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Many inventors are unsuccessful at first when they try to license their products. This can be either because no one wanted to license the product or no one was willing to offer a reasonable agreement. Before scrapping the product, inventors should reevaluate what they have done so far to see if they can still yet find a lucrative licensing deal.
There are many steps involved in bringing a product to market. We have a simple outline of these steps called 10 Steps To Bring a Product to Market (click here), but each step contains many small steps. Your attempt to license your product may have gone wrong at any one of these steps, but typically inventors run into trouble in three areas: market research, product development and preparation for your licensing presentation (including researching potential licensors).
The first question you should ask yourself is did you do any market research. You should do at least some market research before you even invest a penny, but many inventors overlook this very important stage. But what is market research?
Market research begins with a look at the size of the market (customers and amount of sales), the number of competitors, and the strengths of those competitors. You want to see here that the market size offers a potential reward to make the investment worthwhile, that the market isn’t already overcrowded with competitors and that the existing competition either has a product that isn’t very strong or they are not effectively penetrating the market. This part of the market research should tell you if a product that addresses the same need as your product has even a chance to succeed.
After this you need to choose a group of target customers. This is a specific group that is most likely to buy and value your product. Don’t worry about making this group too specific since most inventors don’t narrow down their target customers nearly enough.
The next stage in product research is to make a flyer of your product. Then gather flyers of the competitors’ products. You will want to show these flyers to your target customers and have them say what they like and don’t like about each product. Don’t let them know which product is yours since then they will usually try to be nicer about your product. Then have them rank each product by value or in other words which product would be their first, second and third choice. After you do this, you probably have a good idea for how to improve your product, so make the changes and then repeat this step until your product consistently ranks either first or second. This process helps you understand what your target customers want and helps you home in on the perfect product.
Also in this stage you should ask what they would pay for each product. This price will be lower than they are actually willing to pay, but it will give you a general idea on what to expect your retail price will be.
If you didn’t do these steps of market research you may have either invested time, money and energy into a product with a very low chance of success or you may have come up with a product concept that could succeed but the product you designed isn’t the product that consumers want. Do these steps to see if your product is worth putting more time, money and energy into and then make sure you have the product that the market will want, otherwise you won’t find success with your product.
The next stage that often trips up inventors is product development. Product development should almost always start with the question of who your target customers are. What are the characteristics of that group? Where do they shop? What do the other products they buy look like? What exactly are the looking for in this product? What will they pay for it? Create a product that matches the answers to these questions, which you should have learned in your market research.
A very important part of product development is creating the right price/value relationship. Let’s assume that you have a product that your target customers are willing to pay $25 for, but it costs $7 to manufacture. Since retail prices are typically four times that manufacturing costs, your retail price will be $28, $3 too high. This means your price/value relationship is out of balance. You then either need to change the product so it is cheaper to make while still retaining its value (usually by changing manufacturing methods or dropping unimportant features), or you need to add value to the product while only modestly raising the manufacturing costs (usually by adding features to the product).
For example, if your product has an unimportant feature, like a bottle opener, you can drop that feature without significantly affecting the value of the product. If having a bottle opener adds $1 to the manufacturing price, then your product can be made for $6 without it, changing the retail price to $24 which your target customers would be willing to pay.
Also, you can add a feature, for instance a built in timer and alarm, which might add only $0.50 to your manufacturing costs, bringing retail up to $30, but if that timer and alarm adds $5 to your value, your price/value relationship will be in order.
Another important aspect of product development is creating the right look and feel for the product. All customers groups have a desired image, i.e. practical, expensive, state of the art, etc. To really connect with your target customers, you need to create a product to match that image. See what other products they are buying to get a feel for their expectations of products. You may need to use more expensive materials to get the right image. If your target customers are particularly image oriented, you may want to hire a design engineer to help you get the right image.
The third area that often prevents an inventor from successfully licensing his or her product is a lack of preparation for the licensing presentation.
When you start looking for potential licensing candidates, ask yourself who has the most to gain from licensing your product. Most inventors dream of licensing their products to the big market players, but these companies really have the least to gain from licensing your product. Small companies, either looking to grow or expand into new markets, have much more to gain from licensing an innovative new product. You need to look for smaller companies trying to grow.
Then once you find these companies, you need to research them. Do your homework and build a presentation that fits the needs and goals of that particular company. A one size fits all presentation just does not cut it. By talking to the people within the company, figure out the company’s goals, direction, strengths and weaknesses. Explain how your product can help them reach their goals while not changing their direction and can utilize the company’s strengths while making up for their weaknesses.
This type of presentation gets a company more excited and they have an easier time buying into your idea.
Here is what should be included in the licensing presentation:
Licensing Presentation Format
Offer your information in a Power Point of Slide presentation with limited copy. You can add more information verbally to enhance your presentation. A typical presentation format would follow this outline.
1. Short overview
- Product description
- Target market
- Market Size
- Yearly profit and sales potential
2. State why you developed the product, which should be a personalized story, similar to the one you told in your licensing plan.
3. Verify the market sees the same need that you do by showing the results of questionnaires, focus groups or actual sales results.
4. State your design objectives, what you designed product to do. Have at least three or four objectives and always include the objectives of creating a product that is easy to manufacturer and reliable for the consumer.
5. Demonstrate and show the product. Not so much for the “wow” factor, but more for how it will work and function.
6. List the major selling features of the product.
7. Show a projected retail price and manufacturing cost. Include data on how you determined these costs, such as a focus group study or a competitive product analysis to determine the retail price and cost quotes or bill of materials estimates and estimated production times determined by a manufacturing engineers to determine manufacturing cost.
8. Your introduction timetable. Use the key elements of the timetable from Chapter 9 to show when you need to have your product licensed by in order to hit your target introduction date.
9. Additional help you can offer if the company is interested in your product.
Licensing format from pages 177-180 of Bringing Your Product to Market in Less than A Year: Fast Track Approaches for Cashing in On Your Great Idea. by Don Debelak
If your attempt to license your product failed, go back and see which steps you skipped or could have done better. Redo these steps and try again. Your changes may be just what you need to go from failure to success.