Why New Products Fail - Part 1

The majority of new technology products fail.

The failure rate may vary by industry sector but generally it’s between 75% and 90%.

Here we take on the top reasons why new technology products fail to meet their revenue and profit expectations. Perhaps failure can be put down to bad luck and poor timing in some small part but mostly it has to do with strategic business and marketing planning, the price-value relationship, and execution in marketing, product development, launch and sales.

Top Ten Reasons

1. Target market is not defined correctly

“Selecting which customers and markets to serve is undoubtedly the first and most important decision a company has to take. This decision drives everything else a company does.” According to McKinsey, “choosing the right markets creates more value than having superior products or sales capabilities.”

In short, market place selection drives everything from product functions right through to sales promotions. Businesses need to target a set of customers so that they can decide what technology attributes to build in new product development. Until you know who your customers are and what they value most, you don’t know what you must build into your new product (and what you can afford to leave out).

2. Product is poorly positioned

This is very closely linked to our first point. Here the marketer needs to answer the question, “What makes our product better than the competitive options available in the mind of our customer?” Answering the question requires an in-depth understanding of the value proposition for the product, competitive solutions and most importantly, the customer’s perspective. It doesn’t matter if the product addresses a “significant competitive challenge”, what matters are what the customer sees, feels and believes.

The most serious failure in positioning is a misfit between the needs (that include wants, desires, interests and demands) of the target customer and the benefits conferred by the product. It’s not always black and white either. The customer may recognise the significance of the benefit but nevertheless consider it to be of less value to them. The root cause of poor positioning is usually an inadequate understanding of the target customers, their needs and values and their existing options to satisfy their demands. There is always competition and even where no directly comparable product exists there is an alternative to using your product.

If your product is not properly positioned, then not only will your marketing messages miss their mark, but more than likely the market and your competitors will position your product for you.

3. Product benefits are not understood (or valued) by the customer

The problem is obvious but how many times have you heard technology executives exclaim, “The customer just doesn’t get it!”

What this point says is that the marketer may not truly understand the values of the target customer or the relative importance of those benefits. It may be, for example, that your new technology product delivers substantial energy savings, savings so great that the product pays for itself in the first year. Nevertheless where energy cost benefits aren’t high on the customer agenda, they will fail to engage their interest. Before announcing benefits to the market, it may be a worthwhile exercise to work through, not just the benefits, but also the business case with a small sample of target customers to determine their ranking of priorities and what’s important to them.

It may be that they really don’t get it. If they’ve lived without the benefit of some revolutionary new product then it’s quite likely that they’ve found their own ways of working around whatever issue or problem you believe your product solves. Here benefits may matter less than outcomes. Benefits and results connect to rationality that is not usually a primary buying motivation. Outcomes focus not on product benefits but on the positive effects they might have on the buyer’s working life and what the product might mean to them.

4. Product doesn’t address important customer needs

Perhaps these first four points stem from a single problem: The root cause of many product failures comes from an inadequate understanding of target markets and customers.

Building market and customer understanding is not an add-on activity that happens after new product development. It precedes and guides product development to assure the relevance of the new product and drive maximum market take up. It’s not always possible to work this way round and we’ll take time out to discuss this issue in a moment.

Technology businesses always aim to create products that address customer needs but products can also miss the mark because they fail to consider a key customer operational need. For example, if you’re in IT then you’re bound to have heard of software that had been developed to run on certain platforms that proved incompatible with the standards deployed within target markets or hardware innovations where there were interoperability issues between incompatible platforms.

Intermission

Let’s cluster around the coffee machine and have a chat. Target markets and customers - their interests, values and their needs should be considered at the point of product conception before any development has taken place. But if you work in IT and telecoms as we do, it’s a very rare opportunity as new technology will usually have been developed elsewhere in the world and designed for sale globally. Very little changes and you still have to do the groundwork in targeting before product launch.

Different national markets support different levels of technology. They are at different levels of technology development and maturity. There are economic, local and cultural differences to be addressed too. The same work needs to be done. Paris, France is very different to Paris, Texas and the road to French markets is littered with the corpses of US companies who had believed that this local market operated in the same way as any other. It’s possible that local needs might require product adaptation too. That’s another good reason to do the work before launch rather than afterwards. It’s not just about targeting either; there are a whole host of factors that need to be addressed when moving across different national markets including pricing and channels.

