Product Lifespan and Price Fluctuation

Relationship with Company Performance

The impact of price fluctuation on company performance is also very strong. Furthermore, product lifespan and price fluctuation have a close relationship. Given the fact that product lifespan and price fluctuation are closely connected and have an impact on company performance, understanding the statistical qualities of product lifespan and price fluctuation is of great importance.

This paper introduces analysis of product lifespan and price fluctuation of food products and daily household goods. In marketing research, analysis is specific to the quality of individual product classification. Treating product classification in a cross-cutting manner is a new perspective that makes it possible to recognize shared and differing qualities among product classifications. Scanner data provided by the Nikkei Digital Media Inc. (1988–2005 daily price data recorded by cash registers at 273 stores on 200,000 products) is utilized, and with this data the beginning of sales and closing of sales dates can be found for each product.

Regarding the Qualities of Product Lifespan

Product lifespan was observed from the perspective of product turnover. In other words, the percentage of products beginning sales (entry percentage) and percentage of products ending sales (withdrawal percentage) were calculated. First, the entry percentage and withdrawal percentage are at 30-40% annually, confirming that turnover is faster than the observed values in the US (about 30% over four years). It was also confirmed that the older the product (days passed since the beginning of sales) the lower the product’s withdrawal percentage. The withdrawal percentage for products within one year from the beginning of sales is about 60%, compared to a withdrawal percentage of about 10% for products over five years since the beginning of sales. In this way, long-life products have even longer life spans, creating bipolarity in the lifespan of products.

Looking at the transition of entry and withdrawal percentages from the attached graph (see PDF file), while there are significant yearly fluctuations in the entry percentage, the withdrawal percentage was found to be stable. The entry percentage increased rapidly from 1994 to 1995, while the withdrawal percentage has increased gradually since 1994. This suggests that the sharp rise in the entry percentage brought about a gentle increase in the withdrawal percentage. The rise in the withdrawal percentage means that product life spans have become shorter. This gradual shortening of life spans has been commonly observed in products regardless of classification, and can be thought of as a universal quality.

Observing turnover by product classification reveals that some products are under 20% while others are above 40%. For example, the withdrawal percentage of bread, mochi (rice cake), chilled desserts and confectionary is over 40%. For many products the entry percentage and withdrawal percentage are almost the same. However, cases also exist where the entry percentage significantly surpasses the withdrawal percentage and the number of products is rapidly increasing. Examples include alcoholic beverages, baby foods, stationery and cosmetics.

Observing yearly differences in entry and withdrawal percentages among product classifications reveals that differences in entry percentages are substantial between 1990 and 1994, while differences in the withdrawal percentage gradually become larger. It appears that differences in the number of products (diversity) among product classifications are brought about in the same period.

Relationship between Product Lifespan and Price Fluctuation

First, the relationship between product lifespan and price fluctuation was analyzed from the perspective of the frequency of price revision. It was found that a large percentage of products with short life spans are withdrawn without price revision. For example, 80% of products with a short lifespan of under a half year are withdrawn without price revision. On the other hand, it was observed that products with a long lifespan of over five years tend to be revised once every two to three months, suggesting the existence of an appropriate revision frequency.

Differences in price fluctuation depending on product lifespan are observed even in the early stages of products (within about a month from the beginning of sales). It was found that the longer the lifespan the higher the frequency of price revision in the early stages, and when revised the price tends to increase. It appears that price revision is carried out more flexibly with products with longer life spans.

Differences in early stage price fluctuation depending on product lifespan differ among product classification. Products with significant differences in price fluctuation depending on product lifespan are medical products, general merchandise, stationery and alcoholic beverages. In addition, products with significant differences in price fluctuation depending on product lifespan show different kinds of fluctuation. With medical, general merchandise and alcoholic beverage products, there is a strong tendency for the price of short lifespan products to fall, and as such differences depending on life spans are substantial. In comparison, there is a strong tendency for the price of long lifespan stationery products to rise, and as such differences depending on life spans are substantial.

Company management should be able to take advantage of such differences in early stage price fluctuation depending on product lifespan.