March 12, 2019
Sandra Blair, Vice President Product Strategy
“My A&M ‘aha moment’ happened in 1998. I was leading a small team advising a kitchen appliance maker that was convinced their largest retail customer was their least profitable. We built a robust and compelling customer and SKU profitability model that convinced the client otherwise. A&M instilled in me the discipline of taking data and turning it into actionable information as well as the importance of doing the groundwork and not walking in with preconceived ideas.”
David Coles, A&M Managing Director
Without a robust profitability model, companies have nothing but sales, margin and intuition to gauge product performance. The trouble is that sales and margins don’t tell the whole story and intuition often fails us. Data is what tells the truth.
This fourth blog in a series focused on developing, launching and evaluating products builds on my previous article: Six Steps to Enable a Successful Product Launch.
When a product’s margins are thin, companies must decide whether to keep it in the portfolio. Without a holistic evaluation, including assessment of costs and risks associated with sunsetting a product, however, companies cannot make a truly informed decision. If the most profitable customers love a product, then a company needs to evaluate the risk of migrating clients to a more profitable product against continuing the product as a loss leader to capture other, more profitable business.
Alternatively, the product may generate a huge amount of revenue for a company whose market performance is based on sales growth. Until revenue can be replaced, the company has little choice but to retain the product and look for ways to change its business model to make it profitable.
The most difficult part of determining product profitability is assembling the necessary data inputs into one database – such as a massive Excel pivot table – to examine relationships between five levers of profitability and the financials, including margins:
A typical process begins with:
The results of analyses should inform, not replace, human judgement.
Other questions to consider before beginning the long and painful process of sunsetting a product include:
Companies that develop a repeatable process and feed data into their model monthly save themselves from the pain of again starting from scratch. They also benefit from regular assessment of product profitability, which can help drive long-term strategy as well as flag problems early on to enable quick course correction.
Vice President Product Strategy
Sandra Blair has over 25 years of operational and consulting experience in Financial Services. She specializes in leading teams that provide technology solutions to the largest companies in the Fortune 500. Her experience spans the financial technology industry -- primarily electronic payment processing and banking -- with extensive experience in developing systems, call centers, and back-office operations for a number of industries.