From the April 1998 issue of Entrepreneur

The owner of a small electronics manufacturing company was searching for a way to kick-start sales, which had flattened over the past three years. After a lengthy session of hand-wringing and self-doubt, he came up with what he felt was the best way for the company to get moving again. He would make sure his staff did everything it could to improve customer service and concentrate more on customer satisfaction. The company would have to work harder at satisfying its customers because that was the only thing holding them back--or so he thought.

Customer satisfaction plummets when companies get into production problems that delay delivery or affect quality, but this company didn't have those problems. It had a good record for meeting customer delivery needs, had an excellent reputation for product quality, and the staff seemed knowledgeable about how to deal with customers. It was a good bet the problems were coming from another area. But where?

The business owner stumbled across a clue during a conversation with his sales manager. As the sales manager held one of the company's primary products in his hand, he sighed and compared it to a typewriter. It was a great product in its time and had made a major contribution to the company's earlier growth, but the market was going in another direction. This major product was already obsolete, and more parts of the product line were quickly getting there, too. Sales weren't growing because customers were looking elsewhere--toward more up-to-date technology. All the customer follow-up and responsiveness in the world wouldn't stop that trend. The company's problem was its product line. Unless it was willing to make a major investment in new products that could restore the growth everyone wanted, it was doomed.


Victor H. Prushan is president of VHP Associates, a marketing consulting firm in Thousand Oaks, California, and author of No-Nonsense Marketing: 101 Practical Ways to Win and Keep Customers (John Wiley & Sons).

Sign Of The Times

You can't expect customers to keep buying from you when you no longer meet their needs, regardless of how much they enjoy working with you or appreciate all you've done for them. Those factors are only important once the fundamentals have been established. Customers first need useful, reliable products.

Your first step toward success is to make sure your product or service meets the needs of the marketplace and will remain viable even as the market changes. Although Nordstrom has a well-deserved reputation for excellent service, where would it be if the clothing lines it carried fell short of customer expectations? At FedEx, the "product" is on-time delivery. Where would FedEx be if their customers couldn't count on that? For years, Apple's Macintosh maintained its competitive edge with, as co-founder Steve Jobs put it, "insanely great" products. Over time, the rest of the market got close enough to minimize the Mac's technological advantages. Without an edge from its product line, Apple's sales dropped like, well, an apple from a tree.

How do you know when your product line is the source of your problems? Early detection is critical. The following eight symptoms of a declining product line will provide clues far enough in advance to help you do something about the problem before it's too late. Not all the symptoms will be evident in every situation, but you can start suspecting your product line when more than just one or two clues show up.

1. You are experiencing slow growth or no growth. A short-term glitch in product sales can happen to a company at any time. If, however, company revenue either flattens or declines over an extended period, you have to look for explanations and solutions. If it isn't the economy or some outside force beyond your control, if your competitors didn't suddenly become more brilliant, if you still have confidence in your sales force, and if there are no major problems with suppliers, examine your product line.

2. Your top customers give you less and less business. It may not be worth your trouble to determine your exact market share when a rough idea of where you stand will suffice. But knowing how much business you get compared to your competitors is critical. Every piece of business your competitors are getting is business you aren't--and may never get. If your customers' businesses are growing and the business you get from them isn't, it could be that your product is the culprit. Chances are, someone else is meeting your customers' needs.

3. You find yourself competing with companies you've never heard of. If you've never heard of a new competitor or don't know much about them, watch out! They've found a way to jump into a market with new products and technology that could leave you wondering what hit you.

It might not be that your product has a fundamental flaw. It's more often the case that someone has brought innovation to the industry. You get no points for status quo thinking. Although Southwest Airlines revolutionized the way airlines do business, when it was initially just buzzing around Texas, the industry paid them little attention. Eventually, however, Southwest brought innovation and creativity into scheduling, routing and customer service--all this in an industry known for slothlike change and rampant me-tooism.

4. You are under increasing pressure to lower your prices. No one likes to compete strictly on price. When your product is clearly superior and offers more value than lower-priced competitors, you don't have to. Everyone understands that great new products eventually run their course and turn into commodities. One day, a customer tells you she can't distinguish the benefits of your widget from those of one or more of your competitors, and now you're in a price squeeze. If you want the business, you have to lower your prices to stay competitive.

