One key aspect of running a successful business is determining whether you have a market ready and willing to buy your products or service.
Product validation for ecommerce is important because you can invest a lot of time, energy, and funds into a new product, only to later discover that no one wants to buy it. Many product ideas start with a hunch, but you need to go further than that if you want to improve your chances of success.
How can you validate your ecommerce product ideas, and why should you? Read on for our thoughts and tips:
Product validation refers to techniques for testing out new product ideas to see if they are viable or not. Testing can involve a number of techniques, from studying market data, to testing on people within your target market.
The bottom line: Are you selling something people want to buy, at a price they’re willing to pay?
The answer, in a nutshell, is to improve your chances of successful product sales. Product validation helps you to “know before you go” - meaning you don’t waste time and money on products that people won’t buy.
Somewhere around 40% of products fail, and besides poor marketing or store interface, failing to validate is a big reason why. A common mistake business owners make is to go for products that they like themselves, on the hunch that others will too. It can be difficult to swallow when you realize that you’re not your ideal target market, or that while the product is useful to you, the wider market for it is too small.
In a broader sense, it’s important to validate the aspects of your business that present some sort of risk. The greater the risk, the more important it is to validate that aspect. Holding inventory is one of those risks, along with spending money on manufacturing products, or spending a ton of money on advertising to a customer base that isn’t receptive.
From our point of view, top areas to validate in your ecommerce business include:
For this particular post, we’re focusing on product validation only.
You hear many stories of the product idea that went from napkin sketch to a best seller, but the truth is, the most successful products were almost always rigorously evaluated first. No one wants to invest huge amounts into manufacturing and inventory, only to have products gathering dust in a warehouse.
Here are five ways you can validate products before committing to a bigger investment:
Exploring the current market is a great place to start while you’re still in the ideation stage for your products. Analyzing competitors can help you to confirm that there is market demand for your product idea, especially if they’ve been in business for a while.
Compare what your competitors are doing to what you are planning on doing. Sometimes you can find new opportunities, such as a slightly different variation on a product that delivers on an untapped demand. In fact, you can often gather great insights from looking at their product reviews. Users will make suggestions about what they think could make a product better.
When you conduct your research, you need to build a clear picture of what your competitors sell, who they’re selling it to, and how they’re selling it. Look for anywhere they interact in public, for example, sign up to their email newsletter and follow them on social channels. Consider what they’re doing well, as well as any potential opportunities they’re missing.
Some examples of tools you can use include:
Market research can cover a number of methods of finding current data on trends and consumer preferences. Here are a few ways to gather and analyze data:
Many ecommerce brands use the strategy of generating pre-launch buzz in order to gauge interest. They launch micro-sites or landing pages with the value proposition of their product and an email sign-up form to gather interested subscribers.
An advantage of doing this is it costs very little and gives you a list you can email once you launch a new product. A downside is that it still doesn’t tell you if people are genuinely willing to spend money on the product.
The most important validation is a sale. If you can repeatedly get someone to give you money for what you're offering, then you've eliminated a lot of the risk. Pre-orders are one of the best ways to do this.
Among the positives of pre-orders is that people have already given you money - you know how many products to get into inventory and can fairly accurately forecast your revenue. Kickstarter has become a popular platform for product validation for this reason. It’s a relatively low-cost way to spread the word and gauge whether people will pay money for your product idea.
Crowdfunding platforms such as Kickstarter, Indiegogo, and others also have the advantage of giving you a firm timeline around which to base your goals and activities. For many business owners, it helps to manage new product ideas like a project, with key tasks and deadlines. One tip here is to look into the different platforms to figure out which will suit your needs the best. Each works differently – for example, on some you keep all money you raise (outside of fees), while in others, you only keep the funds if you reach your fundraising goal.
Outside of crowdfunding, you could also gather pre-orders via your website. For example, you can set up the product on a regular product page, or even create a unique landing page to gather pre-orders.
A potential downside of pre-orders in-general is that you can still encounter financial challenges. For example, what happens if you take payments or deposits, but don’t sell enough to cover the costs of production? What happens if costs unexpectedly increase, such as due to supply chain issues? It’s important to consider these scenarios in your planning.
Dropshipping may be the most low-risk method of ecommerce product validation. It allows you to test the waters without committing large sums of capital. Basically, you use your website or other communication channels as the vehicle to gather orders for the product, while a supplier holds inventory and fulfills those orders.
The main downside is that profit margins on dropshipping tend to be lower than on wholesale purchases. It’s the trade-off between risk and reward - you accept less of the risk, so reduce your profit margin. Still, for many ecommerce sellers, dropshipping is their favored business model and brings great returns.
In terms of product validation, there’s nothing stopping you from using dropshipping as a testing ground. Once you know that you can sell a product and that there is suitable demand among your target customers, you could opt to make a large wholesale purchase with much more certainty of your longer-term success. Your profit margin on those products increases, and pretty soon, you may have found some core products for your ecommerce store.
Mothership client Yard Mastery followed a strategy like this. They started out by dropshipping lawn care products and were able to gather data about their audience and product sales this way. They established a demand for proprietary blends of fertilizer, then were able to get those made wholesale to sell in their store.
There are many strategies you can use to validate your ecommerce products, but none are as effective as actually getting customers to buy the product. With this in-mind, pre-orders and dropshipping give you this validation, although dropshipping is the lower risk option.
Dropshipping means that your suppliers take the inventory and manufacturing risk, while you take a lower profit margin for your sales. If a product proves to be a winner, you might then choose to take on the inventory risk yourself and buy wholesale.
Mothership connects dropshippers and their suppliers for a seamless ecommerce system. Check us out and book your demo here today.