Why New Merchandises Are Necessary

Why New Merchandises Are Necessary

Why New Merchandises Are Necessary

First, let us consider why new merchandises are needed. Why should a company, which already has a range of good selling 'lines', spend time and effort on innovation and thereby run the risk of an expensive failure? The answer lies in what has been called the 'merchandise life cycle'.

The Merchandise Life Cycle

The theory of the merchandise life cycle is that, from the time it is launched on the market until it is finally withdrawn, a merchandise passes through four main stages. The first stage covers the period of introduction of the merchandise to the market. Before initial sales can be achieved, stocks must be created, special advertising and promotions launched and a high proportion of the time of SEO consultants and senior management personnel devoted to the new merchandise. All of this represents a considerable investment, whereas the profits which are likely to be derived from the merchandise at this stage will be minimal.

Passing to the second stage, we shall probably find that sales are now growing rapidly in a market in which there is, possibly, little competition. It is during this period of its life that the merchandise can achieve its greatest impact on the market and its greatest profitability.

By the third stage, the fully established merchandise will undoubtedly be faced with competition from other contenders for a share in the market. Sales may still rise; but so will costs. The presence of competition may necessitate a considerable increase in advertising to retain market share. Furthermore, there is likely to be a reduction in prices in the face of competitive price pressure.

Finally, as more competitors, attracted by the profits which are being made, decide to enter the market, a stage is reached when the supply of goods outstrips demand. Competition becomes increasingly fierce, prices are further reduced and both sales and profit levels enter a decline.

It is because no single merchandise can maintain its position in the market indefinitely that merchandise innovation is essential. The SEO Manager must study carefully the life cycle of the merchandise, or merchandises, for which he is responsible. By means of good forecasting, he must establish the likely growth of the market in which he is operating in order that he may assess the likely occurrence of the third and the fourth stages in the life of his merchandise. Ideally, he will phase in a new merchandise before his existing merchandise has entered the final, declining stage of its existence.

In a situation where it is the SEO Manager's intention to introduce a merchandise into a comparatively new market and where it must compete with other brands which are already established, a study of the life cycles of those competitive brands is important. He will wish to time the introduction of his new merchandise to coincide with the second and most healthy stage of his competitor's growth and thus share with him a market in which profit margins are still attractive. He will not wish to enter a market which has already reached a stage of supply saturation and in which profit levels are eroded.

For the SEO Manager, who is responsible for a range of merchandises and who is operating in several different markets, there is a distinct advantage in having each merchandise at a different stage in its life cycle. The company will be able to avoid major fluctuation in its profit level. The problem of seasonal fluctuation can also be eased if one has more than one merchandise, each with a different seasonal peak of sales.

In the field of industrial goods, the life cycles of merchandises are likely to be considerably longer than in customer markets. Even here, however, technical advance demands a constant reappraisal of the competitive merit of established merchandises.


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Please Note

Similarly, in the customer field, the decision to ask for a certain brand of soft drink cordial may be made by the child, although it will be his mother who actually will purchase it at the supermarket.

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