The objective of product management is to manage both the existing mix of products and the new product development projects to continuously produce the highest perceived customer value for the products available to sell.
The MarginMax solution starts with a ranking of the existing products on contribution margin. The mix is then rationalized by reviewing overall product strategy, where products fall in their life cycles, and what resources are needed to either increase perceived value or lower cost of any product. The initiatives always move the product mix toward a concentration that has higher product margins at ever higher sales volumes. Products that don’t make the cut may be pruned. Products that have great potential will be redesigned to either lower cost or to enhance their customer perceived value and potentially their price.
A good tool to help the team focus on gross margin improvement actions is to develop a product matrix. This approach utilizes a scatter chart to plot all the products in the product line and focuses actions on products that are not candidates for pruning such as high margin/high margin percentage products which may have significant additional revenue potential if introduced into a new market. The sales/marketing resources freed up by pruning low margin/low margin percentage products may provide the resources required to produce a successful entry into this new market.
New product projects are chosen based on strategy and expected contribution margin but project starts will be limited by available resources to maintain the necessary cycle times and assure launch timing matches market opportunity. The best products are accelerated by reallocating critical resources and by using a phase gate review process that weeds out the late, the poorly defined, or the weak contributors before they clutter up the development process, costing potential margin contribution.
MarginMax will also install and train your team on a process for product management that continuously balances the existing mix and optimizes the new product process to launch only the most desirable, high contribution margin products.