Okay, that’s enough coffee…back to work!

5. Internal business functions are unaligned

Product development is necessarily a cross-functional activity. What we see continually, however, is wrangling about who should own the product development process. Should it be product management, R&D, engineering or marketing? The answer is that they all have some responsibility for some part of new product development (NPD) in different ways, in different degrees and at different times.

The final decision on what products are developed or not, lies with the senior management team or board since these decisions, more than anything else, affect the future success of the business. Good new product ideas can come from anywhere in an organisation and the healthiest corporations are those where anyone can put forward their ideas for product development and improvement.

Of late, we’ve noticed a dumbing down of marketing. No one other than marketers themselves is responsible. Marketing, we are told, “should get involved with product development early” so that they can make ready messaging, websites, launch and other sales collateral. That’s not marketing, that’s promotions or marketing communications, which is one small tactical aspect of marketing.

It’s the responsibility of marketers to provide the senior team with the information or evidence they need on which to base their product development decisions. Marketing needs to verify and validate the product market proposal to determine whether there is a real opportunity worth pursuing. It’s marketing that needs to establish the answers to critical questions about what, where, to whom, why, how, at what price and via what channels products can be sold, Marketing needs to take into account the competition, their likely responses to the development, product differentiation and product-to-market positioning. If marketers do not undertake these activities, who does? Our sense is that often no one does and decisions are based on the power of the personality and seniority of those putting the new development ideas forward. Or that it’s all patched together on the fly. Methodical in-depth market analysis may not be that exciting or charismatic but it’s the big stuff that informs business objectives and the art of the possible.

Marketing needs to be strategically and functionally aligned to the business objectives of an organisation. It also needs to be pro-active in opportunity development. Further it needs to work in concert across all commercial disciplines to gain their input to these key activities.

There needs to be clarity of what responsibilities fall where in the new product development process since any lack of alignment between business-critical functions will more than likely result in product failure.

In Part 2, we’ll look at more reasons why products fail to meet their product and revenue targets.

Strategic Planning made simple - Draw a picture!

Most strategic plans involve the production of massive documents. A mishmash of data is pulled from all over an organisation from people with conflicting agendas and poor communication. Usually a full budget is also attached, as are lavish graphs and a surfeit of spreadsheets. No wonder so few strategic plans turn into meaningful action; executives are paralysed by the muddle.

We’ve found a better way that we’ve used for a number of years. It’s not our original idea but it’s drawn from W Chan Kim’s and Renée Mauborgne’s excellent book, Blue Ocean Strategy. It involves drawing a picture called a “strategy canvas” – one picture on a single sheet of paper. This approach produces strategies that are easy to understand and communicate, that engage more people within an organisation and unlocks the creativity of those involved in the strategy process.

The strategy canvas is the central diagnostic and action framework for building a compelling business strategy. The horizontal axis captures the range of factors that the industry competes on and invests in and the vertical axis captures the offering level that buyers receive across these key competing factors. A relatively low position means a company offers less and, hence, invests less in that factor—or, in the case of price, asks for less.

The strategy canvas serves two purposes:

First, it captures the current state of play in the known market space. This allows you to understand where the competition is currently investing and the factors that the industry competes on.

Secondly, it propels you to action by reorienting your focus from competitors to alternative industries and from customers to non-customers.

The value curve is the basic component of the strategy canvas. It is a graphic depiction of a company's relative performance across its industry's factors of competition.

Let’s take a look at one of Kim and Mauborgne’s examples and their commentary to show how the process works. It’s a little dated now, about ten years old but it does show how this process works very clearly. It’s based on Southwest airlines:



“By connecting the dots across all the factors for each player, you reveal the strategic profiles of Southwest, its direct competitors, and its main alternative, the car.

Southwest Airline's profile is a perfect example of a good strategy, because it shows the three complementary qualities that characterise an effective strategy: focus, divergence, and a compelling tag line. If your company's strategic profile does not clearly reveal those qualities, your strategy will likely be muddled, undifferentiated, and hard to communicate.

