The Challenge of Product Proliferation

The commonly visible symptoms of the problems affecting organizations include, amongst others, increasing customer dissatisfaction, higher customer servicing costs, more manpower requirements, increasing operating complexity, lowered product quality, increasing lead times thus leading to lowered profitability. While the possible causes for these symptoms are many, they are often inter-related and one of the common causes is indiscriminate product proliferation.

Product proliferation simply means too many ‘me-too’ product variants introduced to cater to minor customer preferences for generating additional revenues (and hopefully increase profitability as well). But as with any economic system, the existing organization set up has its set of limitations. The marginal cost of making, selling and supporting a new product variant soon catches up with the marginal revenue generated by that new product variant and enters into a zone adversely impacting profitability and business viability. Obviously, it is a situation that should be avoided.

If this is so simple a management logic, why do companies introduce these ‘me-too’ variants in the first place? And what prevents the management to detect at what point the marginal costs overcome the marginal revenues? And, importantly, what can be done about it?

First let us look at some reasons why these varieties are introduced in the first place. They are:

• Commoditization of offerings due to lack of fundamental product and process innovations
• Very high competition, need to differentiate and fear of losing market share if minor customer preferences are not accommodated
• Pressure to improve top line revenue
• Shortening product life cycles
• Easy use of existing knowledge to create the me-too variants
• Shared use of operation areas like available production capacity, sales & distribution channels, and common raw materials

These are genuine drivers that lead to product proliferation. What is the reason then, that it goes too far and starts becoming detrimental to the organization itself?

Primarily it is because the manager does not clearly know when the marginal cost starts eating into the marginal revenue and surpasses it. When a new variant is introduced, upfront costs of making and selling it need to be incurred. There is some lag that exists between when these costs are incurred and when the customers start adopting these variants, during which there is a difficulty in estimating how far customers have adopted the new variant. When a better picture emerges, three options can emerge i.e. the variant is a huge success, it is an absolute failure or it is moderately accepted by customers. The first two options lead to obvious conclusions, but the third one is where the ambiguity manifests itself. Many a times, this variant is continued in the hope that further efforts can boost its sales. But as new products get introduced in the market, some of these customers soon move away from the moderately successful variant. The result is that the organization is left with fewer customers and one more product variant to maintain both in terms of product availability and post sale support.

Now the third question: what can be done about it? Multiple approaches can be suggested and their usage in combination with each other can help resolve the challenge of product proliferation.

• Establish and implement strict criteria for regular assessment of the uniqueness, success and continuance of a product variant, both at a variant level and organization level.
• Understand the customer order penetration point into the product manufacturing cycle and structure the operations accordingly.
• Sun-set older variants and their support when new ones are introduced.
• Usage of techniques like Activity based Costing can help in identifying potential candidates for investment, maintenance or retirement.

Thus, one can approach the challenge posed by product proliferation and also address the competitive forces effectively.