Is my product commercially viable?
How to ensure your market and margins will be big enough before you launch
I have an idea for two new products, one aimed at the bird feed market, the other related to gardening. There is nothing like them on the market, so as ideas they are strong. I can create prototypes but I don't want to get too far down the line only to find that the idea is not viable because the market or margin won't be big enough. How do I accurately gauge the size of the market for these and the price that they will be able to retail at?
David Clayton-Smith writes:
In your question you talk about strong ideas for new products that will perform better than those the market currently offers. Clearly we don't know the specific nature of your products, but we can help to tackle the questions you have asked about assessing the commercial potential of your ideas before you progress to the next stage of development and cost – producing prototypes:
Where superior products are being developed to better address the needs of a market, it is likely that sales will be gained at the expense of existing products. The introduction of digital kitchen balances probably did not result in more things being weighed, rather the same things being weighed more easily.
If this is the case then essentially you need to know three things about the market you are developing a better product for. Firstly, how big is it – this is normally measured in £ value. Secondly, how do consumers or retailers segment the market? And lastly, is the overall market and its segments growing or shrinking?
Thinking about both markets you wish to investigate, the internet and Google have made this exercise much easier but I would start by visiting a couple of stores or sections in-store where you can imagine your new products being sold. Look at what is currently offered by suppliers at the moment. Make a note of the supplier names, equipment or feed manufacturers and if you have access to the internet start by looking at their websites.
Larger suppliers may produce annual reports, and often in the chief executive's statement you can find either a reference to how they describe their markets or sometimes their estimate of the market size or their percentage market share. Compare this to their sales and you have one estimate of market size.
Another area to explore is market reports such as Mintel. Often these have very limited information without paying a subscription but you might find headline information to help. You might also find articles that reference this data which can be forthcoming, and remember, all the publications are available to view in the British Library.
Similarly, market sectors will hold exhibitions at the NEC for instance. Online references can lead you to the exhibition organisers' articles, programme interviews etc.
Some markets are not fully audited and I think you should not worry about being over precise. For example, if you are planning a superior garden spade I would try and track the following information: the gardening market; the garden equipment or garden tools market then down to hand-tools. At this point you probably need to know its size down to the nearest £1m to £10m.
This is a more complex area but nevertheless can be addressed in a structured way. With both your products, review the competitors currently in the market and note the range of products you feel your product will be superior to. ‘Map' on a sheet of paper four pieces of information relating to each competitor product:
1. Brand name 2. Price 3. Function – what it actually does 4. How your product performs in a superior way
Your retail pricing will be a combination of what customers value and where the retailers feel your product ‘fits' into the market.
Taking the first point, ask yourself how easy is it for customers to understand how the function of your product is superior? How much better is it and therefore how much more would they be willing to pay: 10%; 25%? And lastly, assuming your brand is less well known, how much should they believe of your claim?
From a retailer's perspective they look at the fixtures in their stores and lay out the merchandise by function – what it does. They next display by variety – say, nuts or seeds – and lastly they display by a range of good, better, best. This is normally reflected by increasing price levels. When you visit the store look at where you think your product fits in. Finally, bear in mind the retail price will include VAT and the retailer's margin to get you to your wholesale price.
David Clayton-Smith is a partner at Andrum Consulting . He is a strategy, change, branding and M&A specialist with over 25 years' business experience. Working at board level for blue-chip organisations including Courage, Do It All, Boots and Halfords, David brings invaluable experience to ambitious start-ups and mentors entrepreneurs and senior teams. He is also a non-exec director in businesses large and small.