new product development presented by bill ray of precast consulting services
TRANSCRIPT
New Product Development
Presented by Bill Ray of Precast Consulting Services
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New Product Development
Agenda Credits
Ideas with a payoff New product development & margin improvement Example product line – Lightpole Bases Checklist for success
Summary
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New Product Development
Credits
Arrow Concrete Products – Granby, CT Arco Concrete – Fort Lupton, CO Aurora Precast – Aurora, IL Colorado Precast – Loveland, CO Southern Precast – Alachua, FL Utility Structures – Nepean, Ontario Wilbert Precast – Spokane, WA Adam Neuwald – NPCA staff
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New Product Development
Who is Bill Ray
Principal at Precast Consulting
Background Business owner PCI certified producer General manager Sales exceeding $15 million Project manager Projects exceeding $ 10 million Chief fin. Officer Sales exceeding $150 million Education
MBA University of ChicagoBS Florida state
Contact info: 770-979-3711. [email protected]: www. precastconsulting.com
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New Product Development
New Product development – Margin Improvement
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New Product Development
Margin Improvement
The starting point – What’s your sales margin?
Analysis: compute sales margin by product line Sales and cost of production by product line Allocate fixed costs to product lines Get involved to keep the effort focused and efficient
Results Product lines losing money need immediate attention High margin product lines need emphasis Product lines with margins 0-5% need to be replaced
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Progression toward commodities
Profit by Product line $000
Sales 15,000 100%
Total Cost of Goods Sold 12,500
Gross Margin 2,500 % 17%
Sales, General & Admin 1,000Interest costs 500
Profit before Tax $ 1,000 % 6.7%
New Product Development Margin Improvement
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Progression toward commodities
Profit by Product line $000 Losers Bleeders Cash Cows Stars
Sales 15,000 200 4,300 10,000 500 100% 2% 28% 67% 3%
Total Cost of Goods Sold 12,500 190 3,655 8,280 375
Gross Margin 2,500 10 645 1,720 125
% 17% 5% 15% 17% 25%
Sales, General & Admin 1,000 20 325 600 55Interest costs 500 10 150 300 20
Profit before Tax $ 1,000 (20) 150 820 50 % 6.7% -10% 3.5% 8.2%
10%
New Product Development Margin Improvement
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Progression toward commodities
Profit by Product line $000 Losers Bleeders Cash Cows Stars
Sales 15,000 200 4,300 10,000 500 100% 2% 28% 67% 3%
Total Cost of Goods Sold 12,500 190 3,655 8,280 375
Gross Margin 2,500 10 645 1,720 125
% 17% 5% 15% 17% 25%
Sales, General & Admin 1,000 20 325 600 55Interest costs 500 10 150 300 20
Profit before Tax $ 1,000 (20) 150 820 50 % 6.7% -10% 3.5% 8.2%
10%
Take action benchmark guidelines:1. If Losers exceed Stars2. If Bleeders exceed Cash Cows3. If Cash Cows are less than 50% of all sales
New Product Development Margin Improvement
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Commodity Pricing – Low Margin
Products undifferentiated - interchangeable Standard specifications Technology is mature Buyers market – excess capacity Low cost producer sets the price Product sales margin less than 5%
Many products fit this description Quality and ethical challenges They remain the primary market for many producers
New Product Development Margin Improvement
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Commodity Pricing – What’s the answer?
1. New production technology Margin improvements are typically short lived
New Product Development Margin Improvement
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Commodity Pricing – What’s the answer?
1. New production technology 2. Differentiate your products & services –
improve margin Focus on markets - Be market driven rather than product
driven Create value - Provide solutions, not products Segment customers - Better focus on market needs New services - Focus on selected markets & customers
New Product Development Margin Improvement
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New Product Development Margin Improvement
Commodity Pricing – What’s the answer?
1. New production technology 2. Differentiate your products & services – improve
margin 3. Develop new products – improve margin
Focused product - Displace another building system Focused service - Solve a specific problem or reduce costs Market strength - Successful new products build on what
you are already doing
Replace your least profitable commodity business
New Product Development is today’s topic
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New Product Development Margin Improvement
Commodity Pricing – What’s the answer?
1. New production technology 2. Differentiate your products & services – improve
margin 3. Develop new products – improve margin
Every commodity was once a new product with high margin competing with and displacing another building system
Precast manholes once were a new product competing with brick
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Precast Competitive Advantages
Owners Strength (5000+ PSI)
Plant Quality Durability Fire resistance Project specific (appearance, maintenance, etc)
Architects & Specifiers Design & engineering services
Engineering envelope – design objectives Job cost savings Speed of construction
Contractors Turn key contract – risk reduction
All weather construction Shortage of masons Reduction of trades on the job
Precast relative advantages differ from market to market
The greatest advantages are against other building systems
New Product Lines Action Plan
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Bill Ray’s Principles:
1. High margin new products compete with other building systems, not other precast.
2. Successful new products build upon what you are doing now.
3. Find your new products with your partner architects & specifiers
4. It takes time. New products take two years to develop.
New Product Lines Action Plan
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New Product LinesToday’s Agenda A 7-Step Action Plan
1. Find the product
2. Evaluate the product
3. Design the product
4. Pricing guidelines
5. Patent protection
Example – Lightpole Base
6. It takes time
7. It takes commitment
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New Product LinesAction PlanSuccessful new products compete with other building systems, not other precast
1. Find the product Survey your jobs Survey your architects Survey your customers Ask questions: big and small
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1. Find the product Survey your jobs Survey your architects Survey your customers
Look for new products . . .
