You probably have a few product ideas in mind that you think are worth millions. Unfortunately, most of the ideas we come up with aren’t nearly as feasible as we would like to think.
Even if you do come up a a great product idea, you won’t make headway if you don’t know how to execute it.
It is easy to become overly confident and believe that your new product will be a sizzling success, but most ideas fail because there is either no market for them, they aren’t marketed properly or your cost structure is too high.
You need to carefully vet every idea, so that you only move forward with winning product ideas that you can actually profit off of.
You also need to make sure that you position your product carefully before introducing it to the market, because even a great idea can fail if it isn’t positioned, produced or priced properly.
Here are some guidelines to help you increase your odds of success.
Why Do New Products Fail?
Finding a viable product is critical to running a successful business. The Small Business Administration estimates that only half of all businesses survive for the first five years.
Creative Commons by Deb Nystrom
One of the biggest reasons that small business fail is that they try to market the wrong products. According to the Journal of Product Innovation Management, around 30-40% of products are failures.
Comparing these two statistics indicates that around half of all business failures could be attributed to bad product ideas.
Other business failures could be due to bad marketing campaigns around these products or problems controlling costs. Companies that don’t do their due diligence before launching a product are much more likely to fail.
Granted there are other reasons that products can fail to gain traction, such as poorly executed marketing strategies, but the JPIM research suggests that choosing the wrong products is probably the biggest reason.
Unfortunately, there are a number of reasons that a product may not be the right fit for your company:
- The product doesn’t satisfy a customer need.
- The market for the product is too small.
- The product doesn’t align with your brand image.
- It is impossible to produce or distribute cost-effectively.
- It faces too much competition on the market.
You need to have a viable product idea before investing in a prototype. You also need to position yourself carefully whenever you introduce a new product to the market.
You will have a much better chance of launching a stellar product if you do your due diligence.
Setting Yourself Up for Success
There are a number of different things that you can do to beat the odds and be profitable when bringing a new product to market. Here are some questions that you must answer first.
Why Will People Benefit From My Product?
The most important thing is to choose a product that consumers will actually want to purchase. They will only buy a product that serves a need.
Consider some of the following products that failed because they didn’t solve a problem:
- The Control Alt Delete Wand. The three finger salute (the process of pushing the control, alt and delete keys at the same time) has been used to kill PC applications since the early 1980s.
- Since the shortcut was so commonplace, someone decided to create a special tool that would allow PC users to press all the keys at once without using their fingers.
- There clearly wasn’t any real demand for this tool, because people didn’t feel it saved any time or effort.
- Shoe Umbrellas. Someone invented special umbrellas specifically for their shoes. The idea sounds good in theory, because some people want to keep their feet from getting wet in the rain.
- However, there was almost no interest in the product, probably because it would be too awkward to walk with miniature umbrellas sticking out of your feet.
- Baby Mops. One company believed that parents would actually want to have their babies clean their floors while learning to crawl. T
- hey attached mops to the knees and arms of their clothes, which would help them clean the floors while they moved around.
- The idea proved to be totally inefficient for cleaning and also raised concerns about health and child abuse.
What do all of these ideas have in common? They failed because they didn’t provide any value to their target customers.
You can’t afford to make the same mistake. Stop and ask yourself why customers will want to buy the product you have in mind.
How will it make their lives better? You shouldn’t move forward with an idea until you can come up with a good answer to that question.
Who Is My Target Market?
You need to carefully identify your target market if you want your product to be successful. Unfortunately, it is far too easy to focus on the wrong consumer, which can be one of the most costly mistakes you will ever make.
This is a mistake that even Fortune 500 companies can make. Consider the following article from Stephanie Vozza of Fast Company, which focuses on the case study of American Express OPEN.
American Express launched the forum for small business owners to congregate and share ideas to be more successful. The problem is that they focused on the wrong type of small business – startups.
The problem was that startup founders often lacked the connections and resources needed to benefit others, so other participants didn’t benefit much from attending.
American Express had to change their focus and gear the meetings towards established business owners, which proved to be much more beneficial.
This forum didn’t play a significant role in American Express’s bottom line, so they were able to make the changes and move on. Unfortunately, as a startup, you don’t have nearly as much flexibility as American Express.
You may be investing every penny that you have developing a single product and creating a marketing campaign around it. If you don’t have your target customer clearly defined, then you may lose your entire investment.
Zipnosis was a startup that made a similar mistake. The company came up with a product that would allow patients to list their symptoms and have them sent to a doctor for a diagnosis.
