Reprinted from TrustedPeer
Meet the Expert
Partner, StreetWise Partners LLC
- Advisor and Investor in the Specialty Foods Marketplace.
- Advising entrepreneurs and established Category Leaders on opportunities ranging from Product Development to In-market strategies, drawing on extensive experiences in mission-driven businesses and the unique challenges of building a national brand and innovative leader in the natural foods space from the ground up.
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Creating Profits and Social Impact Through Specialty Foods Brands
Partner, StreetWise Partners LLC
- Concept stage: Companies push into a market where there is no real space for a new product.
- When companies go after a white space, they often fail to define the market accurately and fail to understand the customer they believe inhabits that space and what products that customer may want.
This comes from lack of definition of the market scope and the value proposition of your product and the unmet need of the consumer that you think you are targeting. This comes from not having a clear understanding of the psychographics and demographics of your target consumer.
You can have terrific ideas about a social impact mission, but it's not going to go anywhere if there isn’t a large enough target demographic that buys into that motive. Those people maybe are just looking for something to solve a simpler problem. They’re not willing to pay a premium, they won’t engage with your brand, it won’t be something that is motivational.
- Concept stage: Companies are blind to a mismatch between their aspirations and the cost of goods.
- From the get-go, too many companies fail to determine a viable cost of goods to create their product. As a result, they would never be able to bring a product to market at a competitive price. They would never be able to attain a level of manufacturing cost that could deliver a margin sufficient to pay for marketing the product and setting the consumer price at a point where their target customers would buy the product.
This is a classic problem in specialty foods. You should always be targeting a 50 percent gross operating margin, counting production cost and everything it takes to get your product to the dock of a distributor. You want to be able to land at a net margin of 20 to 25 percent after marketing costs.
- Product development stage: Companies don't create the project guard rails that provide the discipline for evaluating price and manufacturing viability.
- It sounds so stupidly simple, but a lot of companies fail to establish clear guidelines for the development of a product. They do product development and come up with something they love-love-love. Then they hand it over to the purchasing and manufacturing and commercialization people and say, “Now, can you please make this at half the price?”
This happens a lot. And, of course, that’s very hard to do. Product development must be pursued within a disciplined set of costing and manufacturing viability guidelines so you know whether it's going to be possible to bring this product to market profitably.
- Product development stage: Companies don't determine in advance what goals they are willing to compromise.
- There are another set of guidelines that you have to figure out in advance: Where you are willing to compromise and where you are not.
Particularly in the specialty food market, you have to know in advance if you are willing to compromise on GMOs, organic sourcing, etc. Saying a product is "natural" is a very fuzzy area.
You have to know what claims you are going to make for the product, which ones you really believe in, which ones are important, and which ones you are willing to compromise on if you can't get to where you want to go without it.
If you set these guidelines – I call them guard rails – in advance, they will keep you safe and they may just help you understand that you can't go there.
- Marketing stage: The unique selling proposition created for marketing includes a social impact mission that is not really central to the core value of the product.
- A lot of companies have pasted stuff on their products. “Buy our chocolate and for every bar we sell we'll donate a nickel to the cause of African refugees,” or take your pick.
They’re nice ideas as far as they go, but in most cases they don’t really resonate with the core value proposition of the product that’s being offered to the marketplace. So that marketing message doesn't end up having a very powerful influence on the purchase decision of the customer.
Creating Profits and Social Impact Through Specialty Foods Brands: Common Problems