If that was where it ended, things might stabilize, although at a lower price level. But lower prices usually mean lower profit margins, which usually means less investment in keeping the product current, which means more price pressure, lower margins . . . and so it goes.

5. You experience higher-than-normal turnover in your sales force. Salespeople--the good ones--want to win customers. Most want to win them so they can make more money. When they have trouble competing, they can't win customers or make money. So they look for new opportunities and challenges that will bring them what they want.

You will always have turnover, but heavy turnover is a symptom of something very wrong. It could be an ill-advised change in the compensation scheme or a new sales manager coming in with a negative attitude. But it could also be that members of your sales team are frustrated because they're having trouble selling your products. When business owners start to pressure their sales forces to get order levels back up, morale drops because the salespeople know there isn't much they can do.

6. You see fewer and fewer inquiries from prospective customers. We all dread the time when the phone stops ringing or prospects stop coming in. When your advertising or other forms of promotion aren't creating the results you were looking for, and you see fewer positive results from the money spent, it could very well be there is something wrong with the way customers see your company. An obsolete product line positions you as an obsolete company.

7. Customers ask for product changes you can't or don't want to make. Here's a not-too-subtle sign that your product may no longer meet market needs. There will be times when you have to decide whether filling a customer's request is in your company's best interests. When customers say "I want it this way," you may want to say no because you doubt you could ever recover the costs of the change, even by raising the selling price. But when the customer says "I want it this way, and it's standard at ABC Widgets," you should suspect you aren't keeping up with changing customer needs. When your competitors have leapt ahead of you in features and benefits, you must either catch up or leap ahead of them with innovations of your own, or you'll fall so far behind you become a marketplace postscript.

8. Some of your competitors are leaving the market. In the short term, this sounds great. Your competitors drop out, and you pick up the business they leave behind. The pie is shrinking, and as it does, business gets better than ever. But beware: This is a classic signal of a declining market. Nobody walks away from a growth business. Vibrant growth markets attract new competitors; they don't discourage them.

Seeking Solutions

Here are steps you can take when you find any or all of the above symptoms appearing in your business:

  • Do nothing. If you're faced with an obsolete or declining product line, the correct action may be no action at all. This attitude says "The business has run its course, and it may be time to move on."
  • Look for niche markets. There are still companies out there that make vacuum tubes, typewriter ribbons, dot matrix printers, vinyl records and perhaps even buggy whips. Demand for products rarely falls to zero. There are always customers who will continue to buy obsolete products to keep from making major changes in the way they've always done things. The beauty of serving a niche market well is that you could end up having it virtually all to yourself.

If neither of those two options sounds attractive, take a more proactive role with your product line:

  • Keep current with technology changes. The word processor ensured the demise of the typewriter. Voice messaging has changed the way people use the telephone. The cellular phone has changed where people use the telephone. While your product line may not have the global impact of these developments, there will always be changes in technology that will affect your business. Isn't it better to lead the way than to react to events?
  • Anticipate changing customer needs. If you want your customers to keep buying from you, you have to let them know you'll be there to fulfill their changing requirements. If you don't, your competitors will.

Customers have a way of not knowing exactly what they want. When they finally make their choice, they will go with the supplier who is there with the right product at the right time. That supplier should be you.

  • Track your competitors' actions. Keeping on top of what your competitors are doing means you'll find out when they create effective product developments. If they get to the market before you do, there's a good chance you'll end up the loser. Organize some sort of competitive-intelligence-gathering system that will help you keep track of what they're doing.
  • Keep up-to-date with changing trends in the marketplace. How many clothing manufacturers saw the casual Fridays trend coming? If you were a maker of men's suits, wouldn't it have been nice to know what was coming before you saw a 20 percent decline in product usage? There's no substitute for keeping your eyes and ears open. Improve your awareness of the market around you. Participate in trade associations and business roundtables. Know all you can know about your customers and your customers' customers.
  • Spend enough money to upgrade your products before they become obsolete. Be aware of the dirty little secret of product management: There is no easy way to keep your product line current without spending money--sometimes lots of it. It takes money, and it takes time. The sooner you get started, the better off your company will be.