New Product Development Presented by Bill Ray of Precast Consulting Services

New Product Development Agenda Credits Ideas with a payoff New product development & margin improvement Example product line – Lightpole Bases Checklist for success Summary

New Product Development Credits Arrow Concrete Products – Granby, CT Arco Concrete – Fort Lupton, CO Aurora Precast – Aurora, IL Colorado Precast – Loveland, CO Southern Precast – Alachua, FL Utility Structures – Nepean, Ontario Wilbert Precast – Spokane, WA Adam Neuwald – NPCA staff

New Product Development Who is Bill Ray Principal at Precast Consulting Background Business owner PCI certified producer General manager Sales exceeding $15 million Project manager Projects exceeding $ 10 million Chief fin. Officer Sales exceeding $150 million Education MBA University of Chicago BS Florida state Contact info: 770-979-3711. billray@precastconsulting.com website: www. precastconsulting.com

New Product Development New Product development – Margin Improvement

New Product Development Margin Improvement The starting point – What’s your sales margin? Analysis: compute sales margin by product line Sales and cost of production by product line Allocate fixed costs to product lines Get involved to keep the effort focused and efficient Results Product lines losing money need immediate attention High margin product lines need emphasis Product lines with margins 0-5% need to be replaced

New Product Development Margin Improvement Progression toward commodities Profit by Product line $000 Sales 15,000 100% Total Cost of Goods Sold 12,500 Gross Margin 2,500 % 17% Sales, General & Admin 1,000 Interest costs 500 Profit before Tax $ 1,000 % 6.7%

New Product Development Margin Improvement Progression toward commodities Profit by Product line $000 Losers Bleeders Cash Cows Stars Sales 15,000 200 4,300 10,000 500 100% 2% 28% 67% 3% Total Cost of Goods Sold 12,500 190 3,655 8,280 375 Gross Margin 2,500 10 645 1,720 125 % 17% 5% 15% 17% 25% Sales, General & Admin 1,000 20 325 600 55 Interest costs 500 10 150 300 20 Profit before Tax $ 1,000 (20) 150 820 50 % 6.7% -10% 3.5% 8.2% 10%

New Product Development Margin Improvement Progression toward commodities Profit by Product line $000 Losers Bleeders Cash Cows Stars Sales 15,000 200 4,300 10,000 500 100% 2% 28% 67% 3% Total Cost of Goods Sold 12,500 190 3,655 8,280 375 Gross Margin 2,500 10 645 1,720 125 % 17% 5% 15% 17% 25% Sales, General & Admin 1,000 20 325 600 55 Interest costs 500 10 150 300 20 Profit before Tax $ 1,000 (20) 150 820 50 % 6.7% -10% 3.5% 8.2% 10% Take action benchmark guidelines: If Losers exceed Stars If Bleeders exceed Cash Cows If Cash Cows are less than 50% of all sales

New Product Development Margin Improvement Commodity Pricing – Low Margin Products undifferentiated - interchangeable Standard specifications Technology is mature Buyers market – excess capacity Low cost producer sets the price Product sales margin less than 5% Many products fit this description Quality and ethical challenges They remain the primary market for many producers

New Product Development Margin Improvement Commodity Pricing – What’s the answer? 1. New production technology Margin improvements are typically short lived

New Product Development Margin Improvement Commodity Pricing – What’s the answer? 1. New production technology 2. Differentiate your products & services – improve margin Focus on markets - Be market driven rather than product driven Create value - Provide solutions, not products Segment customers - Better focus on market needs New services - Focus on selected markets & customers

New Product Development Margin Improvement Commodity Pricing – What’s the answer? 1. New production technology 2. Differentiate your products & services – improve margin 3. Develop new products – improve margin Focused product - Displace another building system Focused service - Solve a specific problem or reduce costs Market strength - Successful new products build on what you are already doing Replace your least profitable commodity business New Product Development is today’s topic

Precast manholes once were a new product competing with brick New Product Development Margin Improvement Commodity Pricing – What’s the answer? 1. New production technology 2. Differentiate your products & services – improve margin 3. Develop new products – improve margin Every commodity was once a new product with high margin competing with and displacing another building system Precast manholes once were a new product competing with brick

New Product Lines Action Plan Precast Competitive Advantages Owners Strength (5000+ PSI) Plant Quality Durability Fire resistance Project specific (appearance, maintenance, etc) Architects & Specifiers Design & engineering services Engineering envelope – design objectives Job cost savings Speed of construction Contractors Turn key contract – risk reduction All weather construction Shortage of masons Reduction of trades on the job Precast relative advantages differ from market to market The greatest advantages are against other building systems

New Product Lines Action Plan Bill Ray’s Principles: 1. High margin new products compete with other building systems, not other precast. 2. Successful new products build upon what you are doing now. 3. Find your new products with your partner architects & specifiers 4. It takes time. New products take two years to develop.

New Product Lines Today’s Agenda A 7-Step Action Plan 1. Find the product 2. Evaluate the product 3. Design the product 4. Pricing guidelines 5. Patent protection Example – Lightpole Base 6. It takes time 7. It takes commitment

New Product Lines Action Plan Successful new products compete with other building systems, not other precast 1. Find the product Survey your jobs Survey your architects Survey your customers Ask questions: big and small

New Product Lines Action Plan Successful new products compete with other building systems, not other precast 1. Find the product Survey your jobs Survey your architects Survey your customers Look for new products . . . And you will find you have been walking right by them without noticing.

