Ireceived a telephone call a few weeks ago from a young woman who, in partnership with her husband, had just set up a company to sell a new consumer product. She told me a story that I've heard many times, and one that's worth repeating. They had quit their jobs, started their company, spent their savings, and sold their house. Now they were ready to get their product into mass-merchandising outlets such as Walgreen, K mart, and the like, but didn't know where to begin. I listened to her tale of woe and began asking questions.
"Do you have a marketing plan?"
"No," she answered, "but we have a great product, and we know that once people see it they will buy it."
"How do you know that?" I asked. "Did you do some consumer research?"
"No, but all our friends told us it was a fantastic idea that would sell like hotcakes."
"Is the product ready for market?" I asked.
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"Oh, sure, that's what we've spent all our money on. We're ready to go, but we're not exactly sure how we should go about getting stores to buy it."
I spent the next half hour or so telling her some of the things that stood between her and the customer. When I finished, she said, "Why didn't someone tell us all this before we spent our money?" I reminded her there were volumes written about marketing new products. "I know," she said. "I even plowed through a couple of books, but they were obviously written for people who already knew everything about marketing." After thinking about it, I realized that she was right. I couldn't think of anything I'd seen that might be called "Marketing for the Amateur."
So I thought it might be helpful if I outlined a plan for those of you with new products, but without degrees in marketing or the resources of a big company. At the very least, I can tell you some things you should find out before you quit your job and sell the old homestead. My plan doesn't take a lot of money, but it does take a lot of ingenuity, shoe power, and guts.
The first thing to understand is the terrible risk in introducing any new product. I doubt that one in 500 makes it from concept to market; in consumer products, the figure may be as low as one in 1,000. It doesn't make a hoot in hell whether you have a great product, a fantastic idea, or something that your friends say will sell like hotcakes. The rare product that does make it all the way does so only if it's the answer to a real consumer need. And even that isn't enough. You need to dot all your i's, cross all your t's, and have all the angels in heaven on your side. It also helps if you have 20 million bucks, which is probably the going price today for a large company to launch a new product. Don't think anything is going to happen just because you will it to, or because you are prepared to pour your life into it. But if you are good enough and lucky enough to make it, the rewards are incredible.
Let's start out with your idea. The first thing you need to find out is if it will pass the most important test associated with any new product. I call it the "Well, I'll be damned!" test. For any product to be successful, it must have what marketing people call a unique claim. In other words, potential buyers must say, "Well, I'll be damned!" when they see it for the first time. If they don't, your product is probably headed for the graveyard. Big companies spend millions to find out if consumers think their new-product candidates are unique, but since you don't have millions, and maybe not even thousands, let me suggest a do-it-yourself test.
To conduct this test, you must have a sample of your widget. Don't worry yet about mass production or perfection. If it's too expensive to make the actual product, then a sketch or drawing, or even a written description, will do. The important thing is to be sure that a prospective consumer can easily understand what your product is and what it's supposed to do. Now, take your sample to at least 20 people, the more the better -- not to your mother, or your brother, or your best friend, but to people who will be objective and won't say things just to make you happy. If most of them don't say, "Well, I'll be damned!" or "Why didn't I think of that?" stop right then. You still have your job, your savings, and your sanity. Go no further; your widget is a dog.
If most of the people you ask say the magic words, you're on the right track. Now ask them, "What would you be willing to pay for this widget if it were on the shelf of a local store?" Insist on a specific price. The next question is multiple choice:"If this widget were available at the price you suggest, would you (1) buy it for sure, (2) might or might not buy it instead of the widget you now use, or (3) not buy it." Then continue your questions: "How many times a year would you buy it? What are you using now? Are you happy with your present product?"
Ask these and any other questions you can think of, along with the age, occupation, income level, marital status, and so on, of each person. Keep a careful record of each answer. I can't tell you how important it is to be sure you are getting the right answers, not the ones you want to hear. If you want to be absolutely sure about the validity of the answers, ask everyone who gives you a positive response if they would like to invest their money in your widget. If they all say no or if they hem and haw, they probably lied, and you should know that your widget has fleas.
