Successful Product Development
Jan 21, 2018
Despite the hype about the domination of eCommerce over retail brick and mortar, the fact is that eCommerce, the act of selling directly to the buyer, still constitutes less than 15% of overall retail business, a number that has pretty much been the same since the 70s and 80s eras of mail order. Depending on whose research you believe, the number varies between 10% and 15%, one of the latest reports putting it at 9.1%. [Click here for report] So, again despite the hype there hasn’t been a great deal of change, other than what was once mail order is now eCommerce.
The question becomes,
What do you have to do from a product development perspective to garner a share of the business, direct vs. retail?
Selling direct, eCommerce, has some factors tied to it that impact whether or not a product will work in direct selling via eCommerce, catalog or traditional direct response media. Now by work, I mean sell profitably. [Later in this article, I cover those factors.]
It doesn’t take a genius to give away goods to generate demand. And, unless you’re operating on a membership or subscription business model, where you generate revenue as much from the sale of the membership or subscription as from the sale of products, you’re not going to be able to survive by duplicating what a consumer can purchase over the counter, in brick and mortar. And, selling it cheaper than the customer can buy it at retail is not a long term formula for survival. The building market share argument can only go so far. And, one thing direct response merchants have learned the hard way over the ages is that you can’t turn a bargain hunter, discounter buyer into a regular price buyer once you’ve acquired them as a customer. They came to you because of price, and they will only buy from you as long as your prices remain lower than what they can purchase from another retailer or eCommerce company.
What do you have to do from a product perspective to be successful?
Over the years, I've developed a list of questions or characteristics based on testing products in the direct channel that will determine the success or failure of a product in the direct channel, eCommerce. Again, remember this is predicated on the idea that your goal is to make a profit selling goods direct.
What are the attributes of a “Winning Product” in direct response sales?
The following list of questions addresses a range of attributes, factors, or issues that may impact a product’s success in Direct Marketing promotions. You need ask these questions, “Does the product address these issues? How many of them is the product on the positive side of, from a Direct Response Marketing perspective?” These attributes may be applied to single product offers, multi-product offers, and catalogs in most Direct Marketing media / channels for both B2C and B2B promotions. The more of these attributes or issues that the product satisfies, the more likely it is to be a success.
- Does the product fill a perceived need?
- Can the product be personalized?
- Is the product a consumable?
- Is the product practical?
- Are there any legal problems related to selling the product that have to be overcome?
- Is the product trendy, faddy or short lived?
- Is the product unique?
- Is the product safe to use?
- Is the product too seasonal?
- Is the product priced right?
- Is the product supplier reputable?
- Does the product lend itself to add-on sales of other products?
- Is the product a good value?
- Are backup products available in case yours sell out?
- Does the product have too many stock keeping units that could result in inventory problems?
- Is the market for the product the right size for you to sell the product and achieve your revenue and profit objectives?
- s the product subject to high returns?
- Does the product lend itself to multiple pricing?
- Is the product in a narrow niche that you can dominate?
- Does the product have high refurbishing costs if it has to be returned to the manufacturer? Low is better than high.
- Is the product too new or too old for the market?
- Does the product have attractive packaging?
- Is the product easily found at retail or your e-commerce competitors?
- Will the product photograph well?
- Does the product have clear and easy to read and understand usage instructions?
- Have you tried to sell similar products that have failed?
- Will the product illustrate well?
- Does the product compare favorably with other products – is it better, the same or worse?
- Does the product have unusual selling features?
- Is the product an exclusive? Are you the only one selling it?
- Is the product economical to ship?
- Does the product lead itself to repeat sales?
- And, to add a little humor, “If my family likes it, forget it.” Select products that your target audience likes and wants, and not what you like or want, unless you and your family are your target market.
Most Direct Marketing companies have developed some method for prescreening products to determine their potential for success in the direct response and eCommerce channels. In most cases, these methods are fairly subjective and largely intuitive. One of the major benefits of Direct Marketing is its measurability and predictability that enables the marketer to develop a more formal and objective process of product selection and screening.
Product Evaluation Checklist for Direct Marketing
The following table lists the issues and questions that need to be address when evaluating products to include in your merchandise mix.
Questions that need to be addressed
Product Financial / Breakeven Analysis
Product evaluation has to involve performing breakeven analyses. Every product and product category performs differently when sold through the direct channel, catalog or e-commerce. In addition to product costs, margins and sales, the breakeven analysis needs to factor in advertising, warehousing, fulfillment, returns processing, and refurbishing costs. For example, apparel has much higher returns than home furnishings and electronics. Furniture has much higher shipping and warehousing costs than apparel. The list of differences goes on and you can’t assume that products in the same category behave the same. One of the best examples of this is dresses. In the direct channel, some dresses may return at 10%, while others may return at more than 80%. The styling and sizing affects returns. Apparel retailers and e-commerce merchants who do not manufacture their own apparel have a very difficult time dealing with this factor when selling direct. In the store, the customer gets to try on the dress and determine the fit and also see how they look in it before they make the purchase.
For each product you must look at each of these factors when conducting breakeven analysis:
- Product unit selling price (retail)
- Product unit cost
- Product margin
- Product warehousing costs
- Product shipping costs (inbound to you and outbound to customer, including packaging for shipment)
- Product returns percentage (the percentage of products that are returned to you for any reason)
- Product exchange percentage (the percentage of products that are exchanged by the customer for any reason)
- Product adjustments percentage (adjustments that may have to be made after the customer has received the merchandise so they don’t return it)
- Product cancellations percentage
- Product refurbishing costs (what you have to pay the vendor to take back or refurbish the product for resale)
- Product fulfillment costs (order processing, order picking, order handling)
- Advertising cost (space, creative, production costs)
Dudley Stevenson, founder and CEO of DWS Associates, has over thirty-five years’ experience in consumer marketing, business-to-business marketing, and direct marketing, including developing, planning, and implementing go-to-market strategies. He's also the author of "Marketing Direct: Breaking Through The Clutter." Working with organizations ranging from start-ups to Fortune 100 companies, he and his team have helped clients such as IBM, Sony, Neiman Marcus, Arizona Highways, Marshall Field & Co., Mrs. Field’s, UNICEF, and Patagonia implement successful direct marketing programs. A longtime member of the Direct Marketing Association and the American Marketing Association, Stevenson is also a sought-after speaker. He’s given hundreds of presentations and workshops on marketing and direct marketing. His “Marketing Planning 101” workshop alone has reached more than 100,000 marketing and sales professionals.