Auctionography - September 11, 2006
In this Issue: |
|
Some Dimensions of the Product Life Cycle
Mastering the Product Life Cycle
|
Welcome to Auctionography, the weekly Auction PI newsletter that explores how to get the most out of your auctions. As a member of our Auction PI newsletter list, you will receive these articles on a weekly basis. If you no longer wish to receive these mailings, please follow the instructions at the end of this page to let us know.
This Week´s Auctionography: Learning the Product Life Cycle
By Steve Nye, eBay Certified Consultant
Have you ever entered the market with a product that you thought was hot, only to find that it´s on its way out? Do you know how to avoid this situation? Figuring out where a product is in its life cycle is the key.
Do you remember when the Nintendo (and by that I mean the original NES) came out in the early 80s? Excite Bike and Contra were by far my favorite games, although my parents never let me have one. They said it was too expensive, and that a newer, more high-tech version would come out in a few years anyway.
Well, as much as we think our parents don´t know anything when we´re kids, they were right. A few years later the Super Nintendo was released. Then it was the Nintendo 64, then the Game Cube. As I grew up during these releases, I started noticing a repeated trend with Nintendos: As old versions became less novel and more out-of-date, a new version would be released to kill off the old.
For example, when the Super Nintendo came out, it cost around $200. Once everyone who already had an NES bought the new Super Nintendo, prices dropped to around $150. After a couple years, you could pick up a new Super Nintendo for $100. That´s when Nintendo 64 came out, and it followed the same cyclical pattern.
This cycle that Nintendo has gone through several times and will continue to go through is called the product life cycle. But Nintendo products aren´t the only ones that go through the product life cycle. Virtually ever product has a life cycle, especially in a competitive market for that product.
The Product Life Cycle
So what is the product life cycle? It´s a fast-paced wheel that includes four stages of sales within the marketplace: introduction, growth, maturity, and decline. This life cycle also occurs on eBay, especially with "hot" products. When it comes to selling these products with a rapid life cycle, timing is extremely important. You need to learn how to pick up a hot product as part of your inventory early in the cycle.
To simplify, I have taken out the introduction stage, and simplified the other three stages into the Early, Middle, and Late stages of the product life cycle. The table below describes each one in more detail with their relationships to supply and demand.
| Demand | Supply | Business Implications | |
|---|---|---|---|
| Early Life Cycle | High | Low | Product is very expensive early on in the product cycle, but if your sources can get you a sellable product with a window of opportunity before it is available to the general marketplace, you can expect to make some of the highest profits on eBay during this stage. Demand is very high and supply is low. |
| Middle Life Cycle | Decreasing | Increasing | Selling here is where most traditional businesses compete. Higher margins come from efficiency, good supply relationships, and volume discounts. However, sellers must constantly be aware of the upcoming shift to the end of the product life cycle. |
| Late Life Cycle | Low | High | Selling here is tricky, risky, and timing-intensive. The goal is to buy product in volume just as it hits liquidation channels but before demand has dried up as the result of market saturation or the public´s anticipation of the replacement product. There is usually a window here where sellers can make a small profit by buying at liquidation prices and selling at near-retail prices, but this is a usually a very small window. |
Some Dimensions of the Product Life Cycle
So now that we know each part of the product life cycle (Early, Middle, and Late stages), we need to look at the cycle as a whole.
For example, how long is the life cycle? Not all cycles last the same amount of time, and neither does each stage. Going back to our Nintendo example, we can see that the length of the product life cycle depended largely upon the changes in technology and the introduction of new products. That means that if you are planning to sell Nintendo games on eBay, you will want to keep a close eye on new product releases and technology advances. It would be a shame to buy a truckload of Game Cube games when a newer, hotter product is about to be released.
You also need to look at whether the product you are selling is a fashion or a fad. If it is a fashion, the cycle will repeat itself every couple of years—with clothing, it could repeat every season. If it is a fad, you will experience rapid growth, followed by a quick decline in sales.
Understanding the life cycle of your product is important when it comes to product sourcing. You have to learn how to pick the hot products before they become hot. But how do you do that?
Mastering the Product Life Cycle
I thought you would never ask! Mastering the product life cycle and picking the hot products before they are hot takes work and careful preparation to effectively enter the next cycle. Here are a few steps to prepare for and successfully enter into the Early/Middle stages of the cycle.
- Establish product sources first.
Sometimes, if you find a hot product on eBay that you want to sell, but have no sourcing connections, by the time you find the source and obtain the product, the cycle will be nearing the Late stage. Start preparing now by building product sourcing relationships within your niche. Then you can call on them when the timing is just right. - Watch the hot products.
For example, let´s say that Game Cube games are hot on eBay right now and you want to start selling Game Cube games. Before you buy a truckload of games, use Auction PI Research to research these products for the last month. Pay special attention to the Listing Success Rate and Average Sale Price. Next, use Last Year´s Auctions to see what was happening with these games last year. Are they selling more or less often? Are they selling for more or less money? Generate week-by-week reports for the past month and watch how demand (success rate) compares with supply (the number of competitors). Then, before you buy, make sure Nintendo isn´t about to release a cooler and more sellable version. If they are, switch your focus to the new product—because it´s definitely in the Early stage of its product life cycle. - Develop a back-up plan.
There are really two back-up plans you need to develop. The first one is finding a back-up product in case the one you were pursuing isn´t so hot anymore. Remember the old saying, "Don´t put all your eggs in one basket"? Don´t build all of your research and your inventory and your business on a product that is going to die the day before you make your move and buy it.
The second back-up plan is for when the product reaches the Late stage of the life cycle. You don´t want to be stuck with a truckload of Nintendo games (unless of course they are all Excite Bike and Contra, and then I would take them off your hands) and not be able to sell them. In this case, you need a back-up plan of how you can liquidate this inventory. Can you source them to someone else? Can you sell them as a lot on eBay? Can you still make a profit selling bundles of games? Whatever it may be, you need a way out—a way to get rid of your "used to be hot" products.
In the end, selling hot products depends heavily on whether or not that product is hot for you, which we discussed last week. It is hot only if you can sell it AND make a profit on it as well. Building a solid product inventory and successfully entering and exiting the product life cycle with perfect timing takes time and work. But you can do it with your new skills for predicting what´s going to be hot!
Until next week, I´m going to track down an old Nintendo and an Excite Bike game—just to see if it´s as good as I remember.
Good luck selling and sourcing!
Steve
If you no longer wish to receive these mailings contact us at support@auctionpi.com.
------©2006