New Product Lessons

1/5/00

By Jim Walter

Each year thousands of new commercial and consumer products are introduced. According to AC Nielsen, only about one-third of the more than 1,200 new products introduced will survive at least two years. And in the highly visible dot.com sector, Forrester Research is predicting that most dot.com retailers will be out of business by the end of 2001.

Clearly the new product success odds are slim at best. But, with a certain amount of sober analysis, a huge number of soon-to-be product failures could be axed before they drain energy, capital and credibility.

It was a misty 7 a.m. as I headed down the jogging path. I felt awful. My company had a big problem, and I knew there was no easy solution.

I'd made this trek a thousand times before - three miles out and three miles back. Most days, I’d spend this time going over whatever personal or business issue I might be facing; and the combination of exercise and solitude would help me focus. Usually, by the end of six miles, a solution would appear.

But not this time. I began with a pit in my stomach. And when I finished, the pit was still there. There was no answer at hand.

Eighteen months earlier, the business-to-business service company I head had introduced a new product -- a set of services for insurers designed to save them money. Throughout my run that morning, I argued the facts of the situation in my head and beat myself up. How was it that after 25 years of developing new products, I’m still making some pretty dumb mistakes?

This new product worked beautifully. It would save our potential customers a lot of money, and it was relatively inexpensive to buy. Yet with more than a year of market experience, it was clear that we couldn't even give it away. Despite its benefits, I realized that there was a fundamental product problem: We had grossly underestimated how difficult it was for potential customers to integrate this new service into their current operation.

Some Background

In the seventies and early eighties, I had the good fortune to find work developing and marketing a host of consumer products that ranged from bubble gum to blenders. For a guy who couldn’t carry a tune in bucket or draw a decent stick figure, working on new products gave me an opportunity to test my creative skills.

More recently, I have focused on business-to-business service products. Eventually I was able to parlay my skills into a CEO position. Along the way, I had either led or played a senior role in bringing more than 20 consumer and commercial products to market. During the weeks following the decision to ax the new product, I began to analyze my new product experience.

Among those new products there were more losers than winners; and among the losers, there were some real turkeys.

However, on the plus side of the ledger, there have been some fair successes. I consoled myself with the fact that the yearly volume of the winners was approaching $500 million. And so it went each day on the jogging trail for the weeks that followed. A running analysis of not only this failure, but every other product failure -- contrasted by the winners over the years.

What had I learned from all this? Was there some way to summarize it? Could there be a formula? Is there a better way to predict success or failure? Or is new product success simply a lottery that is won by trying a lot of ideas, and hoping that one hits.

 

The First Lesson

For weeks, I considered the question and examined the results of twenty-five years’ effort. And in the end there was the inevitable truth. While the business of new products is a dicey game, there are indeed a handful of measures that can be applied to any new idea to help predict whether it will be a commercial success. And like so many of life's lessons, the best learning came not from the successes, but from the failures.

So what have I learned? First, let's start with the one absolute truth about new products.

 

Most fail.

Why? Because by definition, new products are new and without experience. And absent experience, we make mistakes. So, the trick is to limit the number of failures by weeding out those that are clearly doomed from the outset. And the place to apply the most stringent tests is right at the start. At the concept phase, before you’ve spent a lot of time, before you’ve committed dollars, and most of all, before you have fallen in love with an idea and begin to rationalize its shortcomings.

Anyone who has done new product work, knows that research and test marketing are the best textbook tools to limit the risk. Research, however, can be inaccurate. Often as not, both retail and commercial consumers either tell you what they think you want to hear, or they simply don’t tell the truth about what they intend to do when you actually try to sell them your product. The situation gets worse when someone gets enamoured with a concept, decides that it is going to be a huge winner and rationalizes marginal research data.

After going to market with a number of products that seemed to test well, only to fail, my conclusion is to go with a product only if the research results are very strong and the product wins big on each of the criteria outlined below.

 

Test it.

Despite today’s wild rides fueled by seemingly unlimited venture capital dollars, it’s really not that smart to wing it. Regardless of the research and criteria used to measure a product concept, a market test is always in order. A test market or limited market entry allows you the opportunity to refine the idea or product and introduce marketing plan improvements before you waste a great deal of money heading off on the wrong strategy.

For consumer products, that means launching the product in a limited geographic area. But even for business-to-business service products, software, and industrial products, there are always opportunities do a limited introduction to be sure the product and the marketing mix is right. If you can limit your financial exposure, and gain experience with the product in true market conditions, you’re always better off.

One of the best examples of this kind of mistake is found in many of the new dot-com companies. There are dozens of these fledgling enterprises spending money wildly on national TV before refining their target market, overall strategy, or even having their operations working smoothly. My friends in the advertising business talk about clients spending more on Super Bowl spots than the entire revenue of the company.

