The Consumer Product Business Model

Posted by Tom LarsenFeb 26, 2014 Uncategorized 0 Comment

Before actually getting to the Proof of Concept, one needs to explore and eventually choose the business model they intend to pursue. The two are intertwined, so this post will cover the business model side.

In any consumer product, there are myriad ways to put products out to consumers. Your first awareness is do you have a “product” opportunity, or a business opportunity. They are very different and require very different resources over time.

You can be phenomenally successful with a single product. If you decide early on that you don’t actually plan to build a company (lots of products over time), then you just sell as many of your product as possible over as long a period of time as possible. It’s a market assault all about your product. This focus approach to your business model will eliminate much of the investments in time or money you might consider if you were building a business. If your product is just a product, it can still be a business, but, there is no need to build an entire infrastructure to support an entire range of related products.

On another path, you may elect to start with one model of a product and evolve into a different model to see if you have a product or a business. Maybe you will sell on weekends at street fairs, sell to local retailers, sell online, sell at Amazon, sell at Walmart or national chains, etc. All of these choices can evolve or morph into a different kind of proposition. Generally speaking all the choices will be reduced down to two fundamentals – you are selling your products directly to consumers where you get the full consumer payment value for the product, which is called direct to consumers, or you are selling your products to someone else who is using or selling the product to consumers, which is called wholesale.

Even within wholesale, plenty of companies make large successes out of selling to gift basket companies. You may have heard about all the “distributors” that sell to retailers. They are another path. Then there is the custom imprint world from where you get your embroidered shirts and screen printed T-shirts. Your product may be more successful in Japan or France, an international distribution plan. Being clear on your path allows you to setup a financial model that can accommodate your gross margin needs to run the business.

Your end price, the price the consumer pays for your product, is completely determined by your business model and gross margin needs to run the business (provide you an income and pay for everything else). If you plan to sell directly to consumers at Amazon, you might choose to sell at a lower price than if you are selling to a store. A store will “mark up” the product to sell it to consumers. The retailer needs to make money on the buying, stocking, staffing and selling of your products. Depending on the market channel or the retailer, that can be a small percentage of the final price or a very large percentage.

Setting your pricing by studying your market (it’s not about being the low price leader, by the way), determining where your consumers will find your product interesting (consumers have habits and thought processes and don’t buy bath towels at a plumbing store even though it sells sinks and faucets) and knowing what that particular effort will take to achieve in time and dollars, all by actually talking to people in the business, is exactly what is necessary to accomplish prior to making decisions to go forward.

Most people don’t plan a trip to Europe by buying a one way airplane ticket. The best prepared business has the highest likelihood of success.

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