September 17, 2021
10 mins
read time

How to Test New Product Lines Before Investing in Inventory

A quick guide on how to test new products before making major investments on infrastructure, inventory and your team's resources.

Loop Team
How to Test New Product Lines Before Investing in Inventory
A quick guide on how to test new products before making major investments on infrastructure, inventory and your team's resources.

The opportunity of adding a new product to your online store is always there and it is always knocking on your front door. Sometimes that’s a good thing. It’s a new facet of your revenue stream that could broaden your audience and pump up your growth. In other times however, it can be a sullen investment that ends in a few broken hearts, maybe some tears, and definitely some queasy changes to this quarter’s bottom line. In order to avoid the latter, we must do what all eCommerce players must do - we must test it.

Luckily for you, me and all the other store owners out there, it’s not too complicated. There are several ways to test a new product line before we commit any major investment to it. There are even ways to do it without holding any inventory. Today, we break those methods down piece by piece.

Choosing a New Product Line to Test

When you are thinking about any changes to your online business, the most important thing to do is to approach it with the right mindset. In many cases you have to be subjective and base your decisions on what you have learned from your audience through your experience running your eCommerce store. In this particular case, that’s the mindset we start with.

You are the owner of your audience. You’ve cultivated relationships. You’ve grown a brand from its roots up to its leaves. So what better person to list out some alternative products that you are not yet selling but that you think could be game changers for your store.

If you’re a candle-maker, you might consider trying different materials for your candles. Maybe wood wicks are still a thing.

If you are building an online empire of socks, you might want to consider having people’s pets printed on them.

Whatever your niche is, we’re confident you already have a few ideas in mind as to what your audience would respond to. 

The important thing to keep in mind here is that as a business owner you should always be aware of your market trends. As much as I’d love to think that life is unimaginably abstract and that consumerism has a mind of its own, it’s not and it doesn’t. Your ideas should be coming from your first hand experience with the trends in your market. It’s okay to have a few out-of-the-box ideas, but do you know what’s the best recipe for successfully implementing a hot new product? Starting with a proven hot new product.

That’s the main goal - to prove that a new product has legs before making any major investments into inventory and logistics. It will save you time, effort and most importantly it will save your bottom line.

There are a number of ways to go about testing new products, here are some of the most commonly used methods:

1. Dropshipping 

Dropshipping is a retail business model where your company never actually holds, or warehouses inventory. Popularized in the last decade, this business model reduces the inventory risk for an ecommerce business since it does not have to worry about manufacturing times or warehousing costs.

There are small companies whose entire business model is made up of dropshipping every product. There are also massive companies like Wish who make their money by employing a dropshipping model where the package you purchased comes straight from the factory to your doorstep without visiting any warehouses in between.

Essentially dropshipping means you are acting as a distributor and a marketing front-end for a factory’s products. 

For example, let’s say that I run an online store similar to Phusia where I am selling health and beauty products. I heard about a new cosmetics product that I think my audience would love. If I wanted to test it out by dropshipping it, I would simply find a factory or supplier who accepts single-item orders and I would list it on my online store for sale. Once a customer buys it, I receive the cash and proceed to place an order at my supplier with the delivery address of my customer who bought my test product. This is a great way to prove that this new cosmetics product can sell while incurring minimal costs, potentially even profiting right away from the sale.

Dropshipping can be extremely cost effective as you only incur product costs once the customer has already paid you for the inventory you’re about to order. However, there are also big drawbacks to dropshipping, namely that of shipping times.

Because you are not warehousing the product yourself and instead you are ordering it straight from a factory somewhere far away, it will take a while to get to your customer. You can pay for express shipping options like ePacket but at the end of the day the package could take up to a month or more to reach your customer. This can certainly leave the door open to customer support headaches. 

The important thing to note when dropshipping is to always manage expectations. Offer free shipping if possible and be explicit about the fact that it may take a long time for the product to reach your customers. If the product is as hot as you hope it is, consumers won’t mind waiting an extra week or two for it.