New Product Lines Action Plan Successful new products compete with other building systems, not other precast 1. Find the product Survey your jobs Survey your architects Survey your customers 2. Evaluate potential products Perform a structured features & benefits evaluation Benefits to the owner Benefits to the architect Benefits to the contractor

New Product Lines Action Plan Successful new products compete with other building systems, not other precast 1. Find the product Survey your jobs Survey your architects Survey your customers 2. Evaluate potential products Structured Features & benefits evaluation Identify specifiers required to reach target markets Architects Commercial developers Electrical contractors

New Product Lines Action Plan Successful new products compete with other building systems, not other precast 1. Find the product Survey your jobs Survey your architects Survey your customers 2. Evaluate potential products Structured Features & benefits evaluation Specifiers required to reach target markets Identify market size by product Survey your jobs Ask specifiers Dodge Reports Freedonia – Market Research Firms

New Product Lines Action Plan Successful new products compete with other building systems, not other precast 1. Find the product 2. Evaluate potential products 3. Design the product Come to the specifier with a specific product Drawings Specific price point

New Product Lines Action Plan Successful new products compete with other building systems, not other precast 1. Find the product 2. Evaluate potential products 3. Design the product Come to the specifier with a specific product Drawings Specific price point Be competitive with customers’ full cost Price the features Show the included benefits Charge what the market will bear

New Product Lines Action Plan Successful new products compete with other building systems, not other precast 4. Pricing guidelines Don’t use formula pricing Product enhancements - Premium pricing Product innovations - Partner without introductory pricing New products - Initial pricing should never be at breakeven 5. Patent Protection Protect unique designs & materials Examples: - Special designs & connx details Pat. Pending - Protection during the application - about 2 years Protection - Draw the patents broadly to cover variations

New Product Lines Lightpole base example Successful new products build on what you are doing now Lightpole base - An example Developer: I could cast this with readi-mix for $80/yard, why should I spend 5 or 6 times that amount for precast?

New Product Lines Lightpole base example Successful new products build on what you are doing now 2. Features and benefits evaluation Product Quality Precast – steel forms CIP Sonotube 2

New Product Lines Lightpole base example Successful new products build on what you are doing now Features and benefits evaluation All weather construction

New Product Lines Lightpole base example Successful new products build on what you are doing now Features and benefits evaluation Rapid project completion Reduction of trades on the job Reduced contractor overhead

Come to specifiers with a specific product line New Product Lines Lightpole base example Successful new products build on what you are doing now 3. Design the Product Come to specifiers with a specific product line Round and/or square

Come to specifiers with a specific product line New Product Lines Lightpole base example Successful new products build on what you are doing now 3. Design the product Come to specifiers with a specific product line Architectural shapes & finishes

Come to specifiers with a specific product line New Product Lines Lightpole base example Successful new products build on what you are doing now 3. Design the product Come to specifiers with a specific product line . Bolt patterns . Electrical conduit & JB design . Engineering design

New Product Lines Lightpole base example – Market Summary Commercial development Tract subdivisions Shelf item Customers Developers Electrical Contractors Competitors CIP in Sonotube Currently precast market share is low Specifiers Architects Lightpole manufacturers

New Product Lines Lightpole base example Successful new products build on what you are doing now Developer: I could cast this with readi-mix for $80/yard, why should I spend 5 or 6 times that amount for precast? What’s the answer?

New Product Lines Lightpole base example Successful new products build on what you are doing now Cast in place costs more that you think Materials Labor Supervision Overhead such as procurement & admin. Rework Delay of job due to weather Precast is higher quality Anchor bolt alignment Conduit & JB problems Appearance factors Risk with precast is lower Job delay due to weather or rework Single source contracting

New Product Lines Lightpole base example This product line could be a winner! Product Advantages to the customer Rapid construction – reduced project scheduling risks Product quality – bolt hole & elec connx Appearance – Steel form finish vs. Sonotube Cost - Reduced GC overhead & supervision costs Market Advantages to the producer Competes with other building systems – good margin Product line extension from current – known req. Builds relationships with existing specifiers – customers Action Plan 1. Survey specifiers for product requirements 2. Design & price typical prototype 3. Present a specific product to specifiers with price point

New Product Lines Action Plan Product Development must be a way of life 6. It takes time There are many excuses for inaction Persistence is the most important trait Go for a small early success It takes two years 7. It’s ongoing New products turn into commodities Specifiers write specifications, margins are reduce New product development must be a way of life You need to have one or two new products in each stage of development

Precast Consulting Services, Inc Precast Consulting Services, Inc. New Product Development – Margin Improvement Success or Failure?

New Product Lines Checklist for failure 1. Did not commit to a sustained effort 2. What I wanted to produce was not what the customer wanted 3. Did not learn to do business with the new customer type 4. The new product competes with other precast at low margin 5. Unsolved production problems

New Product Lines Checklist for Success 1. Find the product 2. Evaluate the product 3. Design the product 4. Price it correctly 5. Patent protection may help 6. It takes time 7. It’s ongoing 8. It’s up to you

New Product Development