"If you don't make your market successes obsolete, someone else will," says author Josh Linkener in his latest book The Road to Reinvention. What he means is that smart organisations must unshackle their thinking from the past and its restrictions to explore newer pastures.
In today's volatile markets, companies are under constant pressure to upgrade their offerings to keep pace with the ever-changing technology and consumer demands. The complexity of this challenge increases manifold when a company is faced with the task of killing the goose that laid the golden eggs or, to put it simply, ending the run of its star product. Hyundai Motor India (HMI) did exactly that a couple of months ago by stopping production of its compact car Santro. It is important to note that this decision was not the outcome of dwindling sales. HMI was selling around 30,000 units of Santro every year. An HMI spokesperson was recently quoted in the media saying that every part of the Santro was outdated now and its presence in Hyundai's portfolio went against the carmaker's fluidic design philosophy.
Well, Hyundai is not the first company in automobile industry to execute a tough decision like this one. In the past, Maruti Suzuki and Toyota Kirloskar Motor have swallowed the bitter pill of discontinuing their star products - the Maruti 800 and the Qualis respectively. While Maruti Suzuki rebadged the fast-selling Alto as the Alto 800, Toyota replaced the Qualis with the Innova, which even after a decade of presence still rules the multi-purpose vehicle (MPV) segment in India.
It is important to understand that as valuable as brands are to companies, they can become a strategic liability over time. The reasons are many: the consumer might have moved on; a new technology might have come to threaten the very existence of that category; or the decision might be driven by the exigency of generating financial profits for shareholders. In such situations, companies face the touch task of choosing between trying to revive a brand so that it becomes a cash cow or to kill the brand to ensure that the rest of the portfolio and the corporate brand remain intact.
Today Maruti and Hyundai are multi-starrer companies with many products being market leaders in different segments. So the decision to phase out one brand may be relatively easy. But way back in 2004 Toyota's decision to stop the production of its largest selling product would have come across as an audacious move. "Toyota could do that because of the confidence it had in its next product. The decision to discontinue the single largest-selling product was a high-risk high-return gamble which paid off for Toyota," says VG Ramakrishnan, managing director, South Asia, Frost & Sullivan.
So what is the best time to kill a brand to ensure minimum damage? How does a corporation sell the idea to the various stakeholders? Above all, what is the best way to undertake the job to derive maximum impact?
Have a Plan B
To minimise the impact of killing a star product on customers, companies mostly bring a replacement product in the market so that consumers have a choice and the company does not lose out on the market and the goodwill it has already created. Coming back to the Santro, HMI is happy bidding adieu to its first launch in India because, over the years, the company has strengthened its position in the compact car segment with the Eon, the i10, the i20, the Grand i10 and the Elite i20, which cumulatively offer it a strong 21.8 per cent market share (as of the January-October 2014 period) in the compact car segment. Says Abdul Majeed, Partner, Price Waterhouse, and auto expert, "Brands like Maruti 800 and Santro had a long run because back then there were not many auto players in the small car segment and competition was comparatively less fierce. But today the new age brands are not able to sustain beyond three to five years."
A product's life is shortened anyway when it becomes too familiar in the mind of the consumer or when a better product hits the market. Says management and market research consultant Rama Bijapurkar, "If a company claims to have a star product in its portfolio, it means that it thinks of that product as the best available option in the market. In future, the decision of killing this star product will be spooky as the company won't be in a position to assess the success rate of its new/replacement offering."
With competition heating up in the market, the reaction time for incumbents has also become shorter. If companies wait for inventories to finish and delay the launch of a new product, it could result in an inevitable loss of market share with consumers gravitating to better options. If Maruti Suzuki had to upgrade the Maruti 800 to comply to Euro IV norms, it would mean significant investments. Says Ramakrishnan, "If Maruti had to follow Euro IV norms and also upgrade the safety components in the product, the company would have ended up designing a new car altogether." Since it was launched almost three decades ago and is not exactly the car even an entry-level buyer would aspire to today, the company decided to go ahead and stop production.
Change is inevitable
For some organisations, innovation is about incremental improvements, not reinvention. To manage the lifecycles of its products, Godrej Appliances has a multi-generation portfolio planning system in place. This system keeps a check on the performance of a platform on which a product is developed over the years and assesses the right time for phasing out what is fast getting obsolete.
