We talked in Part 1 about the search and appraisal and concept steps involved in a new product. Next is the four-step process is development. You’ll reduce the many sketches and drawings made in the concept phase down to about four or five viable directions.
Have these converted into functional, full-scale, three-dimensional models. Experiment with materials, but try also to keep costs at a minimum. The models should be expertly constructed, capable of fooling the layman into believing they’re real commercial products.
Next, test the models. Test them on consumers, retailers, and experts. You want as much consumer and expert feedback as you can get. The goal is to determine which model or models have major sales or marketing advantages, manufacturing ease, and lowest cost over the others.
Finally, attempt to visit manufacturers of existing products in the category. Your goal is to drum up interest in your new product, as well as get more feedback. Try to get a Confidentiality Statement signed by them first.
Ideally, try to see the top three or four competitors. However, if this isn’t possible, you will need to develop a patent statement for your patent attorney to work with so that he/she can begin the patent application process.
In the final phase, Pre-Commercialization, your goal is to narrow down your prototypes to one or two potential “winners,” based on all the feedback you’ve gotten. Ideally, you now have a relationship with one or more of the main manufacturers, and have established interest in your product.
All along you have thought about timing, cost of manufacturing, material expense and availability, sales projections and so on. These now come into play. You need estimates of costs, production time, and sales volume to show any potential buyer. The Pre-Commercialization phase is when you will refine your study and create final estimates.
Make careful projections of manufacturing requirements.
Sponsor marketing research, if you can afford to, of your product vs. the top one or two competitors, to determine the need. You’ll show this to your potential buyer as well.
Because having a viable bottom line to show your potential buyer is crucial, here is an outline of the costs and timings that must be accounted for.
* Cost of product per unit
* Cost of tooling
* Production rate
* Estimated wholesale price
* Estimated retail price
* Projected volume of sales
These costs should be integrated, with the goal of producing a small quantity of the product to determine production costs and calendar, market introduction dates, and all sorts of feasibility, which will give you a good idea of your buyer’s (and your) projected bottom line profits.
Generally, the wholesale price is double the cost of manufacture, and the retail price is double the wholesale price. (This is known as the Keystone method of pricing.) If your retail price is well outside the competition’s retail price bracket, you may want to re-examine your manufacturing plan before presenting to a potential buyer (or have a really good reason why in your pitch).
This four-step process has served me well over the past 30 years in my business. I hope it helps you, too!
Article © Copyright 2001 Stanley I. Mason. Syndicated by Paradigm News, Inc.