Focus. Every great strategy has focus - a company's strategic profile or value curve, should clearly show it. Looking at Southwest's profile, for example, you can see at once that the company emphasises just three factors: friendly service, speed, and frequent point-to-point departures. By focusing in this way, Southwest has been able to price against car transportation; it doesn't make extra investments in meals, lounges, and seating choices. By contrast, Southwest's traditional competitors invest in all the airline industry's competitive factors, which makes it much more difficult for them to match Southwest's prices. Across-the-board investing is often a sign that competitors' moves are setting a company's agenda.

Divergence. When a company's strategy is formed reactively as it tries to keep up with the competition, it loses its uniqueness. Consider the similarities in most airlines' meals and business-class lounges. On the strategy canvas, therefore, reactive strategists tend to share a profile. Indeed, in the case of Southwest, we found that the value curves of the company's competitors were virtually identical, which is why they share the same value curve in the exhibit. By contrast, the value curves of innovators' strategies always stand apart. They might eliminate or substantially reduce investments in certain factors, or they might dramatically increase investments in others. Sometimes they even create new factors, thereby changing the industry's overall profile. Southwest, for instance, pioneered point-to-point travel between midsize cities; previously, the industry operated through hub-and-spoke systems.

Compelling tag line. The final test of a good strategy picture is how well it lends itself to a tag line. "The speed of the plane at the price of the car—whenever you need it." That could be the tag line of Southwest Airlines. What could Southwest's competitors say? Even the most proficient ad agency would have difficulty reducing the conventional offering of lunches, seat choices, lounges, and hub links with standard service, slower speeds, and higher prices into a memorable tag line. A good tag line must not only deliver a clear message but also advertise an offering truthfully, or else customers will lose trust and interest. If you can't come up with a strong and authentic tag line, chances are you don't have a strong strategy either.

Drawing a strategy canvas is not, of course, the only part of the strategic-planning process. At some stage, numbers and documents must be compiled and discussed. But we believe that the details will fall into place more easily if managers start with the big picture...and it will greatly improve your chances of coming up with a winning formula.

As Aristotle pointed out: "The soul never thinks without an image.""


Bibliography
Acknowledgements: This post is based on published materials © Copyright W. Chan Kim, Renee Mauborgne and Harvard Business School.
Sources:
Blue Ocean Strategy 2005 Harvard Business School Publishing Corporation
Charting Your Company’s Future – Harvard Business Review Vol. 80, no. 6, June 2002
blue ocean strategy®

Are business ethics finally dead?

There has been a flood of odious news in the past two weeks about the activities of News International, a massively wealthy corporation that has allegedly exploited the private misery and despair of victims of murder, illness and war through phone hacking and confidence tricks in pursuit of profit. News International CEO, Rebekah Brooks, in her address to the News of the World staff who had lost their jobs, said, "The Guardian newspaper were out to get us, and they got us." It was the very worst PR possible. It attempted to transform wrongdoing into a competitive dogfight where News International was the victim. Brooks sought to engage the sympathy of an angry workforce about to lose their jobs. Her address lacked empathy but worse still, it lacked the contrition and regret appropriate to the context.

It caused us to think about the place of business ethics, corporate social responsibility (“CSR”) and business values in the commercial world – what these words mean and how, ultimately, they relate to marketing and business success.

Before the financial crash, we, in common with many others, had believed that the world was transcending an age of ethics in corporate responsibility: one where the bad guys are being weeded out and held to account.

Between 2002 and 2004, the companies heralded as “Oscar Winners” in "imaginary arithmetic” included Enron, Barings Bank, Merrill Lynch, AIG, WorldCom, Kmart and a couple of major pharmaceutical companies. False accounting was rife; its purpose was to deceive investors, shareholders and the markets – to lead them to believe that a business was performing better than it was in reality.

In 2007, we wrote that “businesses that dishonestly exploit their customers or their shareholders for their own financial benefit or power interests are going to fail in a world where ethics, social and personal responsibility are coming to be recognised as universal values.”

Was that a case of premature expectation or simply, naïve hopefulness? There has been major change in business ethics over the past decade. A whole new vocabulary permeated the corporation that appeared to have an ethical foundation: Openness, transparency and accountability became the bywords of enterprise and government alike. There have been some notable ethical failures too: Madoff and News International being the biggest and most recent. There is the financial crisis that has been described by those who are politically motivated as the consequence of unethical self-interest and greed, whereas it’s probably more about the systemic failures of current economic and political doctrines.