There are broadly two ways in which a company would make changes to its product portfolio. First, cosmetic changes, that involve modifications in colour, design and the overall look and feel of the product. The second one is platform change as part of which the structure of a particular offering is overhauled. Since the main objective here is to upgrade technology, this requires huge investments. In the consumer durables industry, while a company could churn products out of a particular platform for six to eight years, today a platform becomes obsolete in four to six years. While earlier the capacity of an entry-level refrigerator was 165 litres, today it is 190 litres. In washing machines the average entry-level capacity has changed from 4 kg to 6 kg. Because of all this, today a company has to kill its star products and come up with fresh offerings more often.
In two years of its launch in 2002, Godrej Appliances' Pentacool range of single and double-door refrigerators became a star product in the company's portfolio. By 2003, the company's overall market share in the refrigerators segment stood at 9 per cent. In 2006, the Bureau of Energy Efficiency (BEE) introduced the National Energy Labelling Programme for electrical home appliances, which meant that consumers could choose them based on performance. Under the programme, electrical appliances are rated on a scale of one to five, with the most efficient product getting a five-star rating. Energy-efficiency labelling is an informational instrument that is widely used across the European Union to raise awareness of environmental issues, such as global warming. Experts feel that energy labels have an impact on consumer behaviour and their acceptance of clean technologies.
Says Kamal Nandi, business head and executive vice-president, Godrej Appliances, "Since the rating is revised every two years, the labelling system creates a pressure on all players in the durables space to upgrade their products for energy efficiency." In 2006, the Pentacool range was replaced with the Eon. Nandi goes on to explain how, in the consumer durables space, customers buy into the mother brand. This is quite different from the behaviour one sees in the automobile market where different brands from the same company have different levels recall and different levels of acceptance. "This makes it easier for us to kill our star offerings, replace them with new ones and communicate these changes to customers," he adds.
It took three years for Godrej to make transition from Pentacool to Eon. While premium customers warmed up to the change in a year of the Eon's launch, the strong segment loyalty and the brand's association in the direct cool refrigerators space made communication challenging. A 360-degree communication plan focusing on point of sale promotions ensured that all consumer segments knew about the transition within two years of the new launch.
As is evident, a transition is never easy. Brands become institutions in their own right with communities made up of loyal customers and their own meaning systems for these brands. So irrespective of the reason for killing a brand, companies should tread this path carefully. The thing corporations ought to remember when killing a brand is that they need to ensure they don't lose loyal customers but transition them to a different brand in the portfolio.
Things to remember when killing a star product: Ramendra Singh
1.Watch the PLC: Companies should keep a close watch on the product lifecycle (PLC) stage of their star product. If the product is in the late maturity stage of the PLC, innovation is the only option as the product will soon enter the decline stage where it will lose market share. So firms should focus on continual innovation which keeps track of the PLC stages of existing successful products. Also, companies must ensure losses due to cannibalisation are kept to the minimum, otherwise incremental gains in sales and profits during the transition is low.
2. Move faster than your competitor: Companies should kill or replace their star products before competitors do the same. In the latter stage the loss is bigger. So replacing star products is hardly an option. The level of innovation of Yamaha two-wheelers is to the extent of a dozen new models each year that replace many star variants with even better vehicles. With customers seeking variety, it is important to reduce time to market and constantly innovate to stay ahead.
3. Number-crunching is crucial: Watch the cash flows of your start products as you initiate the process of replacing them. You should start innovating much before the cash flows are going to peak. In fact when the start product reaches the peak it is the time to launch a new product. It's about timing the market with exciting products at the right time.
4. Don't confuse new with the old: Maruti Suzuki replacing a star product like Maruti 800 with Alto shows us that the positioning of each variant must be highly differentiated. As Maruti 800 and Alto variants increased in numbers their relative positioning became less clear to customers, it was time to upgrade the 800 to next higher version of the Alto.
5. Customer service should never suffer: Marketers should realise that there is a service in every product and a product in every service. So when they kill a variant, would they kill the service inside that variant too? What happens to the existing consumers of the star product that is being killed? Remember Matiz from Daewoo? So where do you expect the owner of Matiz to get paid service from? A good option for firms would be aligning the service of the killed star product to that of the service for the next-upgrade product. For instance, this means providing Santro customers with the option of getting their cars serviced in the same facility that services the Eon and the i10. But in many cases the customers are left high and dry when their once-a-star product gets killed.
Assistant professor of marketing, IIM Calcutta