Developing New Products: Process, Expertise, and Patience
October 1, 2006
Companies who introduce new products well excel in three distinct areas:
They introduce every new product in a similar way every time. Their approach is replicable and easily understood internally. They can train new hirers in the way they do it so that the process becomes a legacy within the organization.
Over time they get better at it, both because they have dedicated teams working on new products and because they have captured what has worked (and hasn't worked) during previous new product introductions. They create a storehouse of knowledge literally and figuratively.
They understand that not every attempt to introduce a new product is going to be successful, and even the ones that are might take a while to recoup the investment that led to theircreation. They learn from their failures both so they don't make the same mistake twice, and in order that their next attempt has a higher chance of success.
Step 1: Process
It doesn't get more basic than this when it comes to process: You need one. You can't have people running around scrounging for resources with everyone trying to create something new on an ad hoc basis. Even if they end up being successful-and clearly the odds are substantially against them-there is going to be an incredible amount of wasted and duplicative effort, if they follow that path.
Perhaps even worse, the ad hoc approach assumes that anyone can wake up one morning and simply assume that they know what the market wants, instead of systematically going out and discovering what people need. Yes, of course, everyone has an opinion about what will sell, but not every opinion is correct.
You need to do better than introducing products on a semi-random basis. You need a process.
And that simple statement carries with it a cultural implication. It assumes your organization has an openness and acceptance to the idea that new products are important and that you will adhere to a fixed way of developing them.
That's somewhat counterintuitive. People tend to think that new products are all about crazy, outside-the-box thinking. And certainly there's a role for that, and it could be part of the process. But that's the bigger point. There has to be a process, a framework that has a beginning, middle and end, one that has hurdles that have to be met-you need to sell so many units; you need to make X amount of dollars in Y amount of time to justify the investment. There need to be goals, objectives and outcomes that guide you as you set off to create something new.
Why is the process so important? Because there is no shortage of ideas. But there is a great shortage of successful ideas. So the process is about separating the wheat from the chaff, so to speak, to find out which ideas have commercial viability (and which also can be executed well.
That's the overview to process. Now let's talk about the specifics. It has three broad components starting with "creation."
The root of that word is also the root of the word creativity, and that is only appropriate since this is that part of the process where ideas are generated. The best ones tend to come not from divine illumination alone, but also from observing trends, and understanding customers' needs, wants and desires.
The best companies then search for gaps in the marketplace, places where they can fulfill those needs wants and desires, taking into accounts the competition and where they may or may not have strengths and weaknesses.
It is like Thomas Edison said. Invention is 1% inspiration and 99% perspiration. You might want to quibble about those percentages, but there can be no argument that you need both components. Once you have them working in harmony, the ideas for new products happen.
But during the creation process you don't want to end up with hundreds of ideas that you could pursue. If that's all that happens you will end up doing is running around in circles stretching yourself too thin trying to implement too many things. So a key element of this creative process is having a rational screening mechanism in order to be able to move from hundreds of ideas to no more than a dozen you want to explore in depth to judge their commercial viability.
The screening mechanism should have two broad components. The first calls for a business opportunity assessment-how big (realistically) is the potential market? And the other involves potential customer/consumer acceptance-even though there is a need, will consumers be willing to pay for it?
When you think about those two criteria, you realize that you are looking at the product from both side of the business equation: What will it take for us to produce it internally and what will it take to get the customer to buy.
From the business' point of view, there are a number of things you need to examine. The questions might be: What impact will this product have on our manufacturing process? Do we have the resources to fund it? Will it fit with our culture? Our brand image? Our corporate strategy? Are we going after a market we understand? So the questions have to do with operations, feasibility, and the impact on the organization.
How do you find out what the impact will be? There is no surprise here. You poll the key players who would be affected. So you'd get input from manufacturing, finance, operations, R&D, and so forth. What emerges is an internal evaluative model that can be used to judge the new idea.
That's how to handle the screening mechanism inside your organization. But remember, you want new products to be demand-driven, as opposed to supply-driven. Supply-driven is when you build something because you have the capacity to do it, and then you go try to find a market for it. Demand-driven says you've identified a customer need, and so you're likely to have more success when you introduce it.
To recap: you started with dozens and dozens of potential concepts and the list got winnowed down as you discovered which ones wouldn't work well internally.
You then take the concepts that are remaining and you expose them, in rudimentary form, to a cross-section of who you think would be the customers or consumers of the product so that you can get a measure of demand.
You can use any number of mechanisms to get that: you can ask them questions about their overall impression of what you are planning to offer; their likelihood to purchase; the frequency they would expect to use it, and so forth. Their responses help you build an estimate of the volume potential. Yes, the estimates are extremely preliminary, but still you have a measure that you can use to judge potential demand. You know that the products appeals to only 38% of households or whatever, but you know that it scores higher in households that have children. And so on. The preliminary data will tell you which ideas you want to pursue.
Let's take a step back to underscore what's been done. All the ideas that have