Proprietary Knowledge

Jun 01, 2006 9:30 PM  By

Offering unique product is crucial to success in today’s multichannel selling environment. And the only way to ensure that nobody offers the same merchandise as you is to develop your own product.

Many merchants engage in private labeling, working with a vendor to customize a product that others already sell. This may involve offering it in a color that’s exclusive to your company, imprinting your name on it, or other minor tweaking. There’s not as much risk, as you are taking a product already on the market — and presumably popular — and making it “yours.” But there’s also not as much reward, in terms of margins and brand differentiation, as there is in developing truly proprietary product.

“Private-label products are more about affixing your company label to an already-existing product,” says Alan Beychok, president/founder of Norcross, GA-based Benchmark Brands, which produces the FootSmart and WalkSmart catalogs. “Proprietary goods are essentially made from scratch.” About 25% of FootSmart’s more than 1,000 products are proprietary, Beychok says.

But the product development process can be daunting. Here, industry experts offer tips to get you started.

First, the bright idea

Naturally, the first step begins with a creative idea. Knowing your market is critical to getting started, says Holly Allison, vice president of marketing for TradeStone Software, a Gloucester, MA-based provider of collaborative e-sourcing software for international trade.

“Take a walk through the mall or visit the store of a competitor, and ask yourself, ‘What do I want to create that isn’t in here?’” Allison suggests. “Your biggest challenge is crafting that product that consumers can be convinced they want…and need. Think of the products that are out there now that send a clear message to you — ones that speak to the type of niche you want to create. You want to be able to say, ‘I understand my market and the demographics within it, and I can deliver goods to my customers and make them feel like they belong to an exclusive club.’”

John Powers, executive vice president of Rhinelander, WI-based pet supplies manufacturer/marketer Doctors Foster & Smith, looks at things a bit more logically. “Start by analyzing your sales data by category and look for your strengths,” he says. “Then you should consider consulting with an attorney on a patent or trademark search.”

Quantifying what you want to do is critical, says Barbara Compton, director of the proprietary product division of Edison, NJ-based toiletries merchant Caswell-Massey. “It’s elemental, of course, but write your idea down, so you can clearly explain it to yourself and then to other people,” she says. “The devil is always in the details with new product, so understand exactly what you’re getting into, make comps and sketches, and build quality engineering into your idea at the beginning of the project, not near the end when you may be short on time and funds.”

Keep it simple

A key aspect of getting started with proprietary product is feasibility. “Some products are nifty in concept but can be very tough to build,” notes Tracy Wan, president/chief operations officer of San Francisco-based high-tech gifts merchant Sharper Image Corp. “What you are doing should not only be relative to what’s happening in the marketplace but should also keep in line with your financial limitations.”

Sharper Image, for instance, would not develop items such as an MP3 player from scratch. “These units are ubiquitous, and the software development costs to build something comparable would be very expensive,” Wan says.

Build a team

Kathy Revello, president of Kathy Revello Associates, a Sunnyvale, CA-based catalog merchandising consultancy, says that you need to determine if you want to employ an inhouse design team or hire an outside consultant to work on the product design.

Smaller companies that cannot afford a separate staff dedicated to developing proprietary products should create a team from within. In the beginning, says Tom Krysiak, Sharper Image’s senior vice president of manufacturing, team members will need to be able to handle their regular responsibilities and still dedicate some time to proprietary projects. He suggests sourcing out duties that require specialty personnel, such as quality control engineering.

Should your product development efforts grow, however, you’ll probably want to hire employees with experience in that area. Sharper Image now has a team dedicated to designing and launching proprietary product; it includes engineers, product managers, deal brokers, quality control engineers, and graphic designers and copywriters to craft and design instruction manuals.

Meet your maker

After you’ve developed an idea you think is both unique and marketable, as well as both feasible and executable, you need to find a manufacturer who shares your vision.

When creating proprietary products with vendors, Caswell-Massey handles the quality engineering, explains what it wants, and creates the fragrance to be used. “Our vendors handle the actual manufacturing,” Compton says.

As you no doubt know by now, your best prices and margins will come from overseas providers. “Most smaller companies start out focusing on sourcing and look for turn-key services,” says FootSmart’s Beychock. “Most of those people and companies will be located over in Asia, and you need to get someone on a plane and find a facility that works for you. You also need to station one of your people there to oversee production.”

Like Beychock, merchandising consultant Revello sees overseas sourcing as a key element to success. But if you’re not careful, it can be a key element to failure. “As always, do your research. Find an overseas agent who knows the area as well as specifics on the product category you are tackling,” she says.

Unlike Beychok, Revello doesn’t think it’s necessary to station an employee overseas, but she says you should be prepared to travel overseas extensively to maintain your presence with a manufacturer.

Be patient

Launching a successful proprietary product line takes time and money, and you may need to be patient in seeing a return on your investment. The costs of developing a product will vary widely, but Sharper Image’s Wan estimates that the production of up to 3,000 units of a lower-tech product will range from $250,000 to $500,000.

The time frame is also tricky to pinpoint. “If you are a large company with a track record in creating proprietary products, the time it takes to go from the birth of an idea to its execution to its eventual production largely depends on your manufacturer, but three or four months is about average” Revello says. But if you are a smaller company and are just beginning to create a few proprietary products, she says, you should allot a year.

Remember that you are responsible for everything when it comes to your new product. Its success or failure depends on the effectiveness of both your research and your communication techniques.

“In retail as in any other industry, communication with all factions is your potential deal breaker/maker,” TradeStone’s Allison says. “If you can communicate efficiently, that makes your supply chain efficient. And then you can save millions.”

Music to Sharper Image’s ears

Electronics cataloger/retailer Sharper Image is renowned for being first to market with the next best thing. (Remember the Razor scooter, which the company was the first to sell in the States? The Ionic Breeze Air Purifier, which spawned myriad copycats?) What’s one of the marketer’s hot products now? Senior vice president of manufacturing Tom Krysiak points to the ZipConnect Speaker System, a proprietary product introduced in September. “The product allows users to play their iPod through powered speakers,” Krysiak explains. “Leveraging off overall customer music enjoyment and the success of Apple’s iPod unit gave us an impetus to create the speaker system.” Krysiak admits that speaker units for portable devices existed long before this product; “we just chose to focus on the iPod and capitalize on its popularity,” he says.