And you will find you have been walking right by them without noticing.
New Product LinesAction PlanSuccessful new products compete with other building systems, not other precast
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1. Find the product Survey your jobs Survey your architects Survey your customers
2. Evaluate potential products Perform a structured features & benefits evaluation
Benefits to the owner Benefits to the architect Benefits to the contractor
New Product LinesAction PlanSuccessful new products compete with other building systems, not other precast
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1. Find the product Survey your jobs Survey your architects Survey your customers
2. Evaluate potential products Structured Features & benefits evaluation
Identify specifiers required to reach target markets Architects Commercial developers Electrical contractors
New Product LinesAction PlanSuccessful new products compete with other building systems, not other precast
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1. Find the product Survey your jobs Survey your architects Survey your customers
2. Evaluate potential products Structured Features & benefits evaluation Specifiers required to reach target markets Identify market size by product Survey your jobs
Ask specifiers Dodge Reports Freedonia – Market Research Firms
New Product LinesAction PlanSuccessful new products compete with other building systems, not other precast
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1. Find the product2. Evaluate potential products
3. Design the product Come to the specifier with a specific product Drawings Specific price point
New Product LinesAction PlanSuccessful new products compete with other building systems, not other precast
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1. Find the product2. Evaluate potential products
3. Design the product Come to the specifier with a specific product Drawings Specific price point
Be competitive with customers’ full cost Price the features Show the included benefits Charge what the market will bear
New Product LinesAction PlanSuccessful new products compete with other building systems, not other precast
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4. Pricing guidelines Don’t use formula pricing
Product enhancements - Premium pricing Product innovations - Partner without introductory pricing New products - Initial pricing should never be at breakeven
5. Patent Protection Protect unique designs & materials Examples: - Special designs & connx details Pat. Pending - Protection during the application -
about 2 years Protection - Draw the patents broadly to cover
variations
New Product LinesAction PlanSuccessful new products compete with other building systems, not other precast
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Lightpole base - An example
Developer:I could cast this with readi-mix for $80/yard, why should I spend 5 or 6 times that amount for precast?
New Product LinesLightpole base exampleSuccessful new products build on what you are doing now
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2. Features and benefits evaluation
Product Quality
Precast – steel forms CIP Sonotube
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New Product LinesLightpole base exampleSuccessful new products build on what you are doing now
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New Product LinesLightpole base exampleSuccessful new products build on what you are doing now
2. Features and benefits evaluation
All weather construction
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New Product LinesLightpole base exampleSuccessful new products build on what you are doing now
2. Features and benefits evaluation Rapid project completion Reduction of trades on the job Reduced contractor overhead
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3. Design the Product
Come to specifiers with a specific product line
Round and/or square
New Product LinesLightpole base exampleSuccessful new products build on what you are doing now
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3. Design the product
Come to specifiers with a specific product line
Architectural shapes & finishes
New Product LinesLightpole base exampleSuccessful new products build on what you are doing now
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3. Design the product
Come to specifiers with a specific product line
. Bolt patterns . Electrical conduit & JB design . Engineering design
New Product LinesLightpole base exampleSuccessful new products build on what you are doing now
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Markets Commercial development Tract subdivisions Shelf item
Customers Developers Electrical Contractors
Competitors CIP in Sonotube Currently precast market share is low
Specifiers Architects Lightpole manufacturers
New Product LinesLightpole base example – Market Summary
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Developer:I could cast this with readi-mix for $80/yard, why should I spend 5 or 6 times that amount for precast?
What’s the answer?
New Product LinesLightpole base exampleSuccessful new products build on what you are doing now
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Cast in place costs more that you think Materials Labor Supervision Overhead such as procurement & admin. Rework Delay of job due to weather
Precast is higher quality Anchor bolt alignment Conduit & JB problems Appearance factors
Risk with precast is lower Job delay due to weather or rework Single source contracting
New Product LinesLightpole base exampleSuccessful new products build on what you are doing now
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This product line could be a winner!
Product Advantages to the customer Rapid construction – reduced project scheduling risks Product quality – bolt hole & elec connx Appearance – Steel form finish vs. Sonotube Cost - Reduced GC overhead & supervision costs
Market Advantages to the producer Competes with other building systems – good margin Product line extension from current – known req. Builds relationships with existing specifiers – customers
Action Plan 1. Survey specifiers for product requirements
2. Design & price typical prototype 3. Present a specific product to specifiers with price point
New Product LinesLightpole base example
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6. It takes time There are many excuses for inaction Persistence is the most important trait Go for a small early success It takes two years
7. It’s ongoing New products turn into commodities Specifiers write specifications, margins are reduce New product development must be a way of life You need to have one or two new products in each stage of
development
New Product LinesAction PlanProduct Development must be a way of life
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Precast Consulting Services, Inc.New Product Development – Margin Improvement
Success or Failure?
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New Product Lines Checklist for failure
1. Did not commit to a sustained effort
2. What I wanted to produce was not what the customer wanted
3. Did not learn to do business with the new customer type
4. The new product competes with other precast at low margin
5. Unsolved production problems
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1. Find the product
2. Evaluate the product
3. Design the product
4. Price it correctly
5. Patent protection may help
6. It takes time
7. It’s ongoing
8. It’s up to you
New Product Lines Checklist for Success
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New Product Development