What does product rationalization mean? It is the action of making a company, process, or industry more efficient, especially by dispensing with superfluous personnel or equipment.
Often, product rationalization is done behind closed doors within companies or even in the boardroom. Yet, in the post-COVID-19 world, we are seeing product rationalization occur in public view.
Let’s Consider Product Rationalization Among Airlines
Airlines are not producers of aircraft–they are consumers. Yet they are going through a product rationalization process to determine which aircraft types they will need to increase their ability to become financially-viable entities again, particularly in our post-COVID-19 world.
Essentially, 4-engine aircraft used for commercial passengers are literally being scrapped. Lower than normal consumer demand renders these specific aircraft types economically undesirable.
Which 4-engine aircraft am I talking about? The Airbus A380 and A340 as well as the Boeing 747. Some older twin-engine wide-body aircraft are also being retired and scrapped, e.g., the Boeing 767 and 777.
The Boeing 777X will be the largest twin-engine commercial aircraft. It is seeing orders drop precipitously due to lower airplane industry and consumer demand. Airlines will postpone deliveries for several years.
Taco Bell’s Product Rationalization
Taco Bell has been doing an optimization more focused on their post-COVID-19 realities: more drive-through orders, smaller kitchen staff, and less in-store purchases. Items that have long been on the menu have been deleted–items that I have enjoyed for decades. Come back to me, Enchirito!
As announced in this CNBC article: Taco Bell removes Mexican Pizza and other items as it finishes menu streamlining.
Mexican Pizza, a fan favorite at the chain, is among the departing items. Taco Bell said that the packaging for the pizza accounted for more than 7 million pounds of paperboard annually in the U.S., so its departure will help the chain inch closer to its sustainability goals.
It is wonderful that Taco Bell is focused on pursuing and meeting sustainability goals. While customers who love the Mexican Pizza may not be impressed, the environment and future generations will be.
Two Dimensions Driving Product Rationalization
So we have product rationalization being driven by 2 dimensions: customer (airplane industry) and company (Taco Bell). Both dimensions meet the definition at the top of this blog post: the action of making a company, process, or industry more efficient, especially by dispensing with superfluous personnel or equipment.
Not all products and services meet the same financial objectives. Some low margin items are essential as part of larger solutions. Some are being done just because they’ve been done for a long time.
The product management function should periodically undergo a review of demand, margin, sustainability goals, etc., to determine how products and services should evolve. Is it time for some items to leave your price list?
There is a cost of variety: more variety can lead to lower profits unnecessarily for not much value-add.
Thought for the week:
“A hero is an ordinary individual who finds the strength to persevere and endure in spite of overwhelming obstacles.” – Christopher Reeve