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Making Money from New Products
By Paul Fileman

New products – can you make money?

The challenge of developing and successfully introducing new products and services is fundamental for innovative companies. Why is it that so many great ideas never pass the test of the market? Why do customers fail to materialise in line with your plan? Failing to successfully or fully exploit new products is commonplace amongst innovative companies. Reasons for failure are normally rooted in basic mistakes. Here is a structured approach to product development and introduction that is the foundation for future business prosperity.

Conventional Wisdom

It is normal for businesses that rely on a regular supply of internally developed new products to establish a process for developing and launching those products to market. In some businesses a formal ‘requirements capture’ process will generate details of the ideal product. In practice, this ideal product is never delivered in full. This may be because the entire market cannot be satisfied with a single product. Or, it may be that time and budget constraints cause a number of features to be deferred to some second release.

Then, when this incomplete product is launched, take-up is moderate in comparison with expectation. The new product is nearly (but not quite) good enough for most potential customers. You need to overcome this by adopting a different process.

Successful Development and Introduction

In developing your product, you need to ensure that you remain true to your product concept. Make sure that the people involved in the development process (including any alliances) fully understand your product vision. There will be three to five critical parameters that you identified in your requirements capture phase. These, typically, include cost, form, performance, and service performance. Establish metrics for these items and make sure that every progress review checks critical points. It is no use getting to the launch party and discovering that your product costs more to make than your target customer is prepared to pay.

Good quality reviews, at regular intervals throughout the development phase, will identify deviation from the requirements at a time when it remains easy, relatively, to correct things.

Go-To-Market Plan

Most new product entrepreneurs, other than estimating the cost in some cases, do not start to plan the launch phase until the development is largely complete and the first trials are under way.

Done properly, taking the product (or service) to market will have an impact on the form and function. With this in mind, my experience is that the best possible results are achieved when the launch or Go-To-Market plan is developed before design starts – before the product specification is finalised.

In documenting your Go-To-Market plan, consider all elements of the marketing mix (Product, Price, Place /route to market, Promotion, People and Process) ensuring that the entire business has bought in to their role in future phases of the programme. The main points to consider are as follows:

  • Target Customer
    Build real knowledge about the precise needs of your target customer and then satisfy them fully. That means identifying real people who will get real value from your new product or service. Then characterise their complete needs.

    Market research, at this stage, needs to be tightly specified. It is easy for your results to be polluted; either by technological visionaries desperate for your product or by those with a vested interest in some older technology or old value model (people selling pagers were dismissive of mobile telephones for the first 5 years!!).
  • Compelling Reason to Buy
    Construct an honest proposition for your product covering price, benefits and market message. Your Target Customers will compare this with the sacrifice you are requesting in terms of cost, disruption, risk etc. Make sure that the trade is marginally in your customers’ favour. Ensure that you understand the problem that your Target Customer will be solving with your product.

    The problem-solving must be good enough to ensure that any alternative, more mature, product is dismissed.
  • Whole Product
    Specify the product (or service) in its entirety. Make sure that you consider all the add-ons that your Target Customer will deem essential (for example, an MP3 player is useless without the means to download music from CD’s or the internet). Then create a commercial offer for your product that includes all these elements.
  • Partners and Allies
    Select the right alliances to help you take your product to market. Make sure that partners are compatible in all respects (similar sized businesses, similar values for example) and create a trustworthy environment within which you can share the right information.
  • Distribution
    The selection of suitable distribution partners can be fraught with difficulty. Typical pitfalls include finding yourself compelled to agree to exclusivity with distribution partners who lack the market reach to enable your product to achieve full potential.

    It is vital that your chosen distribution partner has, or can develop, appropriate skills for your product. Additional complications arise when channel networks include international markets. You will need professional advice on distribution agreements to ensure that they cover confidentiality and, of course, getting paid by a delighted customer. It is important to spell-out your services and warranty support.
  • Pricing
    If you have correctly established a complete value proposition then this should be easy. It is, however, essential that you maintain contact with reality. Any market research needs to be very tightly specified to ensure that you gather opinions based on a genuine willingness to pay.

    Understand how your customer is going to pay for your product or service. Make the price and the payment terms fit the payer – it is pointless launching a £10,000 product into a niche that could never afford it.
  • Competition
    Understand your competition. This will include technologies or services you aim to displace. It could be that your biggest competitor is non-consumption – for example people in large organisations have been buying personal printers to replace a long walk to a shared printer.

    It may be that your real competitors are completely different value models – you may have a service displacing a product or vice versa (for example, digital cameras and associated products have led to a widespread demise of high street photographic services).
  • Next Target Customer
    In compiling your plan, identify customers and partners that facilitate entry into adjacent niches. Make sure you plan these in advance so that your strategy is clearly defined. Beware being painted into a corner – make sure that your plan takes you to your desired market position. If you initially specialise in a niche market and fail to move quickly enough to address other mainstream markets, it is easy to build a reputation as a company with a very limited market scope. I know one company that has become known only as “The Firm that supplies Prisons” when their product could easily be sold into a myriad of other applications.
  • Launch Process
    For complex products and services, a structured trialling process is vital to make sure all that testing you conducted in the lab delivers a working solution to a real customer. You need to think in terms of proving the business processes required to sell, build, deliver, configure and support your product. It is essential that you monitor performance in the early stages.

Making Money From New Products and Services

If you choose to ignore the facts that you gather along the way – either facts about your customers or facts about your product – then you will not profit from new products.

If you have the courage to write a well considered plan; to review progress objectively against that plan at all stages; and to correct any deviations from it - then you will make money from new products and services.

Added: 10th December 2010

Paul Fileman is a business results improvement professional, marketer & mentor. He works with businesses to improve their profitability and performance. Find out more about Paul's company Results Zone.

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