Until recent months many popular brands have been trying to lure customers into opening their wallets by constantly rolling out new products. Will they continue to shorten the product life cycle and spend heavily on new product research and development now that the financial tsunami has hit?
Li Ning, a leading Chinese sportswear brand, has revamped its practice of debuting new products according to the seasons. Some of its short-cycled products currently stay on shelves for only a month, the China Business Journal reported on Monday.
"Apparel products are updated faster and faster to woo customers," said Wang Shiyong, who oversees PR at Li Ning.
Wang said since October 2007 he had joined many of his company's discussions, which mainly focused on shortening product research and promotion cycles.
A company can satisfy different needs of customers, increase sales revenue and even a brand's influence in a short period of time by offering diversified product choices.
"Take ZARA. It ensures new products hit shelves every few weeks, which has proved very powerful," said Wang, referring to the international fashion brand's fast growing popularity in China.
Some industry insiders believe owning diversified product lines can also provide better protection for enterprises in a sluggish market.
But Gao Feng, deputy general manager of Shanghai Bono Apparel Co, Ltd said cost and inventory controls are most important because economic uncertainties make enterprises more vulnerable to risks than ever before.
He decided to take a more conservative approach when he sensed the crisis's impact on the real economy between June and July this year.
Wang said his company's top priorities were managing risks and ensuring sufficient cash flow.
He said without good management rapid expansion could expose a company to many potential risks, such as increasing research costs, inadequate innovation efforts, increasing inventories, rising spending on advertising and deteriorating ties with retailers. Blind expansion could also result in vague product positioning, which would lower customer loyalty and grant opportunities to rivals, he warned.
Xu Hang with Founder Technology's mobile product research division agreed. According to him, the release of every new type of Founder laptop was accompanied by heavy investment in research and advertising. He added that for many brands, expanding existing product lines would also be subject to restrictions by the brand's own influence and market share.
"Often the increased sales revenue from the new product line can hardly offset the extra spending on research," Xu said.
However, Li Ning's Wang said developing new products did not necessarily lead to inventory pressure. The company has many ways of tracking market demand and arranging production accordingly, Wang explained.
Moreover, the company communicates with its suppliers, retailers and partners on an electronic platform to track orders and speed up product turnover on shelves, Wang said.
In Wang's view, risks brought about by shortened product life cycle mainly lie in the transformation of traditional procedures, which may involve changes to many chains and give greater pressures to functional departments as well as units on the value chain in a short period of time.
Analysts said companies should make thorough plans to adjust product lines, including gradually eliminating products with little profit, to focus on their main products that bring about good yields.
(China Daily November 11, 2008)