Now, take all of your questionnaires and "spread" the information. If you don't know how, find some 15-year-old kid with a computer. First, you want to know what you can charge for your widget. To get that answer, go to the "What would you be willing to pay" question, throw out the top and bottom 10% of the answers, and average the rest. That, whether you like it or not, is a rough idea of what the consumer thinks your widget is worth. Let's call it the perceived value. Now you have to subtract the approximate amount the retail store will want for its markup: around 25% if your widget is something you eat, drink, or clean your house with; 35% if it's a household item or an appliance or something you put on your face or hair or body; 40% if it's something that is normally sold in a hardware or specialty store. Because these percentages vary, to get more accurate information you should ask three or four local stores what the standard markup is for your type of product.
Then you'll have to subtract roughly 15% for what it will cost you to sell it to the store, another 15% for advertising, 10% for warehousing and transportation, 5% for administration, and 5% for miscellaneous things like interest and your salary. Again, all these percentages will vary by product category, so find the most accurate numbers you can. One way is to ask people who are in the widget business to give you a breakdown of their costs. They may tell you to drop dead or hang up on you, but it's worth a try.
After you subtract all these numbers, you'll have the amount left for manufacturing and profit, if any. When you compare the number with what you think it will cost to manufacture your widget, you either have a "go" or a "no go."
If the signs are go, the next thing you need to know is what percentage of the people who buy any kind of widget will buy yours. So go back to your would-you-buy question, and take 100% of the "for sures" and 50% of the "maybes." Let's call this answer the intent to purchase. If that total is over 50% of all the answers, you have a small fighting chance; 65% is OK; 85% or over, great. If it's under 50%, forget the whole thing. You are no go. Up to now, your only cost has been shoe power and guts, so it costs very little to quit.
If your numbers look good and you are still determined to go ahead, take a deep breath, because it's now going to start costing money, and you are still a long, long way from any income. Regardless of your results, don't be misled into believing that the research you have done is going to ensure the success of your widget. It most definitely will not. What it should have told you is whether or not your widget belongs in a kennel. If your answers and numbers are really good, however, it is just possible you are on the right track, so you can be cautiously optimistic.
I call the next step the "Rube Goldberg test." It's a bit makeshift, but it does the job. To get it started, you must have a small quantity of your widgets. It's not time yet to worry about building a factory or buying thousands of units, but it is time to get someone to make some widgets for you. If you can make your own, so much the better. Because of the low quantity, be prepared for the cost per unit to be high, maybe outrageous, but that's not so important at this point. You must, of course, develop packaging for your widget, which means that you need an advertising agency's services, if you can afford them. If you can't, go to a company that sells packaging. Most of them have a design department they make available to their customers. Show them your widget and ask for their creative help in exchange for future business. To do the Rube Goldberg test, you must have enough finished and packaged products to put up a small (or large) display in five or more retail outlets.
Now it's time to put on your selling shoes. Go to independently owned stores in your neighborhood and tell the owners you have developed the world's greatest widget, and ask them if you can put up a display in their store. And don't charge them anything for the product, which should be an incentive for them to cooperate. The price will be the perceived value you came up with earlier. The purpose of all this is to find out how many customers, for every 100 who buy any product like your widget, will buy yours. In other words, you are looking for your percentage share of the total widget market.
This test won't be easy to arrange. First of all, most store owners will think you are nuts. Remember, though, they own their own businesses, which means they may be entrepreneurs, and entrepreneurs have great difficulty refusing one of their own kind. Of course, you are going to get a lot of nos, but keep trying -- sooner or later you're bound to find five people who will cooperate.
When your Rube Goldberg test is over, you will have a general idea of your market share. Of course, you didn't have any TV or radio or newspaper ads, but your widget was on display, which is almost as good. Anyway, old Rube never claimed this was a Procter & Gamble market test. It also didn't cost $2 million. Now, just before you leave, ask your friendly store owner to compare your sales with the slowest-selling competitor. If your sales were lower, you are probably out of business. Common sense says that no merchant will buy anything that sells slower than their slowestmoving product. On the other hand, if your widget sells more than their fastest-selling widget, you've probably got a winner. In either case, the moment of truth has arrived. Ask the store owner if, based on your sales, he or she would consider leaving the item in the store. If three out of five say yes, call me and let's celebrate. If all five say no, don't call.
The test is over, and you now have enough information to play a what-if game. Before you go back and find the 15-year-old kid with the computer, you must know the total dollar sales for widgets nationally. You can get that information by calling the appropriate national association of widget producers, or, if you have an advertising agency, ask it to find out. If all else fails, call some local widget salespeople. They know everything.
