For Start-ups, the challenge of marketing (and sales) is paramount to their success. Figuring out how to get your product noticed, and then purchased by customers is the single largest challenge that you will face.As I've said in prior essays, the reason for the failure of most start-ups is that their customer acquisition cost is too high, or essentially their marketing and sales are not efficient enough.
For me, the first step in creating a marketing plan is to identify whether your product or service is a member of a new or pre-existing category. Get this wrong and you're likely to run out of money and die.
A Pre-existing Category is one that is currently establishedin the mindof the customer. So, before they hear about you, by definition, they already have a conceptual model of:
- Where to purchase a product in that category. For example, a garden rake, here in the US, would likely be found at Lowe's or at the Home Depot, or a smaller hardware store
- What Values are offered for competing products in the category, and which of those value are important to them. For example, do I want a long or short-handled rake, or one that is made of metal or plastic, etc. Note that price is simply one of the values, lower being better.
- How to Learn about the category, for example what web sites or magazines to read
The first note of caution.
Even if there are many competitors in your category, it's still possible that for the customer that you are targeting, your product represents a new category if they do not have familiarity with the category.
This is really about their frame of reference, not yours.
Entering a pre-existing category is easy (nothing is easy, but it's easier than launching a new category). You simply have to do what your competitors are doing. For example, use the same channels of distribution, the same media choices, and the same basic values, that they use, but, you must add one differentiating value that results, hopefully, in a "share-shift," or more precisely, the shifting of some customers' purchases from a competing product to your own.
It's critical to observe that all of your messaging, whether it is in the form of advertising, PR or the label on the product must be about your differentiator.
For example, the largest print on your label, if your product is sold through retail distribution, must "yell" what makes your product different than the others. If it's Organic, then that's the hook, that's what gets the customer to try yours.
A second note of caution.
There is a big difference between what's required for the first sale to a customer versus what's required for the second sale.
For example, if you are selling cereal, the first sale is influenced mostly my marketing (including the package labeling) while the second sale to the same customer is influenced mostly by the product experience.
Therefore focus groups are great for testing product experience, but not necessarily relevant for testing the ability of your differentiator and marketing method to convince a customer to make the initial purchase.
Often, entrepreneurs will use a TIKI (try it and keep it) approach to marketing, for example, an in-store sample. This is great, but horribly expensive and contributes to the dilemma of the true cost of customer acquisition being too high.
In most cases, it's best to not be too creative.
If you can make a product with three differentiators, you're probably better served by starting with only one, and holding on to the other two for later when your competitors respond to their loss of market share with their own innovations.
For example, razor blade companies clearly could have jumped from one-bladed razors to three, but offering two-bladed razors was enough of a differentiator to win the sale, and later on, they could add the third blade as a new differentiator in the market when needed.
Most consumer products that start-ups will create are in pre-existing categories.
Often, the biggest challenge for a new entrant in a pre-existing category is to get "mind share," or shelf space (for retail) for your product. Let's be clear about it. Most retailers don't actively sell products, they simply are a place for fulfillment. They count on you, the manufacturer (or brand), to create the "pull" that moves your product off of their shelves. And, to make it worse, their entire framework is simply "return on shelf space" or how much profit your product makes for them in comparison to some other product in the same space. And, their patience has lessened over the years. At this point, many will give a new product only a few weeks, and then if the "sell through" is inadequate, you can take the inventory back and you won't be paid for it regardless of what the purchase order said. This is why sometimes a huge order from a huge company like Wal-Mart before you've established an understanding of how to successfully move the product off of the shelf can be a catastrophe and sink a company that cannot afford to repurchase the inventory.
Start Small.
Therefore, for a start-up, it's best to start small, experimenting with package design and media to best learn a formula that works for your product. Then, when and if you're ready to roll the product out to broader distribution, you will have a more compelling story to sell retailers and distributors, and channel partners on the benefits that can be gained by selling your product.
A Third note of Caution.
While experimenting, you should not worry about the manufacturing cost for small volumes of your product. You should know what the manufacturing cost will be for higher volumes, but hold off on placing larger orders.
In fact, you will probably lose money on each sale while you learn the correct parameters for pricing and messaging. Once your experiments are complete, then you are in a position to engage with manufacturing and distribution in a larger sense.
In my next essay, I will talk about launching a new category.
About the Author
Bob Caspe is the CEO at the International Entrepreneurship Center (http://iecpartners.com). He has started three companies, has taught thousands of entrepreneurs around the world, and has mentored and taught students at MIT and Babson College.
Download a copy of his book: Entrepreneurial Action at http://caspegroup.com/textbook.php
Bob's personal website: http://caspegroup.com.