This might even make a bit of sense, if these organizations had a clear understanding of their market dynamics. However, they are all too new to have even a sense of the marketing formula to succeed. Suffice it to say that there will be far more losers than winners when the dot-com shakeout is over. Forrester Research is predicting that most-dot-com retailers will be out of business by the end of 2001.

However, with a certain amount of sober analysis, a huge number of ‘soon-to-be product failures’ could be axed long before they drain time, capital and credibility. There are characteristics common to every successful new product. Similar threads that span consumer as well as commercial enterprises. And by applying some stringent tests at the concept stage, you can save yourself a great deal of grief.

 

What's the problem?

There is one primary test for determining the viability of any new product. Does the product solve a problem? By that, I mean a problem that a customer has. It is not an excuse to fill up capacity on a production line. You are doomed if you’re looking for volume for the second shift.

And simply having a new technology won’t necessarily bring success. Some theorize that the newer the idea or the more esoteric the technology, the more apt the product is to succeed.

The shinier the object the better. Right? Wrong!

New technology alone is not the answer. The technology must do more than just be interesting. A cool idea, a unique application of a technology, or an appealing concept is not enough. And this rule applies to consumer as well as business products. While retail and commercial buyers may be intrigued by an idea, they only pay for solutions. The ultimate viability of any new product rests first in the fundamental problem/solution equation.

Too often the product exploration starts with the question, "how do we fill down time on a set of machines". The technological corollary to this mistake is "where else can we use this new technology". Starting with either of these questions almost always takes you to the same place -- disaster.

My first encounter with this mistake happened early in my career. I was working with the brand team at Sacramento Tomato Juice in California. At the time, juice manufacturers were required to make tomato juice fresh, not from concentrated tomato paste. Any product made from paste couldn't be called tomato juice. But Sacramento had the capability to produce lots of paste that could be converted to juice whenever they needed it. If we could find a use for it, everyone would be happy. So we set out to find not the answer to the customer's problem, but rather the company's problem. And we got just what we deserved.

We had the food chemists make several blends of this ersatz tomato juice drink. We did extensive blind taste tests comparing these new formulas made from paste to the leading brands of juice including Sacramento. And low and behold we found one formula to be preferred -- even over the revered Sacramento brand, which had always been the epitome of tomato juice quality.

We moved swiftly to birth an exciting new tomato juice drink. Trumato: “The new tomato drink with more fresh tomato flavor than even your favorite tomato juice.” A fabulous package was developed, and memorable advertising that focused on the fresher tomato promise was created. And the Sacramento sales force went to work and got distribution in every major chain in two test markets.

The product bombed.

In the post mortem, it was clear that we were so focused on our own need for more volume that we never actually asked the consumer if she really needed a new, albeit somewhat better tasting juice. When we finally got around to asking the questions, consumers were pretty clear in telling us what we could have found out in the beginning. Sure this new juice tasted good. But the tomato juice they had was just fine. They didn't need a new one.

 

They didn't have a problem!

When it comes to using technology to solve problems that don't exist, I came across a doozy recently. Several months ago I was invited by a former colleague to visit his new company. The company had spent more than $50 million to develop a web-based distribution system for insurance agents. On the surface, the concept was intriguing. Insurance agents could, via the web, get auto and home insurance quotes much more conveniently. The system was easy-to-use. And when you logged on, the screens were attractive. It almost made insurance fun. And that is hard to do. So after an hour of watching demonstrations of the system at work I was duly impressed.

But then I asked what I thought was a pretty basic question. How much does this system save?

Now anyone who has ever bought or sold an insurance policy knows that price is the number one consideration when buying home or car insurance. If you can’t be price competitive in the personal insurance market, you had better not even try to compete. And this system didn't save a dime. It did move the transaction a little quicker; and the graphics were terrific. But no one -- not the insurer, the agent or the buyer -- saved anything.

I think it may take awhile for the investors to get their $50 million back.

 

How big is the problem?

The size and scope of the problem is the next consideration. Big opportunities start with big problems. All of the major innovations of the twentieth century solved big problems. The automobile solved huge transportation needs. The telephone met the need to communicate. And radio and television fulfilled our desire for news and entertainment.

Clearly, people will only buy products that solve problems. And more people will pay more dollars for products that solve big problems. I continue to be amazed at the number of entrepreneurs and developers who fall in love with an innovation, spend years and sometimes millions of dollars pursuing a need that is marginal at best. Whether it is yogurt with a separate flavor pouch, a website that attracts little more than venture capitalists' dollars, or exotic fruit juice blends, there seems to be no shortage of new entries that make this mistake.

How good is the solution?

The next test for any potential new product is just as basic. Does the product do a good job of solving the problem? How well the product solves the problem, will be a key determinant of success or failure. Virtually everyone who has had any experience in product development has at least one that just wasn't any good. The entrepreneurial graveyard is littered with the bones of products that just don’t work very well.

