Absolute Product Failure and Relative Product Failure are concepts used to evaluate the success or failure of a product in terms of its financial outcomes. Here’s a breakdown for better conceptual clarity:
Absolute Product Failure
- Definition: A product is considered an absolute failure when it fails to recover even its production and marketing costs.
- Impact: The company suffers a financial loss because the product doesn’t generate enough revenue to cover the investment.
- Key Indicator: Total costs (development, marketing, distribution, etc.) > Total revenue.
Example:
The Microsoft Zune failed as it didn’t sell enough units to recover the costs of production, distribution, and marketing. This left Microsoft with a net financial loss.
Relative Product Failure
- Definition: A product is classified as a relative failure when it recovers its costs but fails to achieve the expected level of profitability.
- Impact: The company breaks even or makes a small profit, but the product does not meet the forecasted financial or market performance.
- Key Indicator: Total revenue ≥ Total costs, but actual profit < Expected profit.
Example:
Amazon’s Fire Phone sold units and recovered its production costs, but it didn’t achieve the high sales figures or market penetration expected.
Key Differences
| Aspect | Absolute Product Failure | Relative Product Failure |
|---|---|---|
| Definition | Product doesn't recover its costs. | Product recovers costs but falls short of expectations. |
| Financial Outcome | Results in a net financial loss. | Results in minimal or no profit. |
| Company Impact | Severe financial damage. | Missed opportunities but limited financial harm. |
| Example | Microsoft Zune. | Amazon Fire Phone. |
Exam Tip
For UGC NET, remember the difference lies in whether costs are recovered and how profits compare to expectations. These distinctions often appear in assertion-reason or case-based questions.