Listen to the podcast. [audio:https://secureservercdn.net/22.214.171.124/0a1.1b2.myftpupload.com/wp-content/uploads/2011/12/5-Jan-2012-Idea-Incubator-podcast.mp3|titles=5 Jan 2012 Idea Incubator podcast]
Every day we encounter a multitude of products and services. We are bombarded with radio, television, and internet advertisements. It seems like everyone wants to sell us something!
Of course, in our leadership roles in New Product Development (NPD), we are also constantly “selling” something. Sometimes we are promoting an idea for a new technology, and sometimes we are simply trying to establish a feature set for a next generation product. Maybe a key customer has requested a specific product, unique to their needs. Since they are a key account, you’ve got to sell the idea to your management, right? And, you have to manufacture the product for them, right?
Absolutely not! One-off and specialty products are the downfall of effective innovation and of efficient manufacturing.
Let’s say we make a special product for our key customer, we’ll call them “Big Important Group,” or BIG, for short. BIG is very happy with this special product, but a few months down the line, BIG changes how they use your product. BIG again makes a request for another specialized product. And because BIG is, well, big, you accommodate this key customer with yet another specialized product.
It’s really too bad none of your other customers are buying this product, but, fortunately, BIG is, well, big, and the volumes they purchase can support the extra manufacturing step (and cost), right?
NO. After a few cycles of providing specialty products for single customers, you will find yourself with at least two products, and probably a lot more than that. Likely these products bear little resemblance to other products in your line – not in technologies, features, benefits, or marketing and sales channels. If BIG happens to take their business elsewhere (how special is your product anyway?), what happens to your firm? What happens to the specialized manufacturing equipment you’ve put in place, just for BIG? How do you use those raw materials you’ve purchased to make BIG’s product? And what about those long term distribution contracts to get BIG’s product to them?
Instead, consider another firm that manufactures a competing product. One of their key customers, A Little Store Outside Birmingham International Gardens (or ALSO-BIG, for short) requests a specific set of features. Rather than immediately agreeing to provide the new product with these specifications, your competitor sits down with his marketing staff to generate some data.
Included in the data set are all possible target segments: up-market, down-market, geographic, and demographic. Your competitor realizes that they are already supplying to some of these target markets, yet primarily they are in competition with…YOU!
Charting the target market segments, your competitor realizes that moving up-market with more features for ALSO-BIG is a smart move since the market intensity is low. (Remember, your firm is only selling a feature-heavy product to BIG, not the entire segment.)
But, even more interesting from your competitor’s data analysis is that no one if offering a low cost, minimal performance product for the value market segment. Very wisely, your competitor decides to balance manufacturing of the feature-heavy product for ALSO-BIG with a stripped down version for the low-cost market. All three products (the current offering, the up-market product for ALSO-BIG, and the down-market version for the value segment) will be made in the factory using the same basic technology building blocks.
Your competitor does a fantastic job of executing their plans and when BIG sees the new product, they place a huge order with your competitor. Meanwhile, your firm sees manufacturing costs spiral out of proportion from your sales revenue, since you’ve just lost a key account with key investments for specialized manufacturing. Sadly, your factory sits idle with unused capacity and your raw material inventory stays on the books for an accounting nightmare.
Using a targeted market segment analysis and understanding their core building blocks, your competitor executed a product platform strategy. Manufacturing efficiencies allowed the firm to address specific customer needs, yet also opened up capacity for a previously untapped market, the value segment.
Platform strategies offer the advantage of manufacturing efficiencies and of utilizing a common technology across multiple products for a vertically integrated product family.
Are you utilizing platform strategies in your firm today? If not, this is an idea that you should be “selling” to your management today! Platform strategies offer advantages that will yield higher profits in 2012.
Learn more about platform strategies in an NPDP Best Practices workshop.
Image of box courtesy of darinmarshall.
Image of factory courtesy of alter group.
© 2012 Global NP Solutions, LLC
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