Procter & Gamble, allow me to introduce hair-dye company Madison Reed and baby care and home-cleaning-products retailer The Honest Company. Gillette, perhaps you’ve heard of the shaving companies Harry’s or Dollar Shave Club? And Uniqlo, meet VANCL, the big, online, Chinese-branded clothing retailer.
These companies are part of a growing wave of venture capital investments into branded consumer goods predicated on using information technology to reduce costs and the Internet to market directly to customers. It’s all with an eye on replacing entrenched industry players, rather than selling those players the tools they’d need to compete against young upstarts.
One venture investor who is backing the eyeglass retailer Warby Parker said.
“It used to be that tech went into the vertical and sold to everybody in the vertical. Now companies are saying ‘No. I’m going to directly compete with you,’”
That glasses company has set the standard for how startups can try to carve out a market in old-line industries with entrenched competition, according to a number of investors.
The Warby Parker investor said.
“This is a big thing in e-commerce. You can’t compete selling stuff that Amazon has. Where you can compete is when you sell stuff that can’t be on Amazon.”
It’s the same realization that Fab.com came to in April of last year, when it decided to acquire the custom furniture shop Massivkonzept. The investor said.
“To be unique in e-commerce means you’ve got to own products, not just sell products.”
As a thesis, consumer product companies aren’t attracting the same amount of capital as technology offerings in enterprise software, security, or mobile, but the number of investments into companies selling low-tech or no-tech products like razors, soaps, glasses, or clothes, is growing.
For these companies, even grabbing 5 percent of the total market means billions of dollars in sales, investors said.
In 2012 and 2013 there were at least 26 investments made into consumer products companies, according to data from CrunchBase. That’s up from 16 in 2011, and 13 in 2010.
The companies that have raised the largest rounds in this category include Harry’s, the razor blade manufacturer and retailer; Fab.com, which is now making its own furniture; VANCL, the Chinese online clothing retail behemoth; and Bonobos, which has its own brand of preppy upscale casual wear and suits for men. All told, the five companies have raised in excess of $1.1 billion.
It’s also worth nothing that of the investors who are active in the consumer market, none is investing more aggressively in the sector than hedge fund investor Tiger Global Management, according to CrunchBase data. The hedge fund first invested in consumer retail branding in China with VANCL before applying the strategy in the U.S. with Warby Parker and Harry’s.
Renata Quintini said.
“It’s most importantly about leveraging technology to create new brands or extend markets into places where they haven’t existed before. Now you have distribution channels, social media, and a lot more ways to touch consumers and establish relationships with them.”
Ten Keys to Successful New Consumer Products
Creating and launching new products successfully isn't easy. In fact, the industry track record for new product success is dismal. A couple of recent studies place the failure rates as high as 95% in the United States1 and at 90% within two years in Europe.2 Getting beyond the five-year mark with a strong, profitable business is an accomplishment. While there are no golden paths to new or existing product success, there are a number of principles that greatly improve the odds. This is designed to outline some of the most important factors in marketing new and existing products successfully.
- Key #1: Meet a genuine consumer need. Too many products are in search of a market. Consumer research is critical. Products that meet a genuine consumer need have a basis for long-term consumer interest and purchase. Sometimes those needs are latent and are created with an innovation in the market, such as with the invention of the internet or cell phones. Do your homework. Talk to consumers. Make sure there is a genuine consumer need to fulfill and that the market need is large enough to warrant the introduction.
- Key #2: Make sure product performance measures up. Products that don't fulfill on their promise or fulfill the wrong need miss the mark and the market. Test the product in the lab and with consumers to ensure that the product not only delivers on the need but that the consumer perceives it to deliver on the need. Prospecting for new customers is expensive. Keeping good customers who are satisfied with the product's performance and who will tell their friends is invaluable for the long-term health of the product. It is also critical that the product is in step with the competitive market. If it performs well but another product is superior, product life may be short.
