Time to Market is an absolutely key parameter for all OEM products. The reason for this is linked to product life cycle and market penetration. If you delay your product, you are giving up market share. The diagram below makes it very clear exactly what you are giving up as you delay entry of your product into the marketplace.
Market share is very important in terms of profitability. We have known for decades that profitability has the strongest correlation with market share and from this we know that we should strive for market share in our defined niche. The actual addressable market is the area under the curve. As delays are introduced, the benefits from a longer sales life are lost along with the benefits from a larger market. As a result, a small delay can create a large loss in market share and a huge loss in profits. It is also true that the later you are, the worse the time to market share losses are.
Numerically, how important is time to market? To understand this, think about the effects of losing market share or sales volume on your product.
The costs can be summarized as:
- Variable Costs Affecting Gross Margin:
- Bill of Materials
- Manufacturing Costs
- Selling Costs
- Fixed Costs:
- R&D Costs
- Marketing Costs
- General and Administrative Costs
- Plant and Equipment Costs
The variable costs are affected by the smaller market by increasing the costs on a per unit basis, particularly bill of material costs, and over time, through experience effect, the manufacturing costs. The loss of units of sales along with higher costs per unit erodes the gross margin or the fundemental business of the company.
At the same time, the Fixed Costs are not affected by time to market delays. We must be prepared to manufacture to meet the projected volume and the R&D, Marketing and G&A costs are unchanged. Overall, we have much smaller net sales, which cost us more per unit, and a fixed set of costs that does not change. A fairly small change in the number of units or a small market share reduction leads to a substantial profit reduction. All of this is brought about by time to market delays.
The number one rule of OEM product development is time to market is the most important factor of new product development and launch.