September 16, 2013

Slooooooow Decay

Maybe this is happening in your business as well - you have items that generally sell well, and have been around forever.  Over time, these items experience a sloooooooow decay:
  • 2008 = $7.00 million.
  • 2009 = $5.60 million.
  • 2010 = $4.48 million.
  • 2011 = $3.58 million.
  • 2012 = $2.87 million.
  • 2013 = $2.29 million.
Think iPod, for instance.

My projects show a consistent trend. Best items, sometimes called "winners" or "heroes" or something equally compelling, erode at a slow rate. This is called the "decay rate". The average decay rate in my projects is between 10% and 30%. Those are big numbers! In the table above, the decay rate is just 20% - but over five years, 67% of the demand is gone.

Even worse, when a whopper of a winner decays, you'll frequently observe that best customers continue to buy the item - they're in the habit of buying it - and they tend to buy it in old-school channels (i.e. catalogs or email). This is destructive in two ways. First, the blend of customer and demand results in the item continually being featured, frequently with the best creative. This ages the catalog (or email marketing program) faster than normal. Second, it prevents newer items from getting the real estate necessary to become winners. I see this all the time. What would you do? Of course you're going to give the best real estate (catalogs, home pages, landing pages, email marketing) to the items that you know will work. In so many ways, we need to almost do the opposite - we need to give precious real estate to new items, so that new items can become winners.

Yup, happens all the time.

Here's another interesting problem. You can slow down the rate of decay by not introducing new products. If you don't give the customer new choices, the customer is forced to spend money on the old choices. Of course, this cannot work in the mid-term or the long-term, but I see it happening all the time.

If I asked 100 of you what your existing product decay rate is, how many of you would know the answer?

It's important to know the answer. Your marketing programs depend on you having product decay knowledge.

Hillstrom's Merchandise Forensics: