I have recently obtain a patent design. My question, is it better to manufacture or license the product?

The type of product is a plastic novelty item that is attached to a keychain or zipper backpacks, carrying cases, etc. It is a very simple piece that requires a simple mold. I can manufacture the piece. My plan for distribution is to make out presentations and send them out. Same plan for licensing, unless I need to do it differently. That's something I also need to know. I have made contact with Hong Kong, and I can make the product for about half the price that I can here, in the states. The item sells for about a dollar. Probably make it for about . 12 Cents in Hong Kong. Would like to sell it to the retailer for about 25 cents. Need some information on marketing , but would like to make at least .13 cents on each one. Would it be a lot easier to license it, and would the profit be near the same? I don't know how hard it is to get a single product into a store. I would also have to purchase counter display stands. That's all the information I have up to this point. I hope you can give me your opinion on which way to go. Thank you very much.
 

Doug Fernandez
 

A:

Doug,

Though manufacturing is not my primary focus, I do have a background in it so let me answer this question from my own personal experiences. Also, I want to emphasize the benefits and hassle factors of each, plus add in my marketing expertise.

Though there is no right or wrong answer to your question, there probably is a “right” answer based upon your capital, experience, and personality. Hopefully these will ideas will be things you haven’t thought about and might even trigger a thought in your head that helps you answer the question. (I don’t sound like psychologist do I!)

Here is a list of pros for manufacturing the product yourself vs. licensing: 

The pros of manufacturing the item yourself are:

·                     Tighter control in the manufacturing process

·                     Not having to rely on anyone else’s schedule

·                     You know exactly what your costs are

·                     Easier to understand and work with than licensing

Regarding manufacturing in Hong Kong, you will probably save costs but you will give up control and delivery speed.  The profit all depends upon what the market will pay for your item.  I recommend showing samples to people and asking them how much they think it's worth.  Retailers typically want to double their cost.  If you can live with that (and many people do), then that can be a great option.  Just make sure you are working with people that you know can deliver. Keep in mind, there is no free lunch.

The pros of licensing are:

• You don’t have to manufacture so you can keep your overhead low with less hassles.

• No need for manufacturing employees

• No need for a larger building

• Less costs in electricity and other overhead expenses

• You can devote your time to selling the product

•  Other people do the work

Capital:         

Do you have enough money to buy the mold, manufacture samples and product, market the product, hire help. If something goes wrong, (E.G.: The mold is wrong and it’s your fault) or things move slower than you think, do you have enough money to handle the crisis’s? Will you hire employees to make the product and do you have the capital to pay them and the associated taxes and benefits?  Also, do you have “time” capital”?  If you are working another job, raising a family, etc; will you enough hours to make this work?

Experience:   

Do you have a background in manufacturing this type of product or at

least knowledge how to do it without a huge learning curve?  Can you

handle all the possible problems associated with manufacturing? 

Personality:   

Do you have the personality, patience and other character traits that

work best in manufacturing or in marketing and sales?  That is, what are

you best suited for and what will you be happy doing?

After all this, to best answer your question, let me ask you a final question. What do you do best and what do you like doing best?  If it’s making things, then that should be your focus.  If you really don’t like making things and creativity is your thing, than put you time into marketing and selling and let someone else make it.

Let me now address the marketing aspect of this product.  There are other types of this product out in the marketplace now.  You need to find a unique niche for selling it.  For example, that niche could be through:

Distribution – You sell this product through a channel that now    one else uses

Target Market – Is there a market than can really use this product that is not being served or is underserved by a similar or competing product? 

Use – You product is used entirely for a different reason than similar products

No matter the avenue you decide for marketing, you must come up with a marketing plan that not only creates awareness in your product but goes far beyond that to create interest, desire, and action in your target market.  This is what Primal Marketing Ò is all about.  Whatever you do, do not put your company name or product name on the top of your literature and your sales presentations. Do not give the litany of who you are and how great you are.  Find out your target customers emotional hot button regarding your product and give them an emotional, compelling reason why your product answers that need.  It could be as simple as it’s easy to sell and it will make them lots of money.  Just put that result into words that they use.

 P.S.:     Another option you might think about if you decide to manufacture the product yourself is manufacturers reps. They are sales people who represent many different product lines, normally in a particular industry, E.G. Medical, Automotive, Retail, Etc.  They already know people and have product in locations.  They can immediately walk right in and show your product to prospects.  The cons is that they represent many lines so you will not be at the top of their list unless they see a huge benefit (and yes I mean money) form your product.

Also, novelty items such as this are sold by hundreds if not thousands of promotional products companies such as mine Contact ASI (American Specialty Institute www.joinasi.com) or PPAI (Promotional Products Association International  www.ppai.org) for additional information.

Rodger B. Price