Now you can play with the numbers. If, during your test period, there were 100 widgets of all kinds sold in your five outlets, and you sold 10 of them, then you have some reason to believe that if you were national you could sell 10% of the total widget market. Of course, if you sold only one, then you would have 1%, and so on. By taking the total national sales of all widgets and applying your test percentage, you can determine what your dollar sales could be if your widget were available nationally. The percentages will work for any size market, including your own hometown. To figure potential sales there, all you have to know is its share of the national market, and your local newspaper will gladly tell you that. You can have a lot of fun with the numbers, and you can also get some idea about whether or not your widget can make it in the market.
Some general rules apply to every product category. For example, if your widget is destined for the supermarkets and your estimated annual national sales are less than $20 million, you have a problem. You probably would not be able to maintain distribution, because your small sales would not warrant space on the supermarket shelves. Besides, 15% of $20 million is $3 million, and that's on the low side of what you would need for advertising and promotion. Likewise, 15% would be needed to support a national sales organization. Again, $3 million isn't that much when you consider you must pay the broker and/or representatives between $1 million and $2 million (depending on the product), and you'd need all the rest for your internal sales force.
If your widget is a specialty item that can be sold through a K mart or a department store, the annual sales requirement may be much less, even as little as $3 million or $4 million. But the lower the volume, the higher the commission would have to be to interest a broker or representative, and the less you would have left for all the other requirements, including profits and your salary.
You are still a thousand miles from success, but you have evidence that your product does answer a consumer need, and you have a general idea as to the share of market you may expect. If everything looks good, you probably owe it to yourself to take the next step, but not without professional help. You now need someone to design a marketing plan for you that includes a national rollout. Find someone who has had some experience in marketing products similar to your widget. If you don't know anyone, go to the Yellow Pages. If you can't find someone in your hometown, go to the nearest big city. If that doesn't work, run an ad in one of the many marketing publications or call up a couple of advertising agencies and ask them to recommend someone. A retired marketing executive from a widget company would be ideal.
When you find the right person, negotiate a firm price -- it will probably be far less than you expected. The expert will study your questionnaire and the results of your Rube Goldberg test. With that information, along with all the other information available to him or her, a professional can tell you how much money will be required for what and when; how slowly you can roll out your product or how fast. By analyzing the competition, he or she can also suggest whether you can go market by market, which is the best of all worlds because you can use the profits from the first market to help pay for the second, and so on. The rollout plan will also determine the level and types of media for advertising and promotion, and it will establish the necessary introductory allowances. It will also tell you how much product will be required, and when. With the expert's help, you can prepare a total business plan, including forecasts and financial requirements. When your marketing and business plans are complete, it's time for another go or no-go decision.
If it's no go, you'll feel terrible, and your savings account won't feel so good, either, but you still have your job and and a place where you can lay thee down and bleed awhile until the next idea gets you up again. If it's go, I pity you and envy you, because the moment of truth is at hand. Now it's time to raise money. From the beginning of time, entrepreneurs have been faced with money problems, and I predict that you will be no different. But you own 100% of a product that has proven that it will sell against competition, and you have some indication of the final results. You also have a marketing plan prepared by a professional and a business plan that clearly shows your charted course, and you can project the kind of profits that can be anticipated. In short, you have done your homework. Maybe not quite as the professional would do it, but you are not asking an investor to take a shot in the dark -- into the clouds, maybe, but total darkness, no.
Start your fund-raising as close to home as possible, with yourself. You must be willing to commit everything you own. Ask every family member who is still speaking to you to invest. After all, you're about to found a new dynasty for your children's children's children. If you are not willing to make this kind of commitment, then know with absolute certainty that investors will be hard to find. Although investors are being asked to invest money that they probably don't need, they will expect you to invest everything you own. It won't be easy, and you'll learn some new definitions of frustration, but if you are willing to make a total commitment, chances are that you will find someone who will fly with you.
If you can't get enough money to go all the way, be content to start the first market. Things get easier and easier as you prove the marketing plan. When you have raised the start-up money, its time at last to quit your job, and sell your house and anything else you own.
Let me leave you with a thought: as you walk down the aisles of a supermarket or department store and see all those products on the shelves, stop a moment and think. At some time, way back when, there was another person, just like you, who was faced with the same situation. The name might have been Heinz, or Procter, or Gamble, or Goodyear, but at some point in time that person was you.
Have fun -- I wish you luck.
PUBLISHED ON: JAN 1, 1987