Are You Stuck In The “Commodity Corner”

The first product offerings (I’m including physical devices, software, and services in the definition of “product”) you introduced years ago – those that made you successful and dominant in your markets – may be the very ones destroying your business today.

Some of your products are cash cows, and likely generate the most sales revenues. However, your patents may have expired, you may face more competition now, and you may have fallen prey to using price as your primary marketing weapon. Your cash cows may be ailing and on the way out.

In order for you to have profitable balanced product and service offerings, and continue to satisfy your customers’ ever-changing needs, you must have a continuous stream of products that are in various stages of development, competitive pressure, and market adoption.

Developing your product and service offering strategy is one of the most important strategic decisions for your company, and outside the scope of today’s discussion, but I will dissect this further in subsequent posts.

How can you easily monitor the health of your product development pipeline?

I have developed a very simple chart – the Market Life-Cycle-Matrix – to help you quickly spot trouble in your development roadmaps. It compares the relationship between the maturity of the markets you serve against the complexity of the technology you are introducing. If the markets you are targeting and technology you have developed are radically different – then you have a lot of market development work (i.e. investment) to do. If your markets and technology have been around awhile, then you are likely facing a lot of competitive pressure and you may be caught in what I call the “Commodity Corner.” Hint: It’s where the Dodo Bird is standing…

In this completed example, product categories crowded into the lower left quadrant (red) are at or nearing the end of their useful product lives. The best example illustrated above is the fax machine. The fax machine, introduced in 1964, has largely been replaced by other, more innovative digital solutions in all but a few applications (i.e. the Government and Legal Professions). My children have never heard of a fax machine.

Amazingly, there are several very large companies still competing for the scraps in the fax machine market. At first blush, they seem to be avoiding the inevitable – continuing to introduce new models with ever more advanced features year after year. One might argue that the profit dollars (assuming there are any) from this continued effort should be redeployed into newer innovative replacement technologies, not the next feature for an obsolete, or soon-to-be obsolete technology.

Other declining categories such as Analog CCTV (Security Cameras) and Analog Land-Line Telephone Systems are facing similar competitive pressure from their digital / mobile replacements (green).

Perhaps even more interesting is that the relatively new digital technologies are already being threatened by Hosted, Cloud-Based Solutions (blue). It is remarkable that all this disruptive innovation was only just introduced within the last 5-7 years!

How do global giants like Panasonic, Kodak, and Philips so often miss these shifts in markets and technologies?

These companies are not shortsighted. They have very sophisticated market validation processes. They have very capable marketers, analysts, and engineers. They have cash to invest. They may even anticipate the changes, and dabble in replacement technology development. The critical success factors seem so intuitive yet, the failure rate of companies attempting to reposition, or reinvent themselves suggests that something more disruptive is lurking behind the scenes.

These companies may be worried about killing their cash cows too soon and threatened divisions establish internal roadblocks the new development team must overcome (Kodak). They may be risk-adverse about new digital concepts and attempt to “fast-follow” the first-to-market leaders (Panasonic). Or, they may have invested so much into R&D they didn’t have anything left to do a proper job of developing the market for the wonderful new thing they had just invented (Philips).

The responsibility for this internally focused / risk avoiding / head-in-the-sand culture rests squarely on the shoulders of the top leadership of a company. You must objectively look at the health of your product pipeline, and not be afraid to make the hard calls on “pulling life support” from terminally ill product lines when required, or preventing divisions from infighting, or making sure you understand what significant investments are really required to develop a brand new market. Admittedly, this is especially difficult if you’re the founder / inventor of these things.

Using the Market Life-Cycle-Matrix won’t solve your internal risk aversion bias, or eliminate inter-divisional squabbles about who and when to “feast on the children.” It may actually fuel these debates.

However, the MLM can help you objectively visualize the current health of your portfolio, where the potential winners and losers are, if there are threatening replacements on the horizon, and ultimately highlight your preparedness (or the lack of it) to take on these challenges and avoid getting stuck in the commodity corner.

Contact Us today and learn more about our Product Planning capabilities and how we can help you get out of the Commodity Corner.

Author’s note: when developing your matrices and market support strategies, it will contintue to be important to consider that your end-users may be reluctant to transition to newer technologies due to the cost to migrate to the new platforms or security fears associated with digital platforms in general. The lack of or very entrenched standards and irrelevant regulations may also prevent your end-customers from transitioning to newer formats and platforms. Ultimately when the cost to transition is less than the cost to maintain and support these aging infrastructures will end-customers finally jump in the upgrade pool.

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