Friday, July 25, 2003

The art of managing shelf life These days, managing shelf life isn't just a challenge for firms in the food and computer sectors. More and more companies need to develop a strong feel for the perishability and the urgency of their products. They don't want to get the reputation for making products that are shoddy or fragile. But they do want customers to voluntarily replace their products -- not because products no longer suit customers' needs, but because companies have identified new "needs" that customers want to fulfill. We might call this trend "positive obsolescence," because the goal is to make the customer happily toss his older model and upgrade to a new one. We are fascinated with how the shelf life for "cultural" products (including books, movies, TV shows, and music) reflect these pressures. Make no mistake about it: last year's books and music have long been ploughed under to make room for this year's crop of potential hits. But the last few decades have seen an astonishing acceleration of that cycle. Now (with movies, for example) the success or failure of a product may hinge on the first weekend of sales. And when a film flops on that first weekend, it's quickly removed from theaters - the industry's equivalent of shelves. It's no longer given months or even weeks to prove that it has "legs." It isn't just the movie industry that's suffering this acceleration. Ironically, as the (perishability-based) shelf life for foodstuffs like Wonder Bread and Velveeta has miraculously lengthened, the (urgency-based) shelf life of most other products grows shorter and shorter. Why is the shelf life of so many products shrinking? For marketers, the temptation to change direction on a dime is growing ever more powerful: Why not replace an obvious non-starter with another product that might do better? Blame the growing power of networked computers. Companies can now leverage their distributed databases to find out immediately whether a product is a hit or a miss. All the data about each product's sales can be automatically computed and analyzed. The best way to raise Return on Investment (ROI) is to cut your losses - and try selling something else right away. Contrast that capability with the limited options of the proprietor of an old country store. He needed lots of time to figure out what sold well and what didn't. Too often, by the time the shopkeeper was ready to re-order because of depleted inventory, it was the next season - and perhaps no one wanted the product any more. But there was no way to avoid this dilemma. Nowadays, it's not a matter of waiting months or weeks to find out what works - and what doesn't. Market researchers can collect data overnight and analyze trends by the morning meeting. In no time at all, the flop is separated from the hit. The damage is contained. With so many companies under pressure to increase this quarter's ROI, no wonder so many plugs get pulled so fast. For example, major food producers like Kraft/Nabisco, Sara Lee, and General Mills are constantly trying new products and varieties of current products, When they fail, and most will fail, they are pulled and a new set of products is ready to be introduced. If instant risotto doesn't reach an immediate success level (in a regional test, usually), it's usually not worth the company's time to persist; they have other ideas in the pipeline. In a similar way, networks give up on TV shows faster than ever, committing themselves to only a few episodes, and mercilessly replacing slow starters. (This means that gradually acquired tastes have no chanc; every show must start big.) Likewise pop songs have a tiny window in which they must catch on with the radio public or be thrown off the airwaves and the record label.  The days of nuturing talent are pretty much gone. Only oligopolies can afford to get the instant feedback, react so fast, to correct mistakes, and have a new set of products ready to replace the discarded one. All this takes significant financial power, distribution muscle, and constant R & D.  Smaller companies are poking along in the market, while oligopolies can move at warp speed. 6:11:22 PM

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