For the producer that is heavily reliant on commodity products, there is an opportunity to substantially improve profit.  Product lines that have a 5% net profit margin or less can be improved, or replaced.  You can raise your average margin by about 2% due to product development.

• Commodity pricing    Precast products often sell like commodities in an auction market, with feast or famine demand, and low margins.  Why does this happen?   Supply exceeds demand and the price is therefore equal to the break even cost of the high cost producer.   Commodity means that the product is undifferentiated and interchangeable.
• Most producers have a good many products that fit this definition.
• The market needs large volumes of product like yours

• Market Strength    Bill Ray's rule:  Successful new products build on what you are already doing.  Your precast is on the job because of its inherent advantages. You wouldn't be on the job if you couldn't deliver the basics.  The key is to use this strength to differentiate your product, broaden your product offering, and broaden your service.  Your commodity products are a strength to build on, not a weakness to overcome.

• Product differentiation    Is gasoline a commodity? You bet.  Does the name brand gasoline sell for a few pennies more than the off-brand?  You bet.  Take stock of your unique quality, service, and special features.  Promote them.  Excel in them and be the best.  Collect data to prove your case.   Brand your product.  Toot your horn.

• Broaden your service   We know that the customer and precaster are both best served if the work is design build and negotiated.  Ask yourself, how much of your work comes from plan takeoffs that you have never seen before?  Break out of the cycle of responding to RFQ's and visiting the plan room.  The desired state is called consultative selling.   The result is margin improvement.
• Set goals.  The starting point for change is to set a target for design-build work.  Track progress.
• Call on specifiers.  If the project is already in the hands of a GC, you are probably too late and will be reduced to bidding alternates nobody ever though about.  Identify the key specifiers; 20% of the firms probably account for 80% of the  work.  Set goals.  Track progress.
• Sell your services.  VE suggestions.   Additional products and product enhancements.  Timely submittals.  On time delivery. Quality product.  Erection schedule.  Attentive project management.
• Review staffing to separate the order takers from the sales consultants.  There is a place for order takers; but you need to make sure you also have sales consulting skills and that such a person has a proper role or territory.

1.   Find new products where you are doing business now.
 
• Survey your jobs.   On jobs you supply, what's being done by cast in place, masonry, tilt-up, steel?  Design a replacement product. Figure out a way to install it with, just before or after your commodity.
• Survey your architects.  What would they like you to supply that is now being done in some other building system?
• Enhance your product with special mix design, paint, color, coatings, special rebar, special cast-ins, the list is endless.  These value added features have high margins and take you right out of commodities.  Don't look at enhancements as a bother, they area gold mine!


2.   Evaluate potential new products  This requires the rigor or a structured look at three beneficiaries.

• Benefits to the owner  Examples: strength, plant quality, durability, fire resistance, appearance
• Benefits to the Architect, Engineer, Specifier  Examples, engineering services, design envelope, job cost savings, speed of construction, reputation of the specifier.
• Benefits to Contractors  Examples:  Turn key contract, risk reduction, all weather construction, reduction of trades on the job, reduction of job supervision and overhead.


3.   Design the product    Come to the specifier with a hard design with three specifics.

• Written product description, attractively presented.  With today's PC software, that is doable.
• Drawings.  Prepare some dimensioned CAD drawings.
• Specific price point   That means rigor in estimating, and a margin decision.


4.   Pricing    The purpose of all this is to improve margin.  Most commodity producers use formula pricing with a nod to expected competition job by job.  That is not the best guide for the new product, in my experience.  Here are some pricing guidelines.

• Product enhancements such as cast-ins, color, etc. should always be priced at a premium.  Such opportunities present themselves all the time.  This would be a good time to review pricing.
• Product innovations incorporating substantial new features such as paint, a new section, radical mix design, and the like, need some partnering with the owner or GC.  Avoid introductory pricing.
• New products that will displace conventional methods and materials on the job will probably require some introductory pricing.  Seek out a GC partner in addition.   Never price a job at estimated break-even; it will always cost more than you think the first time.  After a job or two, price the new product at what the market will bear.  That should be a nice premium.  If it is not, that's a signal.
• Bidding  After it is accepted, don't let the customer put it out to precasters for bid.  Here is where it takes sales finesse to insure you are bidding against other building systems, only.  For example, point out that your design is a proprietary design.


5.  Patent Protection    Protect unique designs and materials.  Market forces will inevitably try to turn your new product into a commodity; write a spec., get other precasters to bid, encourage over capacity.

• Examples:  Special designs, connx details, dimensions and proportions.
• Pat. Pending    Protection during application and appeals; 2-3 years.  This time is important, even if the application is ultimately rejected.
• Variations  Draw the application broad enough to cover all the reasonable variations.  Engage a patent attorney and have your engineer follow his advice.


6.  Give it time   Bill Ray's rule:    It takes two years to fully develop a new market.  You need an early success as a reality check and as a reference to get more such work.  If there was a new product out there that would quickly fill your plant, somebody would be producing it already.  Persistence is the most important trait.  Go for a small early success, and build on it.

7.  It's ongoing   New products become commodities.  New product development should be a way of life.   You need to have a new product or two in each stage of development to grow your business and maintain superior margins.

I presented this 7-Step Plan recently at MCPX.
>Click here for New Product Development PowerPoint presentation..

      Note: It will take several minutes to load this PowerPoint presentation with a telephone modem.

• Facilitate the process, keep it going, set milestones and objectives
• What's worked elsewhere  Feedback on success stories, investigate other markets
• Market studies  Survey your market size and requirements
• Product requirements  Cost estimates.  What will be required to produce and deliver.
• Program description  What is required and when, from marketing materials to staffing

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