Many of our customers do not fully understand the urgency that we express as necessary to get their product to Market as soon as possible. Then we tell them, do not cut any corners in making sure the product is market ready. They then scratch their heads and think we are crazy.
A product that goes to market before it is ready is the most costly endeavor for a business.
Some of the pitfalls that we see are:
- Lack of Patent / Intellectual Property protection so others can simply copy the design and enter the market
- Poor performance of the product so one or more of 4 things is likely to happen
- Time to market is delayed
- High returns of broken product
- Customer dissatisfaction that kills the sales motion
- Excess and Obsolete material build up in the Supply Chain
- Expensive recall/rework of the product that will suck up any profit you had thought possible
- Lack of Marketing of the product caused by the belief that ‘if you build it, they will buy’
- Lack of Market testing to see if enough people actually want the product to warrant the introduction into the market place
- We have to be careful here to avoid the infamous study done for AT&T that said there would never be enough cell phone usage to warrant entry into the market
- Likewise we have to be careful that we are not introducing another Edsel automobile.
- A Supply Chain that is not capable of meeting sales pull or Marketing requirements
- A Financial accounting system that can not adequately keep track of a rapid sales growth to get billing out, collect funds, pay vendors and conform to the latest government standards
Only once these processes are ready and proven are you ready to introduce the product.
At this point we find that many of our customers do not fully understand the importance of first to market.
A wise mentor used to tell us that sales had 3 stages:
- The first one with fresh tomatoes each spring can sell at a premium price
- Once others start having a supply of tomatoes, you have to price competitive
- If the tomatoes do not sell, you better know how to make tomato juice.
To explain this phenomena, following is a study of a forecasting module that was used in the mid 1990’s by AT&T Computers to predict sales into the market place.
- The product was desk top PC’s
- The average life cycle was 6 months or less for each version
- There was very limited opportunity to reduce cost during the life cycle. Basically you were stuck with almost all of the initial cost except for Microprocessors which would reduce over time, but you had to have a tight Supply Chain to introduce them into the market.
- The clock started not when you entered the market, but when the first offering for the same speed and capability hit the market, regardless of the supplier
- There were 3 basic price point groupings
- Targeted Market
- Length of time the market existed
- Price to the end user
The following table will help explain the model that was used to raise Model and mix forecasting accuracy from the low 70% range to the mid 90% range.
Length of time for a price point
Week 1 through 3
Week 4 through 5
Week 6 through 8
General acceptance and early adopters
Week 9 through 10
Week 11 through 12
Week 13 through 14
Week 15 through 16
Selling on Price
Week 17 through 18
Week 19 through 20
Week 21 through 22
Week 23 on
While some products may stick at a price point a little longer because the next level of technology was not quite ready, this was offset by faster than anticipated product introduction by either your company or a competitor. Typical of the time period was a 26 week life cycle for a product design.
To illustrate further, if a product/material cost originally was $1,800 and 13 weeks later was $1,600 it is easy to see how profits eroded with time. Also, if you were not the first entry into the market, the clock started anyway. If you were 6 weeks later than the first entry, you would be forced to make the initial market entry at $2,299 forgoing 5 weeks of much higher profits. At the same time, 13 weeks later not all of the expensive Microprocessors are likely to have been consumed (the forecast for volume was a 26 week cycle) so you might be forced to sell at $1,699, forgoing the enjoyment of most any potential profit as product / material cost would leave precious little margin for the cost of sales, logistics and retail markup.
One lesson to be taken away is that the market price is driven by competition of new product offerings combined with what the consumer is willing to spend.
When our customers reply that they are not in the high tech market, we emphasize that the market movement it the same. Only the time scale and the magnitude of the price points change.
Early to market with a product that works is important for profits.