Platt Perspective on Business and Technology

Building a startup for what you want it to become 2: products and product portfolios, price points and building for repeat business 1

Posted in startups by Timothy Platt on May 2, 2015

This is my second installment to a series on building a business that can become an effective and even a leading participant in its industry and its business sector, and for its targeted marketplaces (see Part 1.)

I began this series by outlining the basic challenge faced in that and a basic goal that would be worked towards in addressing it: the need to offer what can be marketed and sold as complete package offerings to your customer and end-user markets that they will want to buy and at the prices you offer them at. I add here that this holds true whether a new business’ products and services would be stand-alone and offer complete solutions on their own, or whether that business would offer complete add-on solutions for fully resolving limitations or problems faced by consumers as they use another business’ basic products.

I will have more to say on the business development and production side to this, but turn here to consider the twin challenges of knowing and building for the right price points for what you would offer, and building and operating your business on all levels so as to achieve and maintain repeat business and wherever that would realistically make sense – and viral marketing, word of mouth driven new business opportunity in any case.

I begin this with the complex of issues that go into strategically and operationally setting the right price points for what you would bring to market and offer there, noting that the end-result prices asked for, for what you ship out of your doors can only be seen as a last step result of a much larger and more complex series of analyses and processes. And I begin addressing that by posting an at least partial list of due diligence questions of a type that any business founder needs to consider and be able to answer:

• Precisely what you would offer as your core products and supporting services, and how would you do so?

This is not simply a question of what you are considering offering through your business. It is a question of what you and your new business can offer as a more unique market share-capturing product or service, that would best capitalize on the core capabilities that you would build your business for, and lead to profitability and business strength.

• What minimum levels of production expense do you have to build into your products and services to make them desirable in your targeted markets and valuable to your purchasing customers and to your products’ hands-on end users? (See Building for an Effective Portfolio of Marketable Offerings, Part 5 and Part 6 for a brief discussion of how the price point that products are built for determine the upper limits on what can be expended in producing them, and of the business model trade-offs that enter into this determination.)
• How can you best plan for this, and execute your business planning so that you can improve your chances that the products you offer, and any services that you offer in support of them will be competitive in your intended markets and attractive to your customers? (Marketing and its expenses enter into this here, and for purposes of this discussion all supporting business functions that can best be seen as cost center processes, need to be included in these calculations exactly as would be the cost of offering directly customer supporting services.)
• And how can you best do all of this, so that you can create a profit from these products and services, and still offer everything at prices that your intended customers would accept as fair and be willing to pay?

If you plan on offering a completely novel and innovative new type of product that has no real precedent in the marketplace and that would not face any preexisting marketed alternatives, much of the discussion that I will be offering here, at least in this portion of this series would be greatly simplified – with the major point of trade-off from that coming from the fact that at least at first and probably for some significant period of time, as measured in business quarters and years, you will have to focus on identifying and marketing and selling to a select pioneer and early adaptor audience: a more limited scale audience than you would if you were producing and selling to a more mainstream audience with mid-stage and later adaptors also included.

I will explicitly turn to consider this more innovative-product line business scenario later in this series, but start here assuming a more usual situation where your new business would provide a perhaps new and improved version of a type of product that is already available in at least some form and that would attract customers from across the innovation adaptation curve. So your new product offering in a scenario that would fit into this posting’s discussion might be innovatively distinct from, and a significant improvement over anything already offered, but there is an already existing awareness of the type of product that you would offer, and there already is an active marketplace for it. In that, I am not addressing fad items here, but rather products that would be in at least seasonally predictable steady demand and that would be expected to stay in fashion long enough to recover development and production costs and generate profits.

• What would you offer, and not just generically but in detail that would be at least significantly likely to stand out in a marketplace and to real consumers as better than anything else already available?

This might mean offering an intrinsically better product that consumers would want and even at a higher price than current same-market alternatives would be sold at, but it might also mean offering a product that is just as good as anything already available but where you can produce and deliver it at a lower enough cost so that you can undercut the prices that your competitors would have to sell at and with you still making a profit. Or it might mean you’re being able to bring newly updated models or new versions of your existing product lines to market faster and more nimbly, which can be important for example where seasonally changing product styles are important, and where new cosmetic features drive markets and sales and in ways that cannot always be predicted months in advance. Your competitive strength defining edge might be in your timing and in being able to meet changing market demands faster than your competition can – though this is a lot more difficult for a startup or early stage business to achieve unless you build your venture with some production or delivery process improvement as your defining strength, that can reduce or eliminate what for your would-be competitors are unavoidable timing bottlenecks or workflow process disconnects.

There are a number of features that enter into defining competitive strength that can hold potential for providing a new business with a significant edge.

• Be realistic here as you set out to plan out and launch a new business venture. Do any of your key already-operating would-be competitors control proprietary technologies that you would not be able to use or in some way match for value offered, that would enable them to out-compete you for product quality, for minimum price point that you could build and sell to, for speed of development and for bringing updates to market, or some combination of them that would lead to your competing to be an also-ran as a best possibility?

This, in fact is a question that you should be able to favorably answer as part of your basic due diligence effort before even trying to launch a new business, with a requirement that your new venture hold significant promise for becoming a best in its markets. I add this point here in this discussion, to highlight that I start out with an assumption in this series that your would-be business does hold technological and/or other tools and resources that could realistically make you very competitive and even a market leader, and for at least some preconceived and planned-for specific customer base.

• To put this in perspective as to how minimal a source of distinctive value you need to be able to offer here, a convenience store by way of simple example, only has to be the best in its own local neighborhood to be the top competitor in its marketplace for what it offers.
• I am not necessarily writing about big competitive edge differences here – just sufficient ones to bring at least some threshold proportion of the consumers of a marketplace to choose your offerings when they see them side by side with those of your competitors, or when they see yours alone because you can bring them to market first or most conveniently for them – and according to their sense of value received.

And with this, I come to price points themselves, and the trade-offs of what you would invest in the products that you offer, and what you would ask for when producing and selling them. I have already offered a start to that discussion in my above-cited series: Building for an Effective Portfolio of Marketable Offering (see Startups and Early Stage Businesses, postings 173 and loosely following for Parts 1-6.) I will build from this posting and Part 1 of this series, and from that series to more fully consider price points in my next series installment, explicitly examining the issues of developing and offering portfolios of products and services. And to be more specific here, I will discuss the issues of loss leaders and profit generating offerings that they would serve to help drive sales for, where that can mean physical products or supporting and other services or combinations of them. Profitability in this can and often does fall along a continuum when you look at individual elements of a well-crafted offerings portfolio. I will discuss how these assemblages do and do not fit together so as to create competitive value and strength for the offering business.

Meanwhile, you can find this and related material at my Startups and Early Stage Businesses directory.

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