Sometimes, however, a product that represents a marginal solution for a large problem may very well be a larger opportunity than a substantial solution for a minor problem.

The risk for a marginal solution doesn't become apparent until a better solution comes along. Those of you old enough to use a PC in the early eighties might remember the first popular spreadsheet software from a company called VisiCalc. Their spreadsheet software disappeared in a matter of months when the vastly superior Lotus 1-2-3 was introduced.

Being eclipsed by a better product is an inherent risk in business. However, I continue to be amazed by the number of products that are brought to market each day that go beyond being marginal, they simply aren't very good.

The first time I made this mistake was with a product called “Dessert Starter.” This product actually scored big on two counts. It not only solved a but a negligible need, but it did so poorly.

I was assigned to help lead the introduction of this new convenience dessert product. The rationale was simple. If people were willing to pay for Hamburger Helper -- a kit that when combined with hamburger resulted in what some considered food, then why not a similar idea for dessert.

There was a great deal of political sentiment at this dessert manufacturer that, given their expertise in the dessert category, a 'helper' product was a natural winner. We settled on a formula of mostly sweetened condensed milk that when combined with variety of other ingredients could create upwards of fifty different desserts.

We spent a year of research and development. Created packaging and advertising. Test markets were identified, and the sales force launched the product in the test markets.

It was finally killed after consumers confirmed what we didn’t want to hear during development. Most housewives didn’t need a base for desserts. And those who thought that they did quickly found out that most of the desserts didn't taste very good. It was so bad that stores that stocked the product were stuck with the inventory, because virtually nobody bought it twice.

 

Is the product a real value for the customer?

 

This test blends economic principals with marketing. Does the product offer the consumer a real value? If a product is a solution to a problem, and if success depends largely on how well the problem is solved, then volume performance rests heavily on the relative cost of the solution.

Take Ford’s Model T. When first introduced, the Model T was a fabulous innovation. It was a well-made vehicle. And relative to other cars made at the time, it offered a lot for the money. However, the cost was still pretty steep. A Model T cost more than a year’s salary for the average American family. As Ford engineered the cost out of the product, he passed the savings on to the consumer. Ultimately he was able to bring the cost down to a fraction of a year’s salary. When that happened volume soared.

We've seen this same phenomenon occur with the introduction of every major innovation. In the 20’s and 30’s the price of radios dropped dramatically. By the time World War II started, virtually every American family had one in their home. The same thing happened with television in the 50’s and 60’s.

Today, we’re seeing this trend with personal computers. I bought my first computer in 1981 -- a Radio Shack that came with a daisy wheel printer. It cost -- $15,000. My new Hewlett Packard was delivered for 10 percent of that price.

 

Is it convenient to buy and easy to use?

Most people tend to think about convenience in relation to consumer products. Cake mixes and TV dinners were the first examples of convenience products. But the importance of convenience in predicting success goes far beyond the consumer market. Even business-to-business products must be easy to use.

A new commercial product that requires substantial behavioral or organizational change may very well fail even if it represents a solution to a significant problem. Asking a consumer to try something new requires the buyer to change habits. Any change is difficult, but if the change is inconvenient, it creates even more of a sales impediment.

Look at the computer revolution. The personal computer gained acceptance, as it became more user friendly. AOL attracts people on-line because it is easy to use. And my new 6-pound Toshiba laptop gets far more air miles than the 12-pound anchor I started with a few years back.

This issue was the fatal flaw in the insurance service product I mentioned earlier. The product was initially developed for our own company to improve our results. We had to change a number of operations inside the company and do a great deal of staff training to make it work. But the result for us was worth it. We saved millions. It was so strong, we reasoned that we could spin it off into a separate unit and market it to other insurance companies.

We staffed an entire marketing team, packaged the product nicely, and came to market with conclusive proof of the savings potential. But we clearly underestimated how big a hurdle the convenience issue would be. We learned that while our potential customers were impressed with the product’s results, they were unwilling to change their operations to take advantage of it.

In other words, the product was inconvenient.

 

Getting to success.

Do you solve a problem? Do you solve the problem well? Do you solve the problem at an attractive price? And having done all that, do you do it in such a way that it’s easy for the customer to buy and use?

Measuring the problem, solution, cost, and convenience early in the development process will yield huge dividends in time and money. Many marginal projects will die earlier in the process. Product problems can be identified and solved early in the development process. And the best ideas will get the attention they deserve.

Am I guilty of over-simplifying? Maybe.

But these are the operative questions. If your new product fails to score well on each of these criteria, then it’s time to take a giant step back to the drawing board. Refine the concept. Fix it. Or even abandon it entirely. But if you can’t get a resounding yes for each question, move on and spend your time and money elsewhere.