Always Begin With The Product

If you know your product is great, your marketing will be great as well.

The Story

In 2018 when I was the president of a large company, I visited one of my competitors. They had just hired a new CEO. They had grown in previous years to over $100MM/yr, but went through a market shift that resulted in a bankruptcy. They were now rebuilding. 

The CEO was an older gentleman with a lot of experience that specialized in turn-a-rounds. The board of directors hired him with the job of doing one thing: Grow the business.

He had an incredible challenge. How do you repair a brand that is largely perceived as being broken? How do you change the public perception of your company on the heels of a bankruptcy? His answer: SKU optimization. 

They sold soups. In the CEOs first year he did a deep analysis of every single ingredient in his soups. The celery. The carrots. The chicken. The noodles. The rice. Everything. He found multiple suppliers for each ingredient. He vetted each supplier. He made sure that he understood how pricing might change on each ingredient and how that would affect the price of his finished soup. He worked with his packaging teams and did the same for his pouches, his labels and everything that made up the final product that he intended to sell. 

Once he was finished, he had a great level of confidence in both the taste and quality of his soups, but also in his pricing and his supply chain. He knew all the variables that impacted his margin so that he could confidently sell his product knowing that, 1) Customers would love experience. And, 2) He would make money at the price that big-box retailers demanded. 

Today his brand is found on the shelves of most major retailers and the company is back to a high level of industry relevance and a high level of profitability. 

The Lesson

Any marketing 101 class will teach you that the Four "Ps" of Marketing are 1 - Product, 2 - Price, 3 - Place and, 4 - Promotion. There is a reason that product comes first. 

If you begin with a deep, thorough and in-depth dive into your product, then you can set your price, find distribution and create promotions with confidence and authority. 

You must be 100% confident in your product. If you are not, then you will never be 100% confident (or effective) in your pricing, distribution and marketing. You'll be tentative. Instead of saying, "Let's go run an ad at the price." you will say things like, "Let's dip our toes in the water and see how it feels" because you will be nervous that every time a product sells it might be returned or it might be sold accidentally under cost and you will lose money. 

The Product Audit

Before you go to market with your product in any significant way, you need to perform a final go-to-market review following the same strategy that the CEO referenced above utilized for his company. The checks include the following:

1. Create a list of every component of the finished product you are selling.
   1. For food products this includes all ingredients.
   2. For non-food products include every single component needed. 
   3. For service product - see the next step. 
2. Create a list of everything needed to produce your product. 
   1. For food products this includes cooking, blending, etc. 
   2. For non-food products this includes assembly. 
   3. For service products this includes time taken for bidding. 
3. Create a list of everything needed to deliver your product. 
   1. For all products this includes packaging, boxing and shipping. 
   2. For service products this includes time taken for delivering a pitch or presenting your final bid. 
4. Add a cost to every single point listed above:
   1. For all products every ingredient and component should have a price. 
   2. The price of ingredients and components should be broken down to your per product cost.
      1. In other words, if you have to buy 1lb of butter but you are only going to use 4oz, then you need to list 25% of the 1lb of butter as the cost of your product. Or if you make a purse with a metal button and you have to buy 100 buttons, do the math on the per-button cost to make sure your cost per button is accurate.
   3. For service businesses, your cost is your time. And your time should be considered and "Opportunity Cost". In other words, what hourly pay would you be making if you had a traditional job instead of working for yourself? Add that hourly cost to the cost of your product whenever you are driving, pitching, speaking or bid building to create a price. 
5. Summarize the total cost to create 1 single product.
   1. Using our example in bullet #4 - even though you only used 4oz of butter or 1 button, you still had to purchase 1lb of butter or 100 buttons to begin. We need to now look at the total investment required to produce a single product and how many products we could make with the smallest number of components that we have to buy so we know what is left over and we can ask ourselves how confident we are in selling that product. 
   2. This formula will become very important as you scale, as it will outline what your product investment will be to go from selling 1 product a day to 100 products a day. 
   3. For service businesses - This is where you include the number of pitches and bids that you believe you will need to make before you close just 1. We need to know the cost of the rejected bids to make sure that the price of the accepted bids covers all expenses associated with your service. 

With a thorough understand of all the components above, you can go to market with confidence. Every time you sell a product, you will know what you really made in profit over the long run - not what you made in just one single transaction. Every time you submit a bid, you will do so knowing that you are bidding to grow your business, not just bidding to win the next bid. 

Knowing your products equates to long-term sustainability. Knowing your product equates to bold marketing and a confident sales team. Knowing your product, most importantly, equates to happy customers. 

Always begin with the product. Always. 

As always, if you need assistance we can develop the spreadsheet above with you and for you so you have a model that you can use for all of your product and pricing decisions in the future. 

Enjoy the journey!