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| Learn before You Leap |
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You are convinced that your new and exciting product can take the U.S. market by storm, but you know you need to do your homework before you start producing the millions of pieces that the market is waiting for.
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| See the View from the States archive for Mark Dollinger's view on aspects of doing business in the United States.
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Innovation is the key for an entrepreneur to enter — and stay in — the volatile and risky field of consumer products. And while a new idea or approach is generally necessary for success, product innovation is not a sufficient base from which to take the plunge into producing a product. (Note that although my focus here is on consumer products, much of what I describe applies to any product, in any market.)
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| Ask the Right Questions |
So, you've got your great idea, but have you really, really thought about the market sector, pricing, distribution, and barriers, among other things?
Market sector. Determining and targeting a market or market sector is absolutely critical and, often, extremely complex. Careful market research is required that reviews similar products, looks at the distribution channels for those products, and examines the market potential for your product.
Without addressing these issues in the market, it is nearly impossible to know which customers (or alternate market channels) to target. When we work with a client, we often begin with market research, which includes a look at who's out there (retailers, distributors, competitors) and what are they doing, as well as interviewing experts in the field. Experts include consumers (using individual interviews and focus groups), customers, salespeople, trade media, competitors, and sometimes suppliers to competitors.
Pricing and costing. When we review the marketplace to determine pricing and costing, we look at what similar products are selling for in the targeted distribution channels, as well as what the margin requirements of our client.
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On Margins
It's important to know what typical profit margins are for a given market sector and distribution channels (for example, discounter's profit margins are less than department store's.) Even within a single market such as housewares, small electrics like toasters and food processors have very different profit margins than tabletop products (dishes and cutlery).
New products are often brought to market at higher than average profit margins. As competition arises, margins tend to be reduced to the level of the industry average for both retailers and manufacturers.
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Research into understanding pricing opportunities is absolutely required; it is critical to know what the marketplace will bear for your products. How much it will cost to produce the product is a secondary lesson. The cost of production cannot determine the retail price, only understanding the marketplace allows you to properly determine the retail price. Once you establish the retail target, then you can determine the feasibility of producing your product profitably.
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| Distribution and operation. There are several typical options (and numerous variations) to get your product out to the market.
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| |  | You can produce and distribute the product yourself.
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| | | You can produce the product yourself and work with a distribution partner.
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| | | You can establish a joint venture.
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| The decision will depend or your company's core competencies (manufacturing expertise, distribution know-how, marketing knowledge) and factors such as access to capital. You will also need to consider the projected number of units you want to produce and how much sophistication is required to produce a product according to the market's needs. The key is to understand and capitalize on your strengths — and know your limitations.
Barriers. If your product is an electrical appliance, it may (depending on the specific markets) need to be listed or approved by one or more agencies such as UL, NSF, or CE.
Don't be surprised, too, by the requirement for product liability insurance by some customers. In the highly litigious United States, individuals file (and win) lawsuits for seemingly absurd or trivial reasons. The insurance protects retailers, distributors, and manufacturers (partially) from both real and imagined product failures.
Depending on the product, there may be other regulatory, certification, and insurance issues.
Items vs. programs. If your item is truly innovative — and you've done your homework — you may be able to quickly identify your niche and potential partners. Programs may peak quickly (many consumer products have short life cycles), so you will need to react quickly. On the other hand, if you have an innovative line of products (multiple items with common features such as design and function), the initial financial risks will likely be greater but the potential reward may be much larger. Different sales and marketing plans can present dramatically different opportunities and strategies.
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| Learn the Product Lessons |
So, what are the lessons you can take away?
You begin with your innovative product idea or an innovative approach to market. Remember that if you do your homework, your creativity will be rewarded in the marketplace. Or you might even learn that a market doesn't exist for your product.
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| | | Understand the proper entry point for your product.
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Research and explore the correct pricing (and the entire cost structure) for the product.
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Look at the timeline for the project.
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| | | Investigate distribution and production options.
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| | | Visit the market to test your assumptions and evaluate your opportunities.
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Don't shy away from following your instincts about your product, but be certain to use your head — and the heads of others — before you commit your hard-earned assets.
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If you have any marketing questions that you would like me to address in a future column, or have a comment about this column, drop me a line.
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Mark Dollinger
President
Trendlines America
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