activity based costing
The product should not be discontinued.
To produce that particular product (in spite of loss) could be a strategic decision. For example, you get order for say 5 products which includes the 'loss making' product. The order says you supply all or nothing. Now, if the order, taking in to account all 5 products, is profitable then it makes sense to produce and supply the 'loss making' product.
Same logic can be extended to a profitable customer also. In order to retain him and earn profit on sales to him at the end of the year, you might have to sell the 'loss making' product along with other profitable products.