Saturday, September 25, 2010
Products and services are all part of the same continium and that becomes even more apparent when ones looks at the attempts of service and product companies to come closer to each other.
Productization efforts are visible when service companies try to standardize their offerings by neatly packaging and labeling their offerings. For example, Infosys developed acore banking solution, Finacle. Similarly, Thomas Cook, Cox and Kings and several other travel agencies are currently getting a large portion of their turnover from packaged vacations.
On the other hand, product companies too are busy value adding by integrating services. Rolls Royce sells aircraft engines by including all operations and maintenance functions as a package. Chevrolet is trying to increase their car sales in India by guaranteeing an upper limit on the maintenance spend on a car for the first three years. Asian Paints offers services relating to selection, estimation and even application of their product. Lafarge and ACC Cements are offering civil engineering advice to customers of their high-end cements.
In such a scenario, it is increasingly becoming difficult or maybe even unnecessary to classify sellers as product or service companies
Conventional wisdom says that most important decisions should be taken at the product line level rather than at the level of an individual product. This is because products in a company's product line have a lot of impact on each other. For example, any change in the positioning , promotion or pricing of Surf can mipact the sales and positioning of Unilever's other detergent brands like Surf Excel, Rin and Wheel.
Going by the same logic, even profitability should be measured at the level of a product line but more often, the profitability is measured at the level of each individual brand. There is a lot of merit in this approach but it does take away from the strategic role a brand may play in a product line. A brand like Wheel plays a tremendous role by ensuring that Surf does not dilute itself by competing directly against Nirma or Fena. Unilever itself regularly prunes its product lines and the prime considerations are present and future profitability and market share.
Another important thing to look out for is that with closely related product lines, cannibalization is also likely from other product lines within the company. In such cases decisions will have to be taken at a product mix level. For example, the ipad, iphone and ipod are part of distinct product lines but there is a distinct possibility of cannibalization amongst them.