Right Product, Right Market Area, Right Price
Look around you.
Today more than 50 percent of the products we use weren't even in existence ten years ago. But when we look beyond these successful products, we find the carcasses of thousands of great ideas that suffered a premature death.
Every year, government and businesses large and small waste millions of dollars on new product development, only to find there isn't a market for the product.
The most common reasons for these new product failures are:
- Inadequate market analysis
- Product defects
- Higher costs than anticipated
- Poor timing
- Insufficient marketing effort
- Inadequate sales force
- Poor distribution set-up
What do these reasons have in common?
Poor market research. Often, the only research carried on was seat-of-the-pants, gut-level feelings. The cost of the gamble is too big for this type of approach.
The most common statements you hear from people, though, are:
- Market research will cost too much
- We know there will be a big demand for this product
- We need to keep the product under wraps and get to the marketplace ahead of the rest
But what these people fail to realize or understand, is that comprehensive market research can aid them in getting to the marketplace more rapidly with the right product. And, it can help them keep the cost of product development down.
Carried out at the early stages of an idea, research shows people whether or not they should press forward or move on to another idea. It helps spot the problem areas early, so modifications can be made. It helps insure the products chances for success.
This is especially true if the company is entering a totally new market. In addition, every effort should be made to make certain the research is valid. If not, it could waste the company's time and effort. It could even be such a drain on the organization as to cause financial ruin.
The first area which should be clearly spelled out is a careful and detailed product description. This should include physical and aesthetic properties, manufacturing techniques, patent status, and costs.
Cost estimates are vital, since excessive cost can keep an otherwise sound product out of the marketplace. Rather than identify the costs in one lump sum, individually identify development, material, manufacturing, packaging, distribution, and promotional costs, since they have a bearing on the ultimate cost to the consumer.
People often get in trouble here by basing their costs on some ambiguous formula. This can be acceptable, if it is a product area in which the firm is already established. If it's a new market area, detailed and documented estimates should be based on contacts with people familiar with these cost areas.
Even at this early stage, it is possible to determine if a project should be killed or pursued further. The costs of the new product are simply compared to those of existing products. If there is a decided price/performance advantage, you can go to the next phase of research. If it is simply another "me-too" product, the effort should probably be abandoned.
Across the country today, there are thousands of great ideas for which there are no real markets. For this reason, it's important to have a thorough analysis of the market in which you intend to compete. This includes market size, nature of the competition, present sales, and distribution methods.
Seldom does this have to be original research. It is readily available from a variety of sources including publications, trade association, and the government.
Once over this hurdle, the true test will come when you evaluate the reaction of prospective buyers. Consumer goods manufacturers examine this area in depth, but business and industrial producers seldom carry out extensive research in this area often to their own detriment.
People who are buying similar products should be asked to evaluate all of the features of the product. These include reactions on the proposed price, applications or uses, and the ease of use.
It's surprising how seldom management will contact their distribution and sales personnel, who know the market and can quickly provide feedback, as to whether or not the product is strong or weak. But since these people have little to lose by encouraging you to spend your money, these opinions and inputs have to be weighed. In addition, company employees may be reluctant to give negative feedback or may be more interested in keeping the status quote.
Competition is seldom going to take the introduction of a new product lying down. Because of this, it's important to anticipate and evaluate possible price cuts, patent infringement suits, and similar actions. In fact, they may be well along with similar, or even better product advancements.
Considering competition, what level of market penetration can be achieved with the proposed new product? And, what part of the total available market can the new product achieve initially, and over a given period of time?
The predicted market share should be based on the comparison of price/performance differences between new products and the competition, buyer reaction to the new product, and possible competitive reaction.
In evaluating the market, take into consideration who the new product buyers will be, and why they will be buying your product rather than the competitors' products. And when market share is being developed, determine where the market share is coming from, who is losing sales, and why they are declining in acceptance and sales.
The true measure of a new product's potential success or failure is the company's bottom line...a comparison of forecasted profits to forecasted costs. A good new product research projection compares profits at various sales levels along with all of the costs including research, development, manufacturing, distribution, and promotion.
If management has this kind of market research in hand before plunging ahead with a new product, they can make sound comparisons regarding the proposed product and other possible company investments. It can't ensure success, but it can improve the odds considerably to make the new product one of the estimated 5 in 100 that are still around two years after their introduction to the marketplace.
Sound market research defines the new product and market, reports buyer, sales, and distribution reactions, and anticipates the competition's reactions. It will also accurately forecast the expected costs and return on investment.
With this kind of information, management is now in a position to make a sound, rational business decision. It will help assure the firm that the product will succeed, rather that suffer a premature and very expensive death. It will also ensure that we, the consumers, will soon have another new product to use that will have sound price/performance value.
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