The 9 Essential Steps to Expanding Your Product Line and Scaling Your Business By following the correct steps and principles, entrepreneurs can successfully launch new product lines and enter new markets.
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Expanding a product line and scaling a business can be a challenging but rewarding process. Nevertheless, it is a complex process that entrepreneurs often get very wrong. However, by following the correct steps and principles, entrepreneurs can successfully launch new product lines and enter new markets.
Why product line development is important
As a manager, your fundamental responsibility is to grow shareholder value. Value, which is the sum of the present values of future expected cash flows, can be grown by improving the company's performance in terms of growth and return on invested capital (ROIC). These improvements in company performance come about as a result of specific decisions taken by management around the introduction of new products, expanding the existing business, increasing market share in growing markets, competing for market share in stable markets and acquiring businesses. Of these initiatives, developing new products creates the most shareholder value, while acquisitions usually create the least. The reason is that new products generate the most improvement in ROIC.
These are the nine essential steps you must follow when considering developing a product line.
1. Is it worth it?
There are pitfalls to product line extensions, which are variations of an existing product line that are introduced to capture new market segments. Researchers have found that there are three primary benefits of product line extensions: increased market coverage, reduced advertising and promotion costs and enhanced customer loyalty. However, product line extensions can lead to the cannibalization of existing products, market saturation and loss of brand identity. Therefore, it is important to take into account several issues when considering product line extensions, including maintaining the brand's core identity, avoiding overextension of the product line and carefully selecting the right products to extend the line.
2. Develop the concept
Any product line concept that the company develops should be aligned with the existing business goals, brand and values. If you're a furniture store, this might mean introducing new types of garden furniture, such as outdoor dining sets or lounge chairs, that are made with sustainable and eco-friendly materials.
3. Screen against established criteria
Once the business has developed a concept, it will need to screen it against established criteria to determine its feasibility and potential for success. Here, it will be important to conduct rigorous market research to identify customer needs and preferences. It's important to analyze the landscape to see how competitive the industry is and if the firm will enjoy competitive advantages. Competition might be great for customers, but it makes it harder for businesses to be profitable.
4. Plan the development process
After screening the concept, the business will need to plan its development process. This means identifying the resources and budget required to develop and launch the new product line and setting timelines and milestones for each stage of the process.
This could mean investing in new manufacturing equipment and hiring additional staff to support the production and distribution of the new product line. The business might also need to allocate resources for marketing and promotion, such as creating a new website or launching a social media campaign. It will be important to develop a robust budget. The size of the budget should reflect the estimated ROIC that the firm expects to earn from the product line.
5. Test the concept
Before launching the new product line, it's important to test the concept and gather feedback from potential customers. A limited product launch with a minimum viable product should be enough to test the technical and commercial feasibility of the product. This can be done through focus groups, surveys or product demos. At this stage, what the team should focus on is getting product/user fit right: It needs to develop the right products for the right user.
An example initiative could be hosting a pop-up store or showcasing the new product line at a trade show to gauge customer interest and collect feedback. A business's primary goal here is to prevent itself from making the worst mistake a business can make: launching a product that nobody wants.
6. Design the product
Once you have gathered feedback and validated the concept, the business will need to design the product or service. This includes creating prototypes, selecting materials and colors, and finalizing product packaging and branding.
If the product line is to work, it has to offer customers something that they cannot get anywhere else that they are desperate to get. If there is product/market fit, or what Marc Andreessen calls, "the only thing that matters", the business's biggest problem will be struggling to meet demand. This is a problem that the team must work hard to give itself.
7. Develop a marketing plan
Once the business has designed the product line, it will have to develop a marketing plan. It is essential to communicate a new product line in a way that aligns with and enhances the brand. One way to achieve this is by creating a marketing mix that aligns with your customers' preferences.
First, the marketing team will have to identify the target audience and understand their behavior, preferences and needs. This data can be obtained from customer surveys, market research and social media analytics.
Next, it will determine the best channels to reach the target audience. For example, if the customers are more active on social media, they might want to use platforms like Instagram and Facebook to advertise the products. Alternatively, if the customers prefer to shop in physical stores, they might want to work with local retailers to carry the products.
In addition to the promotional strategy, the marketing plan should also include pricing and distribution decisions. Pricing the products competitively will help attract price-sensitive customers while also ensuring that the business can generate a profit.
8. Scale up
After successfully testing the new product line and developing a marketing plan, it is time to scale up the business. Scaling up involves increasing the production capacity, expanding distribution channels and increasing marketing efforts. This is done in response to product/market fit. Often, managers overestimate demand, so it is better to be cautious about scaling up and have customers complaining that the business is out of stock, rather than to create too much capacity and end up with a large inventory, lots of debt and unhappy shareholders.
With that in mind, the business will need to invest in additional resources, such as hiring more employees, purchasing new equipment and increasing the marketing budget. It is crucial to manage resources effectively to ensure that a business can sustainably scale up the business.
9. Continually improve the product
To ensure the long-term success of the product line expansion, it is crucial to continually improve the product. This involves analyzing customer feedback, monitoring competitors' actions and innovating the products to meet evolving customer needs.
One way to continually improve your product or service is by investing in research and development (R&D). R&D can help you identify new product features, improve product quality and reduce costs. By continually innovating, you can stay ahead of the competition and ensure that your customers remain satisfied.
Expanding a product line is an exciting opportunity to grow your business and reach new customers. By following these nine steps, a business can develop, test and launch a successful product line expansion. Remember to remain customer-centric, continually innovate and manage your resources effectively to achieve sustainable growth.