Many years ago an entrepreneur in a town near Johannesburg came up with a new product to treat psoriasis. In its day the product was a breakthrough because it was about the only one on the market that gave long-lasting relief from the symptoms of this skin ailment. It was a relatively benign product because it did not do damage to your skin such as the cortisone-based products.
Over time, the original owner handed over the product to a pharmaceutical marketer who started selling it on a wider scale and nationally. But some time later this pharmaceutical distribution and marketing company began to harvest the product. In fact, there was no new product development. This was a great pity because money was not kept decide to reinvest into the product and to make it more effective. There wasn’t even any innovation in packaging, which would have been an advantage because the packaging was all right but it could have been far better.
Onward to the next pharmaceutical distributor and marketer. The second distributor and market was only too keen to get their name on the product but also used a harvesting pricing strategy. In simple language, this means that they jacked up the price each year until the product was overpriced and then sales naturally declined. Towards the end, the product was priced so high that unless you were a long-standing user, you would probably have given it a miss.
Then the product was taken off the market for good. When I called to ask what was going to happen to the product, all I was told was that it had been discontinued. No one, it seems, was prepared to even manufacturer and market it on a smaller scale. Now, there is nothing like it on the market any more.
But wait, there’s more … the product came back onto the market at an astronomical price. No one seems to know it anymore in store. It’s hard to find in pharmaceutical stores. One of these days it will be gone for good.
Those who have studied MBA marketing courses will know about a harvesting pricing strategy. It makes sense on paper, in a MBA marketing textbook, but the ethical approach to maintaining and building an effective pharmaceutical product doesn’t seem to come into the equation. No one thinks of the issues about denying access to such a product for sufferers of psoriasis. There is no tolerance these days for slow-moving product lines and if they don’t earn their weight in revenue and profit, they are bled to death and unceremoniously “discontinued”.
For the small business owner who has an effective product right now, things may be going well but what about the future? How will you ensure the longevity of your product without product innovation and even packaging innovation? Will you hand over your product to an external distribution and marketing company that can pick and choose from many other product lines? One way of avoiding handing over your product to strangers is to keep it in the family. But unless the family share your passion and know how to keep developing a product, it’s going to be a hard to ensure its life into the future.