"The manufactured products that GE has long made have increasingly come to resemble the classic loss leader."
In our current business climate, it's becoming increasingly important for business leaders to understand what products within their business are loss leaders and which are the key profit generators.
What happens is products are cyclical. A product during its early stage is an important part of the profits. As time goes on, competitive pressures and copycats begin to flood the marketplace, and the product becomes commoditized.
That means of course that competition is based on price, and it will put a lot of pressure on company profits. At that point it needs to become a loss leader for something else; bait for service or an upgrade.
For a manager, it's imperative to understand where your product is at in its cycle. Consider it a loss leader prematurely, and you can lose some significant profits. Consider it a key product too long, and profits are squeezed and significant problems can arise within the company or division if the product is a major key to its financial success.
How do you monetize a product then? Through service, upgrades and consulting. A product becomes vital to opening doors for you. Once a door is open, you don't just look to sell a one-time product, you look at the entire business you're interacting with, and look for ways to help them become even better. It doesn't even have to be connected to the product you're selling.
General Electric (GE) has done this in a number of areas which has added a huge amount of profitable revenue to its bottom line.
One more thing on this, you may even consider a product you make as a loss leader from the beginning, and develop it for the very purpose of answering a major problem for a business, but with your eye on much more profitable things you can serve that business in.
The bottom line is we leave a lot of business on the table by not looking beyond the products we get in the door with. Once we serve a business, possibilities abound that we need to look beyond the obvious in.
Other Jack Welch Resources:
Jack Welch's advice to MIT Sloan students
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