In this article, I’m going to focus on the decision-making process behind launching a new product. I’ll first take a look at some of the motivations within our own industry, and then I’ll set my sights on some metrics and analytic tools that can help you determine your next steps.
Hybrid Printing: Three Companies, One New Approach
In the November/December issue of L&NW, Greg Hrinya writes a great piece on hybrid presses – be sure to check it out.
For my column, I reached out to three companies who have developed their own lines of hybrid printing equipment. But I didn’t want to delve too deeply into the specifics of each product. You can learn that for yourself.
What I wanted to learn about was what drove them to invest in the new approach. I reached out to Kees Nijenhuis of MPS, Paul Teachout of Nilpeter, and Ray Dickinson of Mark Andy to find out how each company decides to pursue a new product or technology – in this case, hybrid printing.
MPS: Putting Product in the Hands of the Customers
For MPS, the decision for hybrid technology came in response to the gap between digital and flexo printing, one that could be solved by a hybrid approach. “It was a logical step,” says Kees Nijenhuis.
Their customers wanted to produce in a single run what normally might have taken two or three runs. MPS responded, building a machine with complete flexibility. Partnering with Domino on the digital press, the company’s EF SymJet press can be configured to achieve exactly what the customer wants.
Delivering this type of flexibility is not new to MPS, so it’s not a “new” product, as hybrid technology might be to some companies. “It’s in our nature,” Nijenhuis says, explaining that the company began with a hybrid press that combined flexo and screen printing.
The EF SymJet is also not completely new, as it consists of both the MPS EF platform, as well as the Domino N610i inkjet platform. Both product lines have proven their success to the market already. MPS and Domino engineers developed a solution where both products are completely integrated, allowing the best of both worlds in a single integrated machine.
Nilpeter: Reacting to Market Trends and Industry Intuition
Nilpeter also is a veteran to hybrid solutions, as Paul Teachout explained to me. The company’s Panorama line is the third generation of digital integration. “We’re 10 years into the game,” Teachout says, noting Nilpeter’s first foray into hybrid technology occurred in 2007.
Nilpeter’s approach isn’t centered primarily on product. It wanted to integrate conventional printing, decorative embellishments, full converting solutions and service support into one package – a true single-source solution. “The customer doesn’t have to go to multiple points for service or packaging solutions,” Teachout explains. “We wanted our partners to know that we are their total printing and solutions provider.”
In choosing this approach, Nilpeter reacted to market conditions. “In five years, 75% of narrow web machines might be hybrid,” he says. The company bases its decision on market trends and the reaction of brand owners.
While I’m sure Nilpeter’s team of financial and marketing gurus approaches new product development in a systematic, metrics-based manner, Teachout acknowledges that experience in the marketplace plays a role in product development. “It includes 100 years of industry-leading innovation and intuition,” he says.
Mark Andy: Striving to Eliminate Steps
Mark Andy has been a longtime supplier of printing and converting technologies. Over its 70-year existence, its portfolio of products has changed with the times. “It made sense that Mark Andy would go into digital printing,” says Mark Andy’s Ray Dickinson.
The company’s Digital Series hybrid solution integrated full color digital inkjet printing with flexography, all inline and fully configurable with fast-change decoration and converting functions, a move that encompassed more than just product hardware. It required a complete service infrastructure, including prepress support, operator training, and field service experts to deliver a winning customer experience. (This is just one of a complete line of hybrid solutions Mark Andy now offers.)
Market conditions, such as the fact that Dickinson estimates there are already 25-60 hybrid systems amidst a marketplace of 1,200-1,600 single-pass, full color digital printing systems for labels and packaging, indicates the market is ripe for hybrid technology. But Mark Andy’s decision to pursue a new product is also predicated by a simpler equation: Can you eliminate steps to a process? If there are a hundred steps to a process, and you eliminate many of them with a hybrid solution, you’re saving time and money.
“If you save on steps, you save a lot of costs – machine time, materials, labor, all of which are significantly reduced with digital hybrid workflows,” Dickinson says.
Getting Down to Brass Tacks: What Do the Numbers Say?
I always preach that your company financials should drive the decisions you make. I’ve shared with you some big picture strategic thoughts on pursuing a new product like a hybrid solution. And you’ll note that these are not just widgets that MPS Systems, Nilpeter, and Mark Andy are talking about. They involve service, supplies, and marketing and sales infrastructure, too.
Whatever system you embark on in the pursuit of adding a new product, here are a few tools and techniques to keep in mind.
Conduct a Return On Investment Analysis
Mike Collins of MCP shares a return on investment analysis that you should conduct before pursuing a new product. It’s an exhaustive analysis, but it’s critical for large product rollouts such as the hybrid technologies we’ve already covered.
Collins notes that most people take a mousetrap approach to product development, as in, “build a better mousetrap and the customer will buy it.” That approach is fine if your new product costs are low and can be absorbed by your company, because, as Collins notes, “The failure rate on new industrial products is still more than 50%.”
The mousetrap approach is typically based on an operations analysis, in which you calculate your own internal costs for rolling out a new product. That’s great, but if the marketplace isn’t willing to buy, you’re stuck with a whole lot of mousetraps.
Instead, Collins advocates a market approach to new products. It focuses on external influences and requires that a lot of “money” questions be asked. They include:
1. How much will the total project cost?
2. What price will users pay for this product?
3. Is the sell price comparable to competitor prices?
4. What is the estimated cost and margin?
5. How many products can you sell per year?
6. How many years will it take to get your investment back?
Collins has published an example of simple return on investment analysis in the June 2015 issue of Forbes magazine, entitled “The Most Important Number in New Product Development.” It’s simple yet comprehensive, and lays out, in a fairly quick way, a useful analysis of whether or not an investment in a new product has profit potential.
Check Your Contribution Profit Margin
As you start crunching numbers, the key is your “Contribution Margin,” as described by Rod Bristol of Profit Mastery. Essentially, when calculating your Contribution Margin, you’re determining how much revenue the new product must generate to cover both your fixed and variable costs.
Fixed costs include items such as rent, administrative salaries, utilities – they do not vary with sales or production volume. Variable costs are directly proportional to new sales. They include things like materials required for the new product, marketing costs and salaries for salespeople.
I won’t get into the exact calculation for a profit margin – I’ll direct you to one of my blog posts for a breakout of the Contribution Margin – but in a nutshell, it’s a ratio of how much in sales you need to cover your costs. At the end of the day, you want to be able to show that for every $1 in fixed costs, you need to make $__ in sales to cover it.
You also want to make sure you’re not falling into a cash trap, where there is not enough cashflow to cover the cost of your new equipment, without incurring too much debt.
You don’t survive in this business by just keeping up with the Joneses. Even though the three press manufacturers mentioned here are all producing hybrid printing solutions, there are nuances to each of their individual approaches.
Their decisions to proceed were based on thoroughly understanding the marketplace and their customers, and by conducting an in-depth financial analysis. These are the basics for anyone launching a new product or technology.
If you want to be a leader, follow the advice of these three leaders. It’s the kind of wisdom that will impact your bottom line.
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. Rock can be reached by email at firstname.lastname@example.org.