The Changing Face of Product Development

The most successful Kickstarter campaign ever just concluded, which was for an "E-Paper Watch" called Pebble.  The company raised over $10,000,000 through the crowdfunding platform with contributions from almost 69,000 people.  This feat reflects a major shift taking place in the way that people bring products to market.  This is a shift to which traditional retail and wholesale companies should pay close attention, as it stands to dramatically alter the way they do business.

The barriers to entry for designing, developing, and marketing products have decreased significantly in the recent past.  Everyday we move closer to a world in which anyone can make anything.  If you're familiar with the maker movement or have seen a 3D printer in action, then you may have come across this line of thinking before.  As Wired proclaimed on the cover of its March 2011 issue, "The DIY Revolution Starts Now."

Today there are relatively simple and straightforward ways to do things that previously required significant capital or expertise.  Freelance websites such as eLance, Guru, or 99designs enable anyone to connect with professionals that have specialized talents.  Since these are open marketplaces in which anyone across the globe can participate, the price to access such talent is typically low.  Once you have a design, you may need to create a prototype.  Well, you can now have your very own 3D printer for $549! (Coincidentally Printrbot was another very successful Kickstarter campaign).  Need funding for your product? Just make a short video explaining your product or idea, and post a project on Kickstarter or Indiegogo.  Or maybe you have an idea and you're not up for all of the work to develop it yourself - in that case just submit the concept on Quirky.

So what does all of this have to do with retail? Most retailers employ a defensive mindset with regards to new product procurement.  They have all been burned by having too much inventory of a poorly selling product.  Consequently they are highly risk averse when it comes to introducing new products.  They favor doing business with vendors with which they have long held relationships, in part because they have agreements in place with these vendors that provide downside protection.  While there is value in this model, retailers that adhere to it too closely risk missing out on the great opportunity presented by the shift in product development.

New product innovation will increasingly come from unexpected places.  Today many new products come from established companies, either through internal product development or through inventors who partner with these companies.  As the barriers to designing and developing new products continue to decrease, the value that an established company adds will be less important.  Retailers that keep an open mind to working with smaller and less established companies will be more likely to capitalize on the shift by offering more innovative and unique products. is a great example of a flexible retailer that maintains an open mind with regard to new products.  Fab is able to sell products from small independent vendors alongside products from major brands.  It's not completely fair to compare traditional brick & mortar retailers with Fab, since Fab does not own any inventory and only pays its vendors after sales have concluded.  However traditional brick & mortar retailers could learn a lot from certain elements of Fab's approach, two of which are being open-minded and being transparent (learn more about how Fab thinks from this recent profile in the New York Times).  Wal-Mart has also embraced this mindset with its innovative Wal Mart Labs team and its recent Get on The Shelf contest.                

Another valuable element of the shift to crowd-sourcing is that the crowd can act as a predictor of success.  People vote for new products by pre-purchasing them on Kickstarter and Quirky.  This feedback is easy to measure and can be obtained in a relatively short period of time.  This means there is less risk when new products are introduced.

While we're still in the early days of this shift, it is clear that we are headed down a path of product development democratization.  There is still significant execution risk involved today in producing something and bringing it to mass market.  Who knows when the Pebble will actually ship, and what hiccups will occur with production along the way.  This is a risk involved in dealing with a new product, and retailers must take extra care to protect themselves from it.  However, with the right controls in place, there is no reason why a company like Best Buy shouldn't do everything it can to get an exclusive deal on the Pebble watch.  There are other products out there that will be just as successful as Pebble that will come from tinkerers and inventors.  Smart retailers will recognize this and adjust their procurement strategies accordingly.

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