So what about ethics, CSR and business values; what do they mean? There’s nothing mysterious about ethics; ethics are simply the morality of right and wrong. Businesses frequently publish “Codes of Ethics” that are usually prescriptions for (“good”) corporate conduct mixed with statements of business values, practices and attitudes. Here’s an example of an extremely wide-ranging “Code of Ethics” that also encompasses a code of conduct from First Group, a major UK public transport business. Most often, codes of ethics relate to honesty, fairness, openness, transparency, respect, integrity, truthfulness, personal and social responsibility, accountability, human decency and lawfulness; facets of conduct that might also be considered to be business values.

Defining Corporate Social Responsibility is much more tricky since there are as many definitions as there are disagreements over the appropriate role of the corporation in society. Here’s something of what we mean:

“Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”

Milton Friedman, 1962

“I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so that they are able to accomplish something collectively that they could not accomplish separately – they make a contribution to society, a phrase which sounds trite but is fundamental.”

Dave Packard
Co-founder of Hewlett Packard Company in 1939

NB We should point out that Friedman’s exhortation to the corporation to make as much money as possible is subject to the qualification that the corporation operates within the law and “social norms”.

And this is what CSR means to the European Commission: "A concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”

For us, that’s a simple, workable definition. The key question that CSR raises is whether corporations should, or indeed can, contribute to building a better society. Most importantly, does the corporation have that choice or does it rest with the consumer since the cost of CSR is borne by them in the price that corporations charge for their goods and services? The corporation itself is not a social entity; the social entity is comprised by the people who work within it. Only people can effect social change and arguably this cause is better served by broad consensus-based social and political movements rather than hierarchical profit-making corporations. Nevertheless corporations can and we believe should behave in a socially responsible manner and that should extend to assuming responsibility for the social and personal wellbeing of the customer in the production and consumption of its products. But is that about CSR or is it about business values and how does it relate to marketing?

We believe it’s all about business values and these come from the people within the business, especially its top management. Business values are predicated upon a will to succeed in all aspects of work and are central to driving profitable and healthy growth.

Values include the dimensions of the physical, organisational and psychological world of work. They put the wellbeing of people, customers and staff before other considerations in the certain knowledge that a satisfied customer and an engaged workforce are central to achieving successful development and growth. All stakeholders expect ethical behaviour and will rail against unethical conduct. CSR initiatives might be greeted by a shrug of the shoulders and the words, “So what? What’s in it for them?” There are also issues of credibility in CSR, perhaps best exemplified in BP’s approach to the environment and MacDonald’s concern for health.

We’re not convinced by those long codes of ethics either since more often, healthy values are derived from the way that people work together and behave towards one another at work. Values are frequently tacit and unspoken but usually observable in a way that a company does business. Values also underpin and drive marketing.

On our home page, we say, “People buy your beliefs about why you do what you do first and foremost, then they rationalise about features and functions.” This is not to say that features and functions are unimportant and that the determination of whether a product satisfies a need is irrelevant but that they are secondary to the attractiveness of your beliefs and values about why you do what you do. Corporations get hung up on functional considerations simply because they are easier to understand and relate than fundamental beliefs and values. It’s these beliefs and values that create sales and marketing attractiveness that make for results since:

1. Attractiveness is capable of expressing the fit between the corporation’s values and the values of the customer that creates the sense of working on the same side towards common goals. Attractiveness is the sum of both organisational matters and personal relationships of the individuals in both organisations.

2. Both parties invest in a commercial relationship if they find the other attractive.

3. Mutual attraction is the basis of a long-term relationship, which a simple exchange of value is not.

4. if there is mutual attraction, the parties give extra effort to each other (e.g. they work harder for availability of the products) which can not necessarily be obtained by paying higher prices.

5. “Soft values”, for example, honesty, taking the welfare of the other party into account and social support are seen as important and as a means to finally achieve monetary goals.

In this behavioural analysis of values that underpin “attractiveness”, other key considerations are flexibility, honesty, openness, commitment, communication and the social satisfaction derived from working in partnership.

