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It’s time. Your business is beyond the startup stage and you’re looking to grow by offering new products.
Itching to roll out a brand new product? Here’s what you need to consider before you start.
Before you launch a new product line, make sure your current product line is solid. A strong foundation is essential before you expand.
To determine whether or not it is a good idea to consider adding a new product, ask yourself:
Product expansion can take several forms, including:
Often, ideas for product expansion arise naturally. For instance, if numerous customers request a product you don’t currently offer, that’s a good indicator you should think about adding it to your lineup.
Or, you may want to diversify your product range to keep up with what your competitors sell.
You can also get product expansion ideas by researching the latest industry trends, paying attention to what customers and prospects are talking about, and holding focus groups or conducting customer surveys.
Outdoor Living Today leveraged both market research and working with their customers to expand and improve their product lines.
Customer feedback helped the backyard kit manufacturer to focus on making kit assembly easier as well as developing new product lines.
Collaboration with customers, explains OLT founder Greg Bailey, helps maximize sales with his existing customer base. Collaboration builds both his product line and these valuable relationships.
“We have good relationships, and we try to enhance that. I feel like we’re seeing some great results from this approach. We’re going to continue to make our company more valuable to them and increase the business.”
Market research also helped Bailey and OLT innovate entirely new product categories in response to the growing “tiny house” movement.
“We plan to make kind of like a little cottage that you can assemble at your site. You can get it out there, you can assemble it, you don’t need to bring in a backhoe or all the big heavy equipment,” says Bailey.
Market research and customer collaboration are a powerful combination. Market research helps you assess the size of the market for the product as well as existing competitors.
Thorough research can answer key questions like, “How much market share are you able to capture?”
Upfront collaboration with customers ensures that when your product is ready, the sales will be there as well.
Developing and launching a new product can be costly.
You must keep producing your original product line without a decline in quality or service, while simultaneously developing, testing, producing and marketing a second.
You also need to commit time and resources to the new product, which may require hiring more workers or paying your existing employees overtime.
If your new product is closely related to your original product, or has the same customer base, the task is easier and the costs will be lower.
If not, it will be more difficult—and more expensive—to introduce the new product line successfully.
For example, suppose you use recycled plastic to manufacture carpet padding sold to carpet retailers and installers.
Using the same recycled plastic to make shoes sold to department stores is a completely different ballgame.
Even though you’re using the same source material, you’re targeting a new customer base and will need to use different distribution channels.
To determine if a new product is worth the investment:
How long will it take to break even on the new product?
Once the estimates above are completed, it’s time to consider financing options for your new product line.
Creating a detailed cash flow forecast that includes both existing products and the new product line will help determine how much money you’ll need and when you’ll need it.
Use this information to plan ahead so you always have access to working capital to keep moving forward with your new product launch.
If you can’t finance the new product internally or with your existing line of credit, consider using early payments from your customers to fund R&D with your own cash flow.
This way, you can grow your product line and your business without growing your debt.
If done right, product expansion cannot only boost your company’s sales but also enhance your relationships with your existing customers.
By providing a wider range of products to suit their needs, you’ll become a more valuable partner in the long term.
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