The Cost of Completing a Product is Often Many Times the Cost of the Device

A frequent and fatal mistake in high-tech business is to underestimate the investment required to turn a "device" into a "product." Companies focus on the cost of developing the core technology and fail to budget for the massive expense of making it a complete, usable solution for the customer.

The cost of the device (the R&D and manufacturing) is often only a small fraction of the total cost of the product. The majority of the cost lies in "completing" it.

Where the Costs Lie:

• Sales and Distribution: Building and maintaining a sales force, distribution channels, and retail margins can be the single largest cost.
• Service and Support: Creating a maintenance organization, logistics for spare parts, and providing post-sale application support is a huge, ongoing expense.
• Software Development: For hardware products, the cost of operating systems, application languages, and programs can dwarf the hardware development cost.
• Documentation and Training: Creating high-quality manuals and customer education programs is a significant and often underestimated expense.
• Marketing and Brand Building: The cost of advertising, PR, and building a trusted brand image requires substantial investment.

Companies like GE and RCA failed in the mainframe computer business partly because they underestimated the hundreds of millions of dollars required to complete their product offering with software, peripherals, and service. This is a critical consideration in The Strategic Principle of Marketing.