How to Develop and Price a New Product for the Global Marketplace
Why determining pricing and profits at the idea stage is important
Got a new product idea that will wow the world? What are you waiting for? Your first step when developing and pricing a new product for overseas should be to check if there is a similar product already on the market and what it is priced at. If there is a similar product, see how your idea can be differentiated and use the competing product’s price point as a starting point for yours. Here’s what it takes to bring a product to market and price it fairly.
Let me first paint the picture, which many of you who are sourcing products from overseas will relate to. It goes like this.
You have a great idea that you want to go to market on: A large, durable, lightweight high-style eco-friendly canvas tote bag that is waterproof, has an adjustable shoulder strap that tailors to your comfort, features multiple interior and exterior pockets and can hold both baby items and computer gear. For the user’s convenience, the bag will include a changing pad, a tablet pouch, smartphone case and protective laptop separator.
With pencil in hand, you start sketching out your idea on paper to prepare for submitting to a potential supplier that can make your product to your specs. At the same time, you tear out photos from magazines, newspapers, and catalogs that are similar in style to what you have in mind for your tote. Further, you capture a couple of website screenshots of products that capture the essence of your idea or combine parts (baby tote versus a computer gear tote) or nearly all (big colorful canvas totes) of your idea.
Congratulations! You are ready to present your idea to a supplier! You’ve got your sketch, photos, and screenshots all ready to go in a neat, orderly fashion. But wait. You forgot to think about pricing. What sort of price point are you looking for on this item? What will the market bare for your type of item–retail at $25, $35 or $60 (without shipping of course)?
Once you determine a fair retail price point, go backward from there to figure out what your price needs to be from a supplier when you import the product. Let’s say it needs to be somewhere around $5 per bag at cost based on an initial 1,000-bag order. Then when you factor in taxes, duty, customs clearance, transportation and insurance, it comes to a landed (meaning, delivered to your door) price of $11 a bag. That leaves you with a profit margin of anywhere from $14 to $59 a bag. But wait. There’s more to consider.
Once you import the bag, you must warehouse it someplace, unless you think 1,000 bags can be temporarily stored in your basement. However, if it’s a larger import quantity, you’ll have to set up warehousing, order boxes for the bags, establish a drop-shipment process (when someone orders the bag, it must be staged for shipping) and a transportation method. All of those steps add additional costs to the product. So now you’ve gone from $11 a bag at the cost of adding an additional $7 to cover all the other incidental, yet important, costs associated in getting the tote to a customer–putting your cost now to $18 a bag. Yes, fortunately, you will still make a profit. Oh, and what about who is going to sell the product once it is readily available in the market?
Whether it’s you or someone else, that’s an additional cost, too. Now you’re up to, say, $20 a bag, including selling expense, putting your profit margin range anywhere from $5 to $39 a bag based on retail price point. Other factors to consider: Will you be selling business to business (B2B) or business to consumer (B2C)? If you sell B2B, the retailer who merchandises the tote will add a hefty markup (their profit) to your price, pushing the retail price point even higher. Selling B2C, you can hold steady on your profit, maintaining most of it but most likely will end up selling a smaller quantity of bags because you are selling one at a time as opposed to selling a pallet of totes to a retailer for resale.
I’ll cover those two critical steps more thoroughly in a separate article. Watch for it!