symptoms of decline:
Fewer sales resulting in:
short production runs and loss of scale economies
higher handling costs for small orders
inventory holding costs
declining contribution

Marketing problems:
disproportionate effort needed to push sales
problems of forecasting

Managerial problems:
diverts attention from more profitable options
attracts adverse publicity

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.5

Rational reasons for not deleting products:

Possibility of revitalization
Complements other products in the portfolio
In demand from key accounts
Making a positive contribution to overheads

Less rational reasons:

Absence of adequate financial data
Senior managements pet a source of past success
Expectation of an up-turn but no evidence
Associated with failure

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.6

The same attention should be given to evaluating candidates

for deletion as to each of the stages in the new product
development process.

Preliminary screening should consider:

Sales trend
Price trend
Profitability
Composition of the product portfolio
Importance to key customers
Amount of management time needed

Weak products identified by screening should then be subjected

to formal evaluation using some form of factor rating table.

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.7

Main steps in the product deletion decision

Figure 17.3 Main steps in the product deletion decision

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.8

Triggers in product deletion

A study by Hart (1987) identified 17 triggers associated
with the decision to delete a product. These were
classified as falling into four categories, through:

1. Poor performance

2. Strategic factors

3. Unforeseen changes in operational matters

4. Events external to the firm

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.9

Criteria for evaluating deletion

candidates:
1.Sales related:
Past sales volume
Products percentage of total sales
Future sales volume
2.Market related:
Market growth
Market share
Position on product life cycle (PLC) curve
Customer acceptance
Competitive activity

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.10

Criteria for evaluating deletion

candidates: (Continued)
3. Profit related:
Contribution
Price trends
Sales generated versus resources used
4. Operating criteria:
Inventory levels
Service levels
Batch sizes
Operational problems

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.11

Revitalization
A product may be revitalized through a change in
marketing strategy withdrawing from declining
markets, entering new markets, outsourcing or by
modifying the basic elements of the marketing mix:
Product
Price
Promotion
Distribution

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.12

Evaluating deletion candidates

Resource related factors:
Availability of a new product
Effect on the elimination of recovery of overheads
Reallocation of resources to other opportunities
Effect of the deletion on fixed capital
Interchangeability of materials, parts, packaging
Effect on capacity utilisation
Reallocation of executive and selling time
Effect on working capital, e.g. stock
Effect on employment prospects on the workforce

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.13

Evaluating deletion candidates (Continued)

Finance related factors:
Effect on overall sales volume
Effect on sales and profitability of other products
Effect on contribution

External factors:
Products market potential
Effect on distribution e.g. loss of shelf space
Effect on a full range policy
Existence of substitutes to satisfy customers
Effect on company image
Competitive reaction to withdrawal
Customer relations

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.14

Implementation strategies:

1. Drop immediately

2. Phase out immediately

3. Run out Harvest

4. Sell out

5. Drop and re-introduce as special

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007
Slide 16.15

Implementation factors:

Stock on hand
Residual demand
Effect on middlemen and customers
Availability of a new product
Seasonality
Salvage value of machinery and equipment
Time required to shift resources
Status of replacement parts

Michael Baker and Susan Hart, Product Strategy and Management, 2nd Edition, Pearson Education Limited 2007