Milk or Invest

November 19, 2006

Every Company should view each of their products and businesses as either growth opportunities or “margin” opportunities.  Every product/service has a life cycle.  They launch, grow, then stabilize and sometimes die.  The trick is to know  where you are in this cycle.  Obviously, you do not want to be investing in a brand that is going out of business.  On the other hand, you may be able to revitalize a brand with a reformulation or a change it its benefits.  This would obviously call for an investment strategy, at least in the short term.

So, how do you know when to invest versus milk?  Investment dollars can be justified as the product builds awareness and trial.  As the customer base of a product stabilizes and less people become “triers” and more become regular users, it is a good time to consider cutting back on spending and trying to maintain the business. 

Then as the business starts to lose its loyal customer base and assuming no new initiatives are available to revitalize the brand, then a “milk” strategy is probably appropriate.

In any company with multiple products,  the trick is to identify the proper mix for all products since investing in everything is simply not practical.  Older products typically are viewed as the “cash cows” of the business where margin is maximized.  Newer products are the investment vehicles for the future hopefully they themselves turning into the long-term cash cows.

Rich

Bizvice:  Strategy, Marketing & Entrepreneurship

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