Last time, we talked about cultural and taste differences as one of the factors that can make a product fail. The next point to be discussed is the cost of production.
Cost of production is an essential element of production that can’t be ignored. If an organization is able to get the cost of production for a product to be as low as possible, it helps the margin of the product and enables the product to be priced competitively. On the other hand, if the cost of production is so high and it is now passed to the price of the product, it can kill the product.
Sometimes, the cost of production could be low at inception but certain factors can change along the line which will alter and increase the cost. These factors could be a sudden increase in the price of raw materials and it could be increase in the exchange rate of the country. The foreign exchange will definitely affect a product that is imported or whose raw materials are imported.
When this happens, rather than pass the cost to the price of a product that is still trying to find its feet, it is better to choose the route of reducing the other cost of production such as labour (this could be in form of not replacing staff members that resign). It could also be finding the most cost effective way of running operations.
In a case where this is not possible, that may be the end of the product as increasing the price of the product may reduce the number of units sold and that will reduce the revenue from the product. At the end of the day, it may result in a loss continuing that product.
An example of a product that experienced this is Redon (not real name). It was a product that was imported into Nigeria but immediately there was increase in exchange rate, it affected the cost of production and because the company saw that they cannot increase the price of the product, they had to discontinue the product because the continuation will result in a loss for the company.
[To be continued]
