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To manufacture in-house or not? 13 October, 2006

Posted by varoom in Business Plans.
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In any business, with a physical product on offer, we must make some key decisions about manufacturing. Do you set up your own manufacturing facility to make your product or do you sub-contract, sub-license manufacturing rights or sell the design to a single company? When considering the set up of a manufacturing capability you should ask yourself several questions, what do I know about manufacturing?, where are my core competences?, what advantage will manufacturing bring me?, where will I manufacture?, how will I fund the capability?, is this the best use of my investment capital?.

Thinking strategically we need to consider what competitive advantage in-house manufacturing brings versus sub-contracted or sub-licensed manufacturing. If there is no advantage we should not reinvent the capability that exists already in the market.

There are many choices when considering manufacturing, Sub-contractors are common, if you have a potentially high volume product then offshore manufacturing can be considered. But at the early stages of the business and risk/reward strategy of small local manufacturing in sub-contractors can be employed. This gives you advantages of local control to perfect the manufacturing process, product quality and distribution. When the volumes increase you can switch to offshore, lower cost, manufacturing.

Focussing on core competences is very important, sticking to what you are good at, improving the product, investing in the future product roadmap is far more profitable use of your skills than setting up a manufacturing facility.

However if your have the expertise and experience and if there is a clear differentiation and return on investment obtained from manufacturing your product then go ahead. But continue to challenge the decision and try not to be emotively tied to in-house manufacturing. It’s easy to get caught up the process and miss the fact that it’s burning cash and resources that could be deployed elsewhere.

 

Greville Commins

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Where’s the real value in your product? 13 October, 2006

Posted by varoom in Marketing Plans.
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Too many times we see marketing efforts which spend a great deal of effort informing the market of the features and performance of a new product. Rarely does his marketing frame the communication in the form of what the problem the product solves for the customer. Why should I switch or buy the new product, or what’s in it for me, could be legitimate questions the customer may ask? Why not analyse buying behaviour? Why do customers, in your target market, buy the products they do? Is it cost driven? Fashion, or form, fit or function? This behaviour study should give you some clues on how best to attract attention.

Look at products like Apple iPod, it’s more expensive than the more common MP3 player products, why? Maybe its fashion, a good well thought out design or the music download service that makes the difference.

A product that is slightly better or even slightly cheaper does not differentiate itself in the right way for the customer. Often there are costs in switching from one product to another, are the benefits of the new greater than the switch costs?

In order to make this assessment we need to find the real measurable value of the new product and its benefits. Can these benefits be translated into savings?

If the product serves a wholly new market then how will potential customers value this new product? Maybe you need to promote the value of your new product in the new context.

 

Greville Commins