Better Off Dead?

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.

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This article was originally published in the April 1998 print edition of Entrepreneur with the headline: Better Off Dead?.

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