Business Planning - Product development: the route to success

Adding to your product mix can increase sales but simplicity and caution are crucial, Neville Stein advises.

Image: Shutterstock
Image: Shutterstock

Being an East Anglian by adoption, I am very interested in the region's companies that display excellence and how they achieve it. Two such are the Southwold-based Adnams Brewery and Norfolk-based car manufacturer Lotus.

In an inspired move, Lotus founder Colin Chapman famously urged his designers to "simplify and add lightness" to the cars, which led to their unique and thrilling design. He also summed up a concept we should apply to all businesses to keep them lean, fit and growing. If we keep things simple, a business can work out where it wants to go and how to get there - and it can get there more quickly than others.

So let's apply this simplicity model to the issue of how to grow sales. The Russian/American mathematician Igor Ansoff brought some simplicity to growing sales by developing his now famous matrix. Ansoff suggested that there are four marketing strategies to use to grow sales, each of them coming with a different level of risk. In summary, they are:

  • Market penetration Increasing market share in existing markets.
  • Product development Developing new products for existing markets.
  • Market development Finding new markets for existing products.
  • Diversification New products in new markets.

If we decide to simplify our businesses, then I believe the simplest strategy to adopt is that of product development. You have a bunch of customers who like what you are doing, so to grow your business the simplest thing is to sell them more products. Selling more of your original products would be market penetration while adding new items into your product mix to sell is product development.

Product development has the advantage that customers are more likely to want something different to buy from you along with their regular purchases. From a garden retail perspective, there has always been an imperative to do this anyway, with sales of core products largely subject to elements outside retailers' control.

The need to weatherproof has seen many retailers add new categories to their product mix - witness the growth of garden centre food halls. Growers too are increasingly under pressure from retailers to add new products because the demand for something new is relentless. Likewise, many landscapers have sought to add new products or services to their mix, evidenced by the growth in those offering an artificial-grass installation service.

Generating ideas

Choosing what to add has to start with generating ideas for new or modified products. These ideas may come from your staff, trade shows, catalogues or studying other businesses, but ultimately the best ideas come from asking your customers - provide what they want and selling becomes easier.

Of course, not every suggestion will be sensible or suit your business. They may be incompatible with your other products, your business ethics or available space, storage or delivery systems. For example, you might be a grower of young plants and your customers are asking you to provide retail-ready plants, but your despatch system might be centred around 9cm production. New suggested products might also have too short a shelf life or require new training or staff. Following the steps below will help to ensure you introduce products efficiently with minimal risks.

Assuming that the ideas fit with your model - or you are prepared to change the model - then you need to research the market and identify potential sales volumes, prices and margins, and work out the risks. In retail, risk is usually minimal - after all, if a new product line does not sell you ditch it and try something else.

Next, research your competition. If no one else is offering the product, ask yourself why? Perhaps they know something that you don't.

Monitoring sales

By now, you will have a good idea of whether you want to go ahead with the product. Take the risk but make sure you put in good systems for monitoring sales - not just what you sell of the new product but how it affects your normal sales figures. If you are a grower or landscaper, more will need to be done to get the product to the market, so appoint someone to champion the product and lead on its introduction. The following steps apply for developing products for the retail market.

Identify the critical path - which activities need to be undertaken first - set budgets and timescales, and regularly assess these during the product-development process.

Define the product specification, including how the product will be presented, work out what the product features will be and translate them into benefits for the customer. Estimate the potential selling price.

Go ahead and develop the product but don't go mad - be cautious and produce some products for a test market. Work closely with your customers to get their feedback. This is a critical stage. If it is missed out, inferior products come to the market that damage your reputation. Even in a retail situation, new products that you want to add into the mix can be tested in a small way. Try a small display and if the response is good devote more floor space.

If the product passes the test market, then it's all systems go. Plan the numbers that you will produce and start working out how you will let your customers now about the new products.

Measuring success

As with many things in business, if we want to improve we need to put in measurements. You cannot manage what you do not measure. Measuring the success of new products is vital. In retail, this should involve sales per square metre - even better, cash margin per square metre.

Other measurements might include the number of items per customer and, of course, regular customer feedback. Personally, I think the classic measurement of average transaction value - or basket spend - in a retail environment is a great way of measuring how good you are at selling extra stuff to your customers now that there is extra stuff for them to buy.

Simply measuring the average order value for a customer may show the uptake of your new products. The simplest way to grow any business, and the cheapest, is to sell more to your existing customers. I'll be enjoying a gin and tonic later this evening made with Adnams' gin, a recently introduced new product.

Neville Stein is managing director of business consultancy Ovation

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