- Key #3: Ensure strong price-value relationship. Consumers generally want to make the best buying decision possible for the money. If the product solves a need and performs well but the cost is too high, the customer will look elsewhere. The price of the product must be in proportion to the problem or need it meets. Consumer research is critical here. Don't forget the competitive assessment. Price/value is usually relative to the other choices consumers have. Great value for the consumer enhances prospects for market longevity.
- Key #4: Proper positioning and differentiation. Many times there is a great product that performs well, but the message to the customer is wrong. In a voyage to the moon, missing the target by just 2% will be disastrous for the astronauts. Likewise, precise positioning of the product to the customer can make the difference between success and failure. Many companies are too consumed with where they will advertise before carefully determining what to say-the message. Advertising needs to be focused on a meaningful benefit to the consumer. It also needs to clearly help the customer understand and feel motivated to buy this product rather than any other one available on the market. When you are done, you want them to feel there is no better alternative than to buy your product.
- Key #5: Carefully targeted advertising. Once the proper message is determined and to whom it should be communicated, sometimes the media used doesn't communicate the message well, doesn't reach the target market, or is too poorly targeted to reach the target economically. The message and the media need to be carefully planned. There also needs to be enough critical mass in media levels to get above the general noise in the market. Reach and frequency are both important. At any given time, prime prospects for your product may be at varying stages of readiness to buy. You must be ready with your message when they are ready to enter the marketplace. Some purchases are considered more carefully than others. Make sure you can inspire the appropriate level of confidence in your product and be at the right place at the right time with the right message for your customers.
- Key #6: Strong product economics. Some products with a 30% margin can be successful while others with a 75% margin fail. Considering the entire equation of the product's economics is essential. What percent of sales will it require to reach and win customers? What is the lifetime value of a customer? What will it cost to deliver the product to the customer and then provide superior service to support customers? Don't miss the hidden costs. Make sure the margins are appropriate for the product.
- Key #7: Effective distribution channels. Finding the correct channels to get the product to the customer can be as important as the product itself. Many superb products fail because they don't reach the customer or enough customers. If a customer loves the product but has difficulty buying it, success will be evasive. Consider not only where the customer can conveniently purchase the product, but also the competitive environment it will be in and whether the image of the channel will be consistent with quality of the product. The servicing of the product is also important. In the intensively competitive grocery aisle, being on the shelf near eye level to be seen can be the difference between life and death. Many successful products have been built on a store-door delivery sales force that was constantly ensuring good presentation of the product. Likewise, many products have been successful on the web by distributing through established successful online merchants rather than trying to create their own fulfillment system.
- Key #8: Being on the right timing. Being early to market is valuable. Many successful products were established by being the first to market. However, it is equally important not to be too early before the market is developed. Being a later entrant to market works best if you can improve on what is available. There needs to be a reason for customers to want to buy your product over others that are available. It is hard to start the race late with a horse that won't race as well as the leader. Likewise, it sometimes requires stamina to develop a new market. Patience may be the price of success.
- Key #9: Sufficient funding. Most businesses take longer and require more funding than anticipated. An investment banker once counseled us on a new venture to calculate how much we expected to need to launch a new business and then double it. Three or four times the estimate is often in order. Make sure you have enough resources to launch and sustain the product. It may be the best product introduction in years, but it takes time and resources to let people know about it. Don't sell yourself short. Running out of gas part way across the desert is very unsatisfying. Make sure you have plenty of fuel. Cultivate stakeholders in the business who will help endure the ride.
- Key #10: Organizational support. People create products, and they are needed to ensure their long-term success. The organization becomes an extension of the product. Great products with an organization that doesn't service the customer well are very vulnerable. In addition, failure to see new threats or opportunities on the horizon such as new competitors, product innovation, major technology change, new governmental regulations, channel shifts or major changes in the economy could make the product obsolete. A great organization, like a good commanding officer, will be scanning the horizon and have good sources of intelligence. It will also provide great support for those in the trenches with their product.
Product marketing can be highly successful. Stack the odds in your favor by applying the ten keys to successful product marketing.