Why Do New Products Often Miss the Mark?

Thousands of new & improved products are launched into market every year. These initiatives represent billions of dollars in investment, the commitment of millions of work hours and the reputation of thousands of managers.  Given this sizable commitment, are corporations getting a return on this investment or would they be better off spending their time and money on other growth strategies like advertising, price discounts or M&A?

If market share and profitability is your measure, most new product investment can be considered a serious waste of capital and effort. According to Harvard Business School Research and Quanta Consulting experience, no more than 10-20% of all new product innovations deliver positive ROI and target market share 12 months post launch.  For new products that reach this first hurdle, fewer than 50% are flourishing by year 3. 

A number of internal and external factors contribute to this low success rate. For example, companies often deploy significant capital on R&D yet under-invest in sales and marketing, dooming awareness building and consumer trial.  In other cases, firms fail to follow through on a well-planned strategy by executing poorly in the manufacturing, distribution or sales domains.  Finally, bad luck plays an under-appreciated role in scuttling the best laid plans and products. 

Our experience suggests that from a consumer’s (jaded) perspective, the majority of “new and improved” products are neither very new nor significantly better than the alternatives.  Furthermore, given the ‘perform or perish’ model of many retailers, new products are launched in an environment where they either hit quickly home runs or are de-listed, even if sales are generated.

There are many reasons new products fail to meet business and consumer expectations:

1.         Most product categories exhibit significant consumer inertia

  • Consumers often underestimate the benefits of the new product; new benefits are not relevant to consumers or; the new benefits are poorly messaged and supported through packaging and advertising.
  • Consumers over-value the utility of (and the potential risk of leaving) the incumbent product.
  • Despite using the product, many consumers are simply disinterested in the category and will always gravitate to a default behavior and brand (i.e. what mom bought) regardless of inducements or marketing efforts.

2.         Management over-exuberance for the new product

  • Managers typically over-estimate the value of the upgrade, often because they are psychologically vested in the new product initiative.
  • Most managers are consciously or sub-consciously driven by institutional factors including:  performance measurement systems, departmental influences (e.g. R&D, Sales) and corporate values that reward employees for launching new products even if they are problematic. 
  • Many executives willingly follow their peers, historical precedence and industry best practices [sic], which embrace new product development as conventional wisdom.

The potential gap between a consumer’s inertia and a manager’s exuberance could result in a substantial value mismatch between what the buyer wants and what the marketer gives them. This gulf can be so big as to doom any new product launch before it even hits the market and even if it delivers real benefit.  Many marketers do recognize these challenges and typically deploy a variety of carrots and sticks to change purchase behavior and usage. However, even with tantalizing and expensive incentives, many consumers may never switch to the new innovation, unless forced to.   Click on this link for some tips on how to improve the odds of new product success as well more details on our and the HBS research.

For more information on our service or work, please visit http://www.quantaconsulting.com/


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