How to sell new products to your existing customers

Introduction

Our recent articles have been focusing on sales growth. Winning (profitable) new sales is the best way to drive a business’ profit, cash and value. When times are tough, as now, being able to turn on a sales tap can ensure your survival.  

But few businesses are clear about the paths they will take to sales growth - or the order they will take them in. 

We call these paths the runways to growth; there are ten of them, as we discussed. We have taken a closer look at Customer Experience and Customer Penetration; now we will look at selling new products to your existing customers, which we call Product Development.

Product development

Customer Penetration is about selling more existing products to existing customers. Product Development is about creating new products for your existing customers. 

Both approaches are based on the fact that it is easier to sell to someone who knows and trusts you than to create a new relationship with a new customer. We saw last time how selling to existing customers is easier, cheaper and has greater success rates than selling to new ones. 

Much the same applies when selling them new products: existing customers are 50% more likely to try a new product and will spend a third more when they buy.

But this approach is higher risk, as you need to create new products. This requires significant effort, in management time, R&D capacity, production and marketing, as well as sales. And many new products fail at launch: in FMCG categories, the failure rate can be as high as 90%.

How to do it effectively

As with Market Penetration, a deep understanding of your customer is essential. But there is a slightly different focus here; it is about thinking about their unmet or poorly met needs.  Their frustrations are often a good place to seek opportunities. 

But you can’t expect your customers to give you the answers, as in most cases, you will be far more expert in the area than they are. As Henry Ford famously might have said “If I’d asked my customers what they wanted, they would have said a faster horse”. Gain insights and understanding from your customers, but the task of translating that knowledge into products is yours.

For the greatest chance of success, find adjacent markets to your own, where you have a reason to be. For instance, after launching its original Apple 1 in 1976, Apple stuck to computers for the next twenty years, establishing its reputation. It then brought out the iPod in 2001, a natural step as it was another consumer technology product, really a specialised computer. This was followed by similar launches – the iPhone in 2007 and the Apple Watch in 2015. In each case, the qualities inherent in the Apple brand could translate to the new products. Even better, each could link to the others seamlessly, increasing their reason to exist. Do you understand your own products well enough? How can their reason to exist be transferred to new products? What does your brand stand for?

One way to reduce risk on new product launches is to create alliances, our Growth Runway number 8. This involves piggybacking on someone else’s unique or established skills, brand or other asset. Brand licensing is a good example; a company like Disney will offer licenses of its characters to publishing houses or food and drink companies. Disney is able to access a market that it could not enter otherwise, lacking the skills, and the licensee reckons that a yoghurt with a Disney princess on will sell proportionally more than one without. Both are happy to take a smaller share of a bigger pie. Franchising is another example of alliances, as we discussed last time with McDonalds. We will come back to this runway.

Many businesses categorise their suppliers; there is a cost to managing a supplier, and so businesses try to minimise their number. If you are a B2B business, do you know how your customers categorise you? If you are seen as a strategic supplier, they may be keen to take more products from you, and may even work with you to create new products. If you are not strategic, how will you be able to sell your new product? It is best to have considered this before you start the development process!

It almost goes without saying that your new products need to be able to compete on their own terms. Having excellent R&D capability is therefore a prerequisite for this runway. Be sure to identify all other areas of your business that will need to have the skills to launch new products. What new knowledge or skills will your sales team need, or your customer service department? As with any product launch, be aware of your competition, and know where you are superior.

Chocolate manufacturers are past masters at Product Development. The most extreme example is surely KitKat in Japan. KitKat has a unique advantage in the market – its name approximates to “Good luck” in Japanese, and it has become a popular gift there. Nestle, the brand’s owner, has capitalised on this by launching hosts of variants, including Soybean, Cherry Blossom, Pumpkin and (our favourite) Red Bean Paste. Advantages of doing this include occupying shelf space that otherwise competitors might take and creating PR-able stories, as well as giving customers something new. 

The example we will look at more closely is probably less familiar to you than chocolate, however.

Case study: John Deere

Nothing runs like a Deere

John Deere is an American maker of agricultural machinery. It is a large company: in 2019, it was listed as 87th in the Fortune 500 America's ranking and 329th in the global ranking. It employs 67,000 people and is the world’s largest manufacturer of farm equipment. 

