Repositioning Manufactured Products
Drew Hill, Principal - Hadley Associates, Inc.

When business activity is weak, it is a great time to step back and question your existing product and distribution strategy. With a fresh look, there will emerge immense possibilities for most manufactured goods and services. This is true for traditional products, as well as custom, one-of-a-kind fabrications or assemblies.

Strategies to Consider

Let's expand your thinking and consider some real product strategies that have impacted companies just like your own, many are right here in Eastern Pennsylvania. When reading these product reposition strategies, consider transitioning into your present market. Try to bring a new perspective to the products that you may have "learned to take for granted". You may think of them as "mature" markets, when in all reality, they are not; you may be just managing that way.

Repositioning Products or Capabilities

• Pursue new channels-of-distribution
  
• Establish independent distribution
  
• Market complete, finished products
  
• Market component parts

There are many examples of the above. An obvious one is the emergence of "alternative" channels-of-distribution for traditional industrial products. Home Depot and Lowe's are full of these examples. It can be found in other channels as well.

Imagine if you had the foresight and the business daring to be an original supplier to Home Depot when they were getting started in abandoned Treasury stores in Atlanta. Today, many traditional industrial-oriented manufacturers struggle with the issue of new channels. With good market segmentation, customer understanding and strong product strategies, you can do well in both worlds.

There are companies that have looked at the business landscape and have moved forward into their customer's market without creating conflicts. An interesting one is John Deere acquiring professional landscaper nurseries. It is natural migration when you think about it; they are getting closer to their end-user customer of specialized motorized equipment.

There are traditional manufacturers who have drifted into marketing complete products, when they once just manufactured components. There are others doing just the opposite. Both have created new markets by shifting into "forward" or "backward" distribution strategies with existing manufacturing skills.

Hadley Associates consulted with several clients that established entirely new business models to serve similar customers, but with more intense service and broader product assortments. In three years, one has seven locations throughout the country, generating revenues of $20.0mm.
It took them two years to "take the business risk" and one failed start-up, but today they are exceeding their expectations.

The lesson-learned is expanding one's vision of what can be done with current products. With preparation and time, positioning products can be a "bold move" that changes a company.

Repackaging Products to Meet Unique Needs

• Update physical package graphics
  
• Add high value-added packaging
  
• Adopt commodity-grade packaging
  
• Adopt master-pack bulk assortment
  
• Ship in reusable sleeves or racks

The easiest way to reposition a product is through a physical enhancement. Redesigned packaging graphics have renewed many products. In one situation, Hadley Associates brought an advertising agency to do creative work for a client. That one product management change increased sales by 25% for the product within three months.

Sometimes adding value-added packaging, at a higher price, is the right product strategy. Manufacturers often find customers modifying their product. In one instance, customers were repackaging a product into smaller containers to serve small-users. The manufacturer seized the moment by developing small-user packaging of their bulk product. Taking the risk was rewarded; package development costs were recovered in the first month.

The opposite can also be true. In one situation, an industrial customer wanted to buy product development services, not the product. An R&D agreement was developed, with the option to supply the new products or selected components. The bulk supply relationship lasted for years.

Eliminating unneeded packaging costs can be a creative solution. While completing field market research, distributors were asked a simple question: Why do you sell trucking fleets products in high-cost packaging? The solution was replacing a high-cost unit packaging with a sleeve pallet program. It was an immediate success.

The lesson-learned is listen to the customer and watch how the product is being used. Often repackaging or changing (add or delete) a product feature will create new applications.

Product Line Expansion

• Add premium and/or valued-priced products
  
• Develop a complete product line
  
• Multi-grade product strategies
  
• New applications for current products

Not all customers want the same product grade. With careful differentiation, manufacturers can expand markets without an unreasonable change in manufacturing costs. Developing this strategy requires understanding the product application, price points and cost curves.

Hadley Associates had an interesting experience with a focus group. We were reviewing a casting that sold for $5.00. It was perfectly machined, tight tolerances, physically attractive and documented with quality assurance statistics. It was doing reasonably well in the market. We asked the focus group if they had used the product; the answer was a universal no.

The ensuing discussion revealed this market sector did not value all the features and benefits because of their production processes; the casting was only worth $2.50. By maintaining the high-end market, the manufacturing created a valued-priced SKU for the new customer sector by removing unwanted costs.

The lesson-learned is that manufacturers control far more to the success of their products than they think. Manufacturers need to understand the company's capabilities and the needs of unique customer segments. This requires being in the market place questioning, listening, observing, challenging and comparing to the current ways the product is used. New opportunities emerge when management ask, "What if?"

Culling Unneeded Products

• Deleting slow moving products
  
• Increasing the price on "C" and "D" items
  
• Outsource high manufactured cost items
  
• Consolidate product grades

Because not all products are on a growth curve, managing the downside is also a factor. The easiest decision is to cull all slow-moving products based on an ABC movement and profitability list. This may not the best approach.

Hadley Associates interviewed a manufacturer that actively managed the product life cycle of component parts and completed unit SKUs over a twenty-year span. Their strategy was simple. On new products, they enjoyed the benefits of being the "first to market" and rewarded by higher margins; this also helped to offset initial R&D and tooling costs. As competitors begin to enter a given SKU market, manufacturing costs and resale prices are reduced. As the SKU aged, move manufacturing to low-cost sources-of-supply, often offshore. As demand fell off, they gradually increase the price as competitors withdrew. Ultimately, they delete C&D items like everyone else, but they did it after extracting as much sales and profits as possible.

The previous product planning, manufacturing and distribution model requires data to be managed, but it can be done. It also requires a long-term strategy to implement it. The company mentioned above, entered their industry with no experience and created their own practices. In ten years, they became the industry leader; in fifteen years, they had revenues of $175.0mm. It started with a vision and a focus on the fundamentals of product management, manufacturing and distribution.

Concluding Comments

Most manufacturers understand their processes and products; this is their strength. Building on this advantage, repositioning products should be an ongoing driving force. This can be accomplished in a number of different ways, but the net result is constant renewal. There are a myriad of strategies and techniques available. It starts with a vision of being more than what you are today and working from there. It will ultimately become a journey of constant product improvement and market expansion.

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Hadley Associates is a consulting firm located in Birdsboro, PA that focuses on strategic business management, industrial market development and facilitating management change. Drew Hill is a certified focus group leader and management consultant. He can be contacted at 610 370 1991 (www.hadleyassociates.com)