For several years, the company failed to get customers on board. They apparently didn’t trust a diagnosis from the product.
However, Zipnosis’s fortune turned around after they started marketing their services to health care management companies instead, because they had a strong need for on demand solutions for their patients.
You may encounter a number of pitfalls if you don’t know who your customers are:
- You may market a costly product to customers that don’t have the income to afford it.
- Your customer base isn’t large enough to be profitable.
- You create a marketing campaign that doesn’t entice the right people to buy.
Here are some demographic variables that you need to be aware of before bringing your product to market:
You need to be as specific as possible when establishing your target customers. This will drastically increase your odds of creating an effective marketing campaign for your product.
How Is My Product Better than Competitors?
Creative Commons by Betsy Weber
You are probably already convinced that your product beats the pants off of anything that your competitors brought to market. Unfortunately, your customers won’t be convinced unless you can clearly articulate the benefits.
They probably already have strong loyalty to another brand, so you will need to make a very good case to get them to try your products instead.
Brian Lawley, the president of the 280 Group, wrote a white paper about product positioning, which included his own anecdotal experience making a shopping purchase with his wife.
Lawley pointed out that they were in the market for a new shredder. They saw numerous advertisements from Staples, but when they finally went to the store they found several alternatives that were much cheaper.
What did they do? They purchased one of the cheaper options. Staples repeatedly marketed their shredder to Lawley and other consumers, but never specified the benefits over competing brands.
When Lawley finally went to make the purchase, they saw no reason to buy the pricier Staples option over competitors.
Lawley said that this problem can affect companies in any industry where customers can find readily available alternatives.
He claims that only companies with competitors that no one has heard of are immune. This is the part where I have to disagree with him.
The truth is that you always have to worry about competing brands stealing market share. You may not have a lot of competition right now, but if your product really takes off, then it is only a matter of time before other companies take copycats to the market.
You must establish the benefits of your product before you start positioning it, because competition will be an inevitable part of marketing.
Can My Customers Grasp the Benefits of My Product?
We already touched on the importance of having a product that serves a need better than your competitors. Unfortunately, developing a superior product isn’t nearly enough to gain an edge in the market.
Even the best product in the world will be a flop if you can’t communicate the benefits to your customers. As Megan Burns, VP of Customer Experience Professionals at Forrester, once said customer perception is reality.
Another major reason that new products fail is that customers don’t understand their purpose. If you can’t clearly communicate the purpose of your product, then convincing them to buy will be nothing short of impossible.
The first thing that you need to understand it is never the customer’s fault if they don’t understand the value of your product. Troy Harrison, a national thought leader on sales and marketing, says that many of his clients can’t come to terms with this reality.
Creative Commons by Karlis Dambrans
“If your customers don’t understand your value, perhaps the problem is YOU and not them,” Harrison writes. “This is a complaint I hear from salespeople all the time; salespeople complain that their customers – or some of their customers – don’t ‘get’ why they charge a higher price than competitors.
My response is always the same; “What do you do to help them understand your value?” The difference between a salesperson and an order-taker is the ability to communicate, and convey understanding, of value between your ‘stuff’ and the competitor’s ‘stuff.’”
This is a problem that Samsung faced when they started selling the Galaxy Note. Samsung struggled to decide whether to call it a smartphone or a tablet, because it was in essence a strange hybrid between the two.
Samsung switched back and forth between calling it a tablet and a smartphone, because it couldn’t decide which category it fell under.
This created a lot of confusion among customers, retailers and industry critics. Phil Lavelle, a product reviewer for Techradar, struggled to draw unequivocal comparisons between the Galaxy Note and other products on the market.
“Normally, this is where we’d talk about the alternatives on offer,” Lavelle wrote. “But we admit, we’re stumped here. Why?
Well, in our mind, there is no clear rival. The Samsung Galaxy Note created its own category, in that there were no real phablets about before.”
It took over a year before the Galaxy Note took off. According to Jeremy Wagstaff and other industry reporters, the only reason that the Galaxy Note appears to have taken off was that competitors created similar “phablet” devices.
If alternatives didn’t come onto the market, customers may never have had anything to compare the Galaxy Note to and would probably never have seen any reason to purchase one.
You can’t take a product to market unless you can clearly pitch it to your customers. You should ideally be able to communicate the benefits of your product in two sentences or less before you even consider launching a branding campaign.
How Much Do Customers Really Want Your Product?