2. Pre-orders

Pre-order campaigns are similar in nature to dropshipping in the sense that there is minimal inventory risk associated with it. The primary difference with pre-orders however, is that your customer is more tolerant about wait times for obtaining the product but they’re also less likely to buy it. In addition to that, stores will also typically order from suppliers and warehouse the inventory before fulfilling the pre-orders.

A pre-order campaign is typically supported by a PR campaign to create hype within your audience which causes them to want to grab a seat before you run out of pre-order stock.

Everyone’s favorite electric car company, Tesla, used this tactic to great effect in 2019 when gauging market demand for their new truck design. Pre-orders have also become a market standard in the video gaming industry as a great way to earn revenue and gauge market demand before finishing the development of a video game.

Many large and small brands use this tactic to gauge market interest and know how much product they will need to meet demand. The only issue when implementing this method is garnering enough hype around your new product that customers are comfortable pre-ordering it and not receiving it right away.

3. Focus Groups

You’ve been at the ecommerce game for a little while now and chances are you’ve built an audience around your brand. So why not ask them to help you figure out whether your proposed new product would make a splash or not.

Focus groups can be effort-intensive although they are still relatively cheap. Offering each participant a $20 starbucks gift card for an hour of their time is not terribly expensive and it could even offer you auxiliary information that you wouldn’t have discovered otherwise. 

Focus groups also give you an interesting perspective on whether your product and your brand match up. Sure, testing the product’s sale potential is important but testing the product’s compatibility with your brand is also key in retaining the loyalty of your customers. If for whatever reason the focus group participants are confused as to why you’re launching this new product, that could be a clear indicator that your audience does not intuitively link this proposed new product to your brand image. To see an example of this misalignment with a new product, we have to look no further than the established Cosmopolitan magazine and its failed endeavour to bring their own yogurt brand to market. Perhaps a few well run focus groups would’ve helped save the millions of dollars that went into their failed yogurt product.

Focus groups can be a great way to measure interest in your proposed new product while ensuring that the new product line matches up to your audience’s expectations.

4. Crowdsourcing

Crowdsourcing is a similar tactic to using focus groups, except instead of asking 20 customers for an 1 hour of their time, you’re asking thousands of customers for 20 seconds of their time. 

Best served as a poll in social media platforms, crowdsourcing your product ideas is a great way to get started with testing and ensuring that the mass public will receive the news well.

Crowdsourcing can also be used in conjunction with pre-orders to obtain the PR hype around new products sourced from your audience. You can bet that if your social media users vote for a brand new product and you listen to them and launch it on your store - you are very likely to get a flood of consumer demand. Using a pre-order campaign could help stagger the inventory demand when you start actually selling your crowdsourced product.

Crowfunding platforms like Kickstarter take this example and mash it up with pre-orders to offer an all-in-one product launch solution to brand new products. As an established brand it may not be best to use a platform like Kickstarter for a new product but there’s certainly lots to be learned from their model.

5. Limited Stock Runs

Last but not least, when all else fails, the next best thing could be simply to make limited runs of new products. Ordering a small amount of inventory and running a campaign for this limited time offer could be a great method of moving your new product line and running a small-scale batch test.

In terms of inventory risk, this method is certainly less favourable. This is basically a way to incur 20% of the usual risk of stocking a new product. It may be a favourable tactic if you’re certain the product will sell but as far as testing methodologies this falls into the “trial-and-error” category.

There’s nothing saying it can’t be effective however. Some companies make their living off running limited time campaigns on all their products to establish exclusivity in that if you don’t buy the product today, you may never get the chance to do it again.

Some of the biggest retail brands of the world use this tactic as a main marketing method, while skipping the testing phase altogether. Take Nike for example, their Air Jordans brand is considered the most exclusive sneaker brand in the world and they make millions out of limited time runs.

Evaluating Test Results

Testing a new product line should come down to data and statistics. If you ran a test and saw no traction, it may be worth it to consider a different product.

A failed test doesn’t necessarily mean that a product won’t sell. It could mean that the test was executed improperly. However, this exercise is about reducing risk in a major investment for your store and if your initial tests say it’s not worth it - it may be a good idea to listen to them.

The primary thing to remember when thinking about the next move for your ecommerce store is that data is king.

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