Part 2: Identifying Your Initial Offering
In the first installment of this series, we laid out a road map for where this six-part series would take you. Now it’s time to roll up your sleeves and begin the real work of developing your small-batch recipe for the CPG marketplace.
Who Is Your Target Customer?
The answer to this may be deceptively complicated. It would be easy to go with something simple, like “Anyone who likes pasta sauce should try my product!” But if you’ve shopped for your own groceries, you can appreciate the multitude of questions that can come into play as you stand there before the vast selection of pasta sauces on the shelf.
Start with something very broad, then whittle it down. Are you selling to moms? Dads? Foodies? Broke college kids? Once you have a general idea, try to get more granular. Does your customer care about the ingredient statement? Eco-labels like USDA Organic or Certified Humane? How about health or nutritional claims? This article does a great job of illustrating just how granular you can get, offering twelve sub-groups of “moms.”
Identifying your target customer will help you move on to the next step: identifying your distribution concept.
What Is Your Distribution Concept?
This one is more straight-forward. Are you going to:
- Distribute direct-to-consumers (DTC) at your restaurant, farmers markets, or other public events;
- Self-distribute to local/regional grocery stores; or
- Partner with a third-party distributor to fulfill orders at the grocery stores and independent markets?
Each choice presents unique challenges and layers of regulations and costs.
DTC distribution is typically the laxest from a regulatory standpoint, with less oversight and record keeping related to the production and transport of your product.
Depending on your product, self-distributing to grocery stores may become more complicated from a regulatory standpoint, but it offers the benefit of greater market reach.
Partnering with a third-party distributor may allow you to focus on more pressing matters like the production and marketing of your product (more on that in Part 5), but it will almost certainly introduce an added layer of regulation and accurate record keeping, particularly if your product needs to be refrigerated or frozen, or contains alcohol or other FDA-regulated substances.
And now for a real curve-ball: Remember when we identified your target customer? If you’ve opted for distribution model B or C, you’ve now just added another vital customer to your marketing to-do list: The gatekeeper/buyer at your point of distribution. Whether you’re dealing directly with a buyer at a grocery store or at a third-party distribution outfit, you now have to market your product to them in addition to your end user (and your marketing approach will likely be somewhat different for these two groups).
Once you have an idea of to whom you are selling your product and how you’re physically going to get your product to market, you can begin to think about pricing. Note that we’ll dive deeper into your distribution plan in Part 6.
What Is Your Pricing Model?
This one is pretty easy. Your three main choices are economy, value (aka penetration), or premium pricing. There are some more “grey area” pricing concepts like skimming, but for your first product launch I suggest you keep it simple. Let’s look at the differences:
- Economy: Your product is priced to move! You are probably not using a lot of specialty ingredients or fancy packaging, and you are hoping that a lower pricing structure will move more volume.
- Value (aka Penetration): You are offering your customers something pretty great at a reasonable bargain. This is a good path to take if you are sourcing some high-end ingredients in bulk, or if you are in fact offering a high-end product but are ok with a smaller profit margin as your try to achieve a foothold in the market.
- Premium: Your customers want the best stuff on the shelf and aren’t afraid to pay for it.
Now that you have a basic idea of your target customer, distribution method, and pricing model, let’s begin the actual work of making your product in Part 2! Can't wait for Part 2? Download our entire guide!