DO YOU HAVE DIAMONDS IN YOUR PRODUCT MIX?
A business owner I know is struggling to operate a profitable business. She offers a vast array of products, some of which are clearly more popular than others. She regularly discounts products in the mistaken belief that this will bring in more customers and boost sales. But this doesn't drive up sales, revenues and profits.
I’m itching to talk to her about what I call the Product Profitability Quadrant™ as I’m sure this will help her to create a far more profitable business.
So what’s the Product Profitability Quadrant™ and how could it help this struggling business owner?
I believe we can categorise products into four categories:
Diamonds – Products that are both highly popular and highly profitable.
Emeralds – Products that are highly profitable, but not quite so popular.
Amethyst – Popular products that aren't as profitable as they could be.
Fake Diamonds – Products that are neither particularly popular nor profitable.
Let’s look at how my Product Profitability Quadrant™ might apply to one of my favourite brands, Marks & Spencer. Founded in 1884, ‘Marks’ is the UK’s leading retailer. However in recent years, the company has struggled to work out its positioning in a fast changing marketplace, and its profits have been hit. Although not in danger of collapse, the company currently is in turnaround.
If the business is to reinvigorate its fortunes, it’s critical Marks gets its product selection and promotion right. Especially as consumer confidence started to dip in 2017 as shoppers feel a less certain about the wider economic outlook (due to concern about rising inflation, the falling pound, worries about the Brexit negotiations and geopolitical uncertainty following the American presidential election last November).
Here’s how I rank Marks’ products on my Product Profitability Quadrant™:
Diamonds – Whilst Marks is widely regarded as offering a good selection of products, good value for money and having a good reputation, it’s not always easy to say what the retailer’s ‘diamond products’ are. In April 2016, it produced the ‘Frances,’ part of Alexa Chung’s ‘Archive by Alexa’ edit which shifted 20,000 units by 4:30pm on the day of its launch. This year the ‘Frances’ has been renamed as the ‘Pure Cotton Trench Coat with Stormwear,’ a name which has neither the appeal nor the recognition of the original ‘Frances.’ It’ll be interesting to see whether this name change affects sales of this diamond.
Emeralds – Marks used to be known as the shop to get your undies, your first bra, opaque tights and nightwear. Marks still offers a beautiful range of well-priced lingerie. But it’s no longer known for ‘its basics.’ Back in the Fifties, shoppers would flock to Marks & Spencer to stock up on its “Jersey Mates” – a range of knitted twinsets that were reproduced each season in the latest colours. If the retailer could get back to being the place to shop for everyday staples, the retailer would have a popular range of profitable womenswear products to drive sales.
Amethyst – While food accounts for 60% of Marks’ total sales making this the most popular area of its business, profit margins are tight. If Marks could find a way to reduce costs, without compromising quality, food could become another diamond. There are encouraging signs that the retailer is seriously looking at this. Marks is in the process of testing two home delivery pilots with the aim of rolling out an online grocery service across the UK. Surprisingly Marks has resisted the urge to enter the online grocery arena for a while but it has reconsidered, probably due to the fact that the online grocery market is forecast to double to more than £17billion by 2020.
Fake Diamonds – The Alexa collection is a great example of a fake diamond. Deemed too fancy by Marks’ traditional customers, the collection was heavily discounted to shift rails of unsold stock, and the collaboration with Alexa Chung, a British model and style icon, came to an end after two seasons.
How can you apply the Product Profitability Quadrant™ to your business to drive up sales, revenues and profits.? Here are five ways:
- Look at your current product range and assess whether every product is both profitable and popular.
- Come up with a promotional plan to drive sales of your diamond products. To keep these diamond products fresh and interesting to your customers, it’s important to talk about these products in new and different ways. I explore how The White Company does this in their autumn campaign in this article. Make sure you have sufficient stocks of this product to meet demand.
- Look at your amethyst products. How can you make them more profitable? This will mean reducing cost of sales, increasing prices or a combination of both. Once you’ve maximised your profit margins, drive sales through a promotional plan.
- Think about how you can present your emerald products to make them more appealing and enticing to your customers. Is the reason the product is not as popular as it could be a presentation and a branding issue? Or is it a marketing issue? Address this, and you’ll create more diamonds.
- Take a long, hard look at those products that are neither profitable nor popular? Why is this? Your customers will be able to give you feedback as to why these particular products are less popular. It’s going to take some work to turn these products around so decide quickly whether they can be made both profitable and popular. If not, look at ways to shift this stock quickly - like heavily discounting.
Apply the Product Profitability Quadrant™ to your business, and you’ll find you'll soon drive up sales, revenues and profits.
Question: Has this article helped you to identify products that you could turn into a diamond and drive up sales, revenues and profits? I love reading your feedback so please do take a moment to share in the comments box below.
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