You may genuinely believe that you created the Microsoft Windows, but your customers may not feel that your product is nearly as valuable as you do. You need to check your ego and find out how much they really want it.
Conducting market research is vital before introducing a new product. There are a variety of ways that you can gauge customer demand:
- You can conduct market surveys to see how many people are interested in a product similar to the one that you are offering.
- You can run focus groups to have them experiment with your product after you have a functioning prototype.
- You can create a small batch give away free samples to a select group of customers and ask them to give their feedback before taking it to market.
Your customers may feel that your product has value over competitors, but their perception may be better or worse than you expected.
They may feel that superior features don’t merit the higher price that you are charging, which could be a problem if your input costs are higher than your competitors.
Don’t despair if the feedback isn’t what you hoped. If they feel that your product has potential, but isn’t what you were hoping for, then you can consider several options such as lowering your price point or providing new features.
You may be discouraged having to make these changes, but it’s better than losing money taking it to market with unrealistic expectations.
Can I Really Create a Profitable Business Model With This Product?
No sane entrepreneur creates a product that they intend to lose money with. Unfortunately, many of them do so all the time. Even if you are able to convince many customers that your product serves their needs, you may not generate enough sales to turn a profit.
You need to create an objective break-even analysis before launching your product to make sure that you will be able to make a profit off of it.
A break even analysis is essentially a model that helps you calculate the number of products that you would need to sell at a given price to break even.
Many career entrepreneurs mock the idea of a break-even analysis, because the point of running a business is to make profit, rather than to break even.
While they raise a good point, this analysis is still useful for determining whether a product is viable or not before introducing it. Here are some steps that you will need to take:
- Determine a reasonable sales price. You need to find a sales price that customers will be willing to pay. This price needs to factor your customers’ budgets and the price and quality differentials between competing products.
- Figure out your variable costs. Your variable operating cost is the amount that you need to spend to create each individual product.
- This figure is based off of factors that vary depending on the quantity of production, such as material inputs.
- It doesn’t include fixed operating costs such as equipment and renting manufacturing space.
- Determine the fixed costs associated with the product. These costs include renting the space for production, research and development and other non-variable costs associated with producing the product.
- Calculate the break-even point. Your break-even point is the number of units that you need to sell at a given price to cover all of your fixed and variable costs.
- This figure is calculated with the following equation: BE = Fixed Operating Costs / (Sales Price – Variable Costs).
The number of products that your company can sell must exceed your break-even price. Otherwise, you won’t be able to generate enough revenue to have a profitable business model.
If your break-even and market analysis shows that you can’t sell enough products to operate profitably, then you need to consider the following options:
- Scrap the idea. This can be a difficult decision to make. However, if the market for your product is too small to generate a profit, then you may need to go back to the drawing board and find a new one.
- This can be disheartening, but it is a much better alternative than driving your company into bankruptcy trying to sell a product that can’t turn a profit.
- Try raising the price. You may be pricing your product too low. According to Per Sjofors of Stratinis, one of the biggest mistakes companies he was worked with make is basing their price off of cost inputs rather than consumer demand.
- You may be able to improve your margins by charging much higher prices, which will help you create a more sustainable business model.
- Look for ways to cut costs. There may be ways that you can reduce production costs. These ideas can include outsourcing labor, investing in capital that increases production efficiency or using more cost-effective materials.
- You should always explore these possibilities, even if you already found that you can create a better business model by raising prices.
- Expand your market. You may have defined your target market too narrowly. While it’s important to pursue a specific market, you may want to expand it a bit if you need to sell to a larger number of customers.
You should consider all of these options without bias before moving forward. The most important thing is to be as objective as possible. As we pointed out earlier in this article, some products never took off simply because they didn’t offer any real value to their target customers.
Marketing to a wider audience or reducing manufacturing costs wouldn’t have changed that.
Always Do Your Due Diligence Before Taking a Product to Market
Bringing a new product to market is one of the most trying challenges entrepreneurs face. Unfortunately, many entrepreneurs don’t receive any rewards of their efforts, because their products never take off.
The truth is that there are many reasons that many products never become profitable. Some of them simply don’t provide enough value to draw customers. Others are built on good ideas, but the marketing campaigns aren’t executed properly.
As an entrepreneur, you need to foresee all possible reasons that your product may fail. Be realistic with yourself, because failure is a very real possibility.
If you are aware of the ways that you can go wrong, then you will have a much higher chance of launching a successful product.
Do you have any experiences that you would like to share? Feel free to leave a comment below!