History

John Deere, a blacksmith, set up a workshop in Grand Detour, Illinois, in 1836. He made tools, such as shovels and pitchforks, but his breakthrough was in 1837, when he used steel to make a plough blade. Ploughs had been made of iron or even wood before this; the thick heavy prairie soils stuck to the blades, making ploughing hard. However, the ‘self-scouring’ steel plough remained clean, and is credited as one of the key drivers allowing settlers to expand into the ‘wild west’.

His other innovation was aimed at customers – he made to stock rather than made to order. In other words, when a customer wanted a plough, they could come in, see it and touch it, and if they wanted, leave with it. Other manufacturers only produced when there was firm demand; as a result, the customer had a lengthy wait.

Business was good, and by 1849, he was producing 200 ploughs a month. By the 1850s, a variety of other farm implements were being produced, including planters, wagons and cultivators.

The rise of motor vehicles in the early 20th century created a new opportunity. John Deere experimented with their own tractors, but in 1918 acquired the Waterloo Boy tractor business. Tractors went on to become the core of any working farm – and of John Deere. 

Combine harvesters followed in 1927. These were improved, and by the 1930s, they could tackle slopes as steep as 50% gradient. Self-propelled combines followed in 1947. 

The Second World War created opportunities. John Deere produced tank transmissions, military tractors, aircraft parts, ammunition and mobile laundry units. The post-war years saw international expansion, with a factory built in Argentina and the acquisition of a German tractor maker, Heinrich Lanz AG. 

John Deere launched the modern tractor in 1960 at its legendary Deere Day on August 30th. 6,000 customers, journalists and members of staff were flown into Dallas to witness the launch of a New Generation of Power, with unprecedented razzmatazz, with even a tractor on display with a diamond-encrusted number plate. 

These new tractors had four- or six-cylinder engines, rather than Deere’s traditional two-stroke, giving them much more power. They also had many other improvements, such as improved hydraulics, easier operability, enclosed cabs with air-conditioning and heating, and even an option for an 8-track cassette player. John Deere was established as the pre-eminent American tractor maker. 

John Deere’s currently operates in a number of market segments:

• Agricultural, including tractors and combines, as well as seeding, spraying and cutting equipment.
• Lawn and garden, including lawn mowers
• Construction, including excavators, bulldozers and backhoes.
• Forestry, with a wide variety of fellers and loaders
• Landscaping and golf
• Engines and drive trains

In September 2017, Deere & Company signed a definitive agreement to acquire Blue River Technology, which is based in Sunnyvale, California, and is a leader in applying machine learning to agriculture. John Deere is now as much a software company as an engineering business.

Learnings

John Deere has grown by using the Product Development runway, as well as Market Development. It first expanded within the agricultural sector, from ploughs to planters to tractors to combines. Then it took this expertise and applied it to adjacent markets, such as forestry and construction.  

But it is clear that underlying it all is a Customer Experience belief, whether this is understanding that customers wanted their plough immediately, or wowing them in Dallas or simply understanding the life of a farmer in intimate detail. 

John Deere has ensured that it is offering the latest technology, whether that is a four-stroke engine or the latest satellite-guided AI-enabled equipment. It has continued to invest in upgrading existing product lines even as it has brought out new ones – this is an area where many businesses fail, distracted from their bread and butter by shiny new projects.

Any organisation must be willing to disrupt itself before it can hope to respond to a market being disrupted around it. John Deere put everything on the line, and with it the definition of “product” had changed forever. With its drive to digital, it is now both a product and a platform company. It has opened the door to compete not only with other farm equipment companies but with the Ag Tech companies as well.

Selling new products into existing markets requires a deep understanding of the market itself, including the customers. With its new networked products, John Deere can capture data about and from its equipment, helping identify ways in which it can improve performance. Capturing customers’ patterns of usage will further extend its customer-driven Product Expansion efforts.

Conclusion

Product Development can be an attractive way to expand your business, but you should ensure that you are aware of the risks of launching new products. Using Pre Mortems (see here) can help identify and mitigate the factors that can prevent success. In many markets, such as FMCG, marketing costs for launching new products can be high, so this is often not a good way to boost short-term profit. Ensure your financial estimates are realistic.

But a successful launch of a new line of products can drive your sales for years to come, as well as increasing the value of your business. It can also help spread your risk, by being less reliant on your core products.

We’ll be taking a break from posting new articles for a while, but we’re still around! Please feel free to contact us with any questions or thoughts you might have, on anything we’ve discussed, or anything else.  

Synesi Consulting helps businesses and the people in them to become peak performing. We understand what the very best organisations do, and work with companies like yours to give you the skills, plans and structures to do the same.

www.synesiconsulting.co.uk