Developing successful products is hard
In today’s increasingly competitive and turbulent environment, a company’s ability to develop and commercialize new product innovation is a key determinant of its success and survival (Sandvik and Sandvik, 2003). In some industries such as the pharmaceutical and electronics industries successful new product innovation is virtuously synonymous with success. Successful innovations can enable companies to consolidate their position in existing markets, enter new markets, and explore new market opportunities, and even enable them to gain competitive advantage (Tellis et al., 2009).
However, according to a leading market research agency, as many as 95% of new products introduced each year fail. Other researchers suggest that over 80% of new product ideas never even get past the development stages and half of the new products launched miss their profit objectives.
An article in the April 2011 issue of the Harvard Business Review reveals that “less than 3% of new consumer packaged goods exceed first-year sales of $50 million—considered the benchmark of a highly successful launch”. Studies examining the general success rates of new products have shown that only I in 4 new products that enter development ever becomes a commercial success. Although some industries do far better than others, in general, failure rates can be considered high across the board.
Considering the investment that goes into developing and launching a new product, these figures are astounding. The ability to identify key indicators of failure early on in the product development process can be vital to a company’s survival. Assessing and planning for the mitigation of risk before the product is marketed, can save a company 100s of £millions, and help them steer clear of the incalculable costs of revealing their failure in the market.
What constitutes failure?
Failure is a relative term. In this white paper, failure is defined as ‘a product that has under-performed relative to the original strategic and commercial expectations set for it’.
Depending upon the specific context, a product can be considered a failure when one or more of the following is true:
- It is not launched
- It is withdrawn from sale
- It fails to achieve the forecasted market share
- It is unable to achieve the life-cycle anticipated
- It never achieves the anticipated profits
Why is there failure?
In our experience, the major differentiating factor between comparable successful and unsuccessful products is the anticipation and deep understanding of what the targeted customer might actually want and be willing to pay for. Calantone and Cooper (1981) suggest that 30% of failure is attributable to this factor, and typically describes a technology based product. Notwithstanding, further research on new product development revealed that only 16% of managerial time is spent on marketing and customer related activities (mostly during the launch) whereas nearly 80% is spent on production and technical activities.
A top 4 global consultancy conducted a study looking at why some companies are consistently more successful than others at developing and launching innovation. The results were far from revolutionary: “Top performers were twice as likely as bottom performers to research what customers actually wanted.”
Undoubtedly, the answer lies in uncovering an accurate view of customer perceptions and drivers of choice and behaviour. In spite of this, the same consultancy found in the same study, that “more than 80 percent of the top performers said they periodically tested and validated customer preferences during the new product development process, compared with just 43 percent of bottom performers.” While the statistic serves to validate some of the key points of this paper, what is conspicuous about this, is the fact that almost half of the bottom performers are also conducting research, raising the question: if conducting research to understand customer needs and preferences, is relied on by so many companies, why is the failure rate as high as it is?
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