Business Plan Help

Hi All -

I'm working with a partner to develop a unique small electronic device. =
I don't want to talk much about the device yet (for obvious reasons), =
but the idea is sound, and from initial patent searches, apparently =
novel.

In developing a business plan we're wrestling most with how to price.

We have no doubt that the device can be built, and will work as =
designed. The problem comes in trying to figure out how much we have to =
build it for, which determines the minimum it must retail for. What we =
don't know is what=20
comes in between.

Being a novel device it has no direct competitors, so there's no =
established price point, and no competitive pressure to meet a price =
target. The flip side is that it has no existing market, so there's no =
data about what consumers are willing to pay.

In terms of positioning, it's a non-essential item that we hope to turn =
into a necessity through marketing. (-: The concept can be stated in a =
single sentence, and for the target audience it will resonate right =
away.

I've tried to contact some retailers and distributors, to see if I can =
tease out any information on what the typical or expected markups are on =
small electronics, all the way through the retail channel: the =
distributor, reps, retailers and anyone else who expects a piece.

The silence has been deafening. Zero response. I don't have an actual =
product in hand, so I don't fit. No one (that I've found) is prepared to =
talk about the chain of markups, etc.

Any thoughts, suggestions or questions?

Thanks!

--=20
Jim

Hello Jim,
The general rule is to price the product at whatever price the market wil=
l
bear.

You should be able to make some very sensible guesstimates for an initial
price based on the utility value to the buyer and on the current pricing =
of
substitute products.

New products can often be sold at a premium during product launch (assumi=
ng
the product is desirable). You will need to accumulate as much profit as =
you
can for heavy promotion and production development. Once you show up on t=
he
radar screen you will quickly get competition and will need to introduce
your second generation product when they introduce their competitive knoc=
k
off.

I suggest you might want to revisit your no market - no competition - no
price point comments. This is rarely the case. Unless you've come up with
the limitless energy D cell, the fountain of youth drops or some other
market shattering product, you should work out a plausible pricing strate=
gy
that your investors will buy into. Keep in mind that a business plan is
basically a tool for selling your opportunity so you best work out your
pricing model to satisfy this target audience.

You can look up typical pricing guidelines at your local library (assumin=
g
you are located in a larger urban area). Look up current ratios for
businesses in the appropriate industry. You will find both retailer and
distributor information.

J.P.

--=20
J.P. Solyom, B.Sc.E.E., M.B.A.
Prospecting without cold calling - For a Continuous Stream of Leads
and Qualified Prospects.
(253) 272-0996 =80 jpsolyom@ksbusdev.com






On 5/27/07 11:09 AM, in article 135jiam2mdrfge2@news.supernews.com, "Jim
Mack" <jmack@mdxi.nospam.com> wrote:

>=20
> Hi All -
>=20
> I'm working with a partner to develop a unique small electronic device.=
=3D
> I don't want to talk much about the device yet (for obvious reasons), =3D
> but the idea is sound, and from initial patent searches, apparently =3D
> novel.
>=20
> In developing a business plan we're wrestling most with how to price.
>=20
> We have no doubt that the device can be built, and will work as =3D
> designed. The problem comes in trying to figure out how much we have to=
=3D
> build it for, which determines the minimum it must retail for. What we =
=3D
> don't know is what=3D20
> comes in between.
>=20
> Being a novel device it has no direct competitors, so there's no =3D
> established price point, and no competitive pressure to meet a price =3D
> target. The flip side is that it has no existing market, so there's no =
=3D
> data about what consumers are willing to pay.
>=20
> In terms of positioning, it's a non-essential item that we hope to turn=
=3D
> into a necessity through marketing. (-: The concept can be stated in a=
=3D
> single sentence, and for the target audience it will resonate right =3D
> away.
>=20
> I've tried to contact some retailers and distributors, to see if I can =
=3D
> tease out any information on what the typical or expected markups are o=
n =3D
> small electronics, all the way through the retail channel: the =3D
> distributor, reps, retailers and anyone else who expects a piece.
>=20
> The silence has been deafening. Zero response. I don't have an actual =3D
> product in hand, so I don't fit. No one (that I've found) is prepared t=
o =3D
> talk about the chain of markups, etc.
>=20
> Any thoughts, suggestions or questions?
>=20
> Thanks!
>=20
> --=3D20
> Jim
>=20

On May 27, 11:09 am, "Jim Mack" <j...@mdxi.nospam.com> wrote:
>
> I'm working with a partner to develop a unique small electronic device.
....
> In developing a business plan we're wrestling most with how to price.

To price for whom? For the end user or for the reseller?

The simplest way to figure out what the end user is likely to pay for
the device is simply to ask her. Get together a couple of focus
groups (or better yet, hire a marketing professor from a local college
to do it for you; the written report he or she will prepare will give
you more credibility with potential buyers when the time comes). You
don't have to have the actual product to do a focus group; a mock-up
or even a picture would do.

To figure out how much you could sell it for to a reseller, simply
look at resellers' margins. Annual reports for publicly traded
companies are freely available on the Internet. Look at Sharper
Image, for example:

http://www.sec.gov/Archives/edgar/da...htm#tx69919_24

and you will be able to see that cost of products they acquired for
resale in the last three years varied between 46% and 57% of sales.
Circuit City does not report cost of products separately from buying
and warehousing:

http://www.sec.gov/Archives/edgar/da...htm#tx93595_14

but their gross margin is similar to the one Sharper Image reported in
fiscal 2006, so you can make a fairly reliable guess that they
purchase products for about 55% of their sale price. Obviously, this
is the average, so you should be prepared for the wholesale price to
be as low as 40% or even 30% of the final sale price...

Hope this helps. If you have any more questions, drop me a line.

Cheers,
NC

NC wrote:
>=20
> "Jim Mack" wrote:
>>=20
>> I'm working with a partner to develop a unique small electronic
>> device.=20
> ...
>> In developing a business plan we're wrestling most with how to price.
>=20
> To price for whom? For the end user or for the reseller?

That's the crux of what I was asking -- what comes between the =
manufacturer and the consumer. If I know that, I know approximately what =
the selling price is anywhere along the chain.

The links you gave, and the broader hint they provide, are just what I =
was looking for. Thanks.=20


> The simplest way to figure out what the end user is likely to pay
> for the device is simply to ask her. Get together a couple of=20
> focus groups.

We may well do that, since an informal survey has the perceived value =
low enough that, given the sorts of margins you cite, our build cost =
target is below what we can probably get to.

Of course, how something is presented, and to whom, definitely affects =
perceived value. So we'll be trying on some marketing materials to see =
if we can make it more desirable.

We may also start out doing only direct (web) sales and partner =
arrangements to get some cash moving and help refine the market price.

Thanks again.

--=20
Jim