July 25, 2016

Managing the product life cycle in the face of generics

Managing the product life cycle in the face of generics

Every marketer would like their brand to be irreplaceable in the minds of their customers — to create such strong brand loyalty that competitive products or cheaper generics entering the marketplace would have little to no effect on sales. For millions of Americans, one brand to reach this “irreplaceable” status is Starbucks coffee. Some 60 million people visit Starbucks every week, and many of them would never consider going anywhere else, even if a competitor across the street offered caffe lattes at half the price. Unfortunately, most brands don’t fall into this category, and marketers are faced with products that are increasingly viewed as commodities.

Agriculture is not immune to commoditization. Within the next five years, the plant science industry will see some 35 active ingredients come off patent. Sixteen fungicides, 11 herbicides and eight insecticides will potentially begin competing with less expensive generics. And unfortunately for the marketers involved, the rate of new technology introductions has slowed dramatically over the last two decades, due in part to the high cost of bringing new products to market.

The high cost of “new”

It takes years and millions of dollars to get new technology from the laboratory through regulatory and into market. According to Phillips McDougal, that number currently averages 10 years and $256 million for crop protection products. For biotech traits, 13 years and $136 million. To further illustrate the rate of deceleration, in 1995 the industry screened more than 52,000 molecules to develop four and register just one. In 2010 that number tripled to almost 160,000 screened molecules to develop 1.5 and register one.

Re-evaluating the product life cycle

For many marketers, this new reality is changing the way they view and manage the product life cycle. Marketers once accustomed to a steady stream of new-product introductions — selling off products once they reached maturity or letting them fade into the generic space — are now looking for ways to evolve their mature brands, add value and extend the life cycle.

Is it possible for ag marketers to defend against commoditization, especially in the face of today’s historically low crop prices? While it’s certainly not easy, there are some compelling strategies that point to “yes.”

Asking the right questions

Besides the lowest price, it helps to ask what else your customers really value. What do they expect, and how can you help fulfill those expectations? Perhaps it’s convenience. Or more time. Surveys in the workplace tell us that today’s employees often value more vacation time over an increase in salary. So ask the fundamental questions. Find out what your customers really need and want. It might turn out to be an intangible benefit that’s sitting right in your lap — something your product can offer with a slight tweak or modification, or by repositioning it in the mind of your customer.

Price isn’t everything

Price may be high on the list of purchase criteria, but it’s not the only factor your customers consider. Return on investment is right up there, along with net profit impact and other key strengths that could set you apart. It’s important to help your customers see beyond price and look at the big picture. Marketers often assume their customers understand the full financial value of their product, when in reality, these customers may need help measuring it. Beyond showing them general industry averages, help them calculate ROI for their specific situation in both the short- and long-term.

Differentiation through segmentation

Adding value to a product now seen as a commodity could be a function of segmenting your customers — both current and potential — then building your product offerings around the particular needs of these new segments. The owner-operator of an 800-acre operation, for example, may have different needs than the corporate farm manager. You may conclude that one segment’s needs are best met with your existing core product, but another segment wants the core product with a slight customization in formula, delivery or offer. Explore all customer segments and customize your offerings accordingly.

Bundling value

One of the most successful strategies against commoditization is bundling your current product with related products or services to create a new product offering. In 1996, a self-proclaimed health nut named J. Darius Bikoff got the idea of adding vitamins and electrolytes to bottled water (the ultimate commodity product). He introduced Smartwater that year and Vitaminwater four years later. In 2007 he sold Energy Brands to the Coca-Cola company for $4.1 billion in cash.

In the case of plant science, this bundling strategy could mean adding another active ingredient or adjuvant to your current formula to enhance and expand its effectiveness. Or it could mean bundling your current product with a new service or program to augment its value. For example, offering an extended maintenance agreement with every piece of equipment sold. Again, make sure you’re meeting a real customer need and not adding something they don’t really want.

Building value from the beginning

The best way to defend yourself against an onslaught of generics is an offensive strategy rather than a defensive one. It goes back to managing the product life cycle at the very beginning, knowing that you will one day face the inevitable commodity scenario. In other words, make hay while the sun shines and build the strongest brand you can while you hold a unique position in the marketplace. Invest in strong brand development early on to create as much brand loyalty as possible. You may not end up with the Starbucks of the ag world, but you could very well add years to the life of your brand.