So are business ethics finally dead? We say not since they underpin the values and marketing attractiveness that drive profitable growth. What do you say? Do please let us know your views.

Mirror, Mirror on the Wall...The Brave New World of Personalised Search

Personalised search sounds good. In fact, anything personalised feels good. After all it’s made just for you, specially constructed to reflect your personal tastes and interests. So what of personalised “search”, where search engines can learn about us and present back those things that interest us most? The more it knows about us, the more it can adjust our personal search results to reflect those things it knows we like best, that we believe in and that fit with our lifestyle and social group.

Google has been collecting search information for years now. It doesn’t matter if you’re signed into Google or not. It tracks searches to identify which results you click on and saves that data as part of your search profile using your IP address and downloaded cookies. Every search response (click) generates a data record. So what other information does Google know? There’s all the information we tell it. It tells you roughly where you are via the IP address location displayed on the Google home page. If you use Google Checkout, it knows your exact address too. Then there are website information it collects via Google analytics and Google GMail. And it’s not just Google; Yahoo and MSN use exactly the same techniques. With the new, Google Plus – Google’s grand entry into “social media” - it can link you to your friends to provide a new bias to search results. Does that sound too far-fetched? Bing is doing it already.

Back in May, Bing started giving users the option to plug into to their Facebook accounts to “receive personalized search results based on the opinions of your friends,” thus ”bringing the collective IQ of the Web together with the opinions of the people you trust most, to bring the “Friend Effect” to search.” To Bing’s credit, the “Facebooking” of search is opt-in (at least for now).

So what’s it all for?

Google’s not a public service whatever they might say about enhancing user search experience. It’s a business whose aim is to match advertising with user preference. Ultimately it sees the world as those who are selling (on Google) and those who are buying. Search is the marketing bait to maximise advertising revenues. And in the world of online advertising, personal data is like currency.

So what do we as marketers feel about a practice that provides the best socio-demographic targeting possible? Do we applaud it?

The answer is a resounding “no". It makes us feel deeply uncomfortable.

Can’t you switch it off?

Yesterday we tried an experiment. We ran a search on Google logged into our account with the web history option turned off. We ran the identical search on “Scroogle” that masks our IP address through proxy servers and deletes Google cookies. Scroogle uses the Google search engine but shows no ads. The results were markedly different.

Here too are some troubling comparisons that appear on Eli Pariser’s website.

And why we don’t like it

Imagine being in a human relationship where the other person always said what they thought you wanted to hear. How long would it last?

We don’t like personalised search as it narrows our options, curbs discovery, diminishes novelty and quells curiosity. It tells us what to look at based on a machine’s view of who we are and our past online behaviour. In our work, we’re continually seeking new ideas, conflicting approaches and novel discovery. We not only want to read the ideas of those whose ideas we support but those whose ideas might be opposed to our own. Human difference is the lifeblood of us all; difference stimulates interest, development and growth.

There is something more disturbing about personalised search that smacks of Huxley’s “Brave New World”. It’s about a single, powerful corporate entity deciding what we should read and what we may not see. How many steps are there before the machine decides what news and what political ideas we get to read? It gets tribal too: You may never understand the views or ideas of others outside of your social interest group. As Tim Berners-Lee puts it, “You will end up in a bubble because you will reward the search engine — you will go to the search engine — it feeds you things which you’re excited about and happy about and it won’t feed you things which get you thinking.

You will never understand as a Yankee why the Red Sox were so ‘chuffed’ to beat you a couple of years ago. As an Israeli you will never understand why you’re upsetting the Palestinian people. So, there’s danger in (personalised search)… Once you’re bracketed as somebody who buys…expensive stuff, the web won’t show you the cheap stuff and so you wont believe that the cheap stuff exists. You’ll have a twisted view of the world.”

There was a day when the major computer vendors sought to lock its customers in via proprietary architectures. The market decided it wanted openness and freedom of choice and customers voted with their feet and bought elsewhere. There’s the same real desire for openness in search as evidenced by the mass social and business movements mobilised on social media sites like Twitter, for example. We always have a choice with search as with anything else, but open, unbiased search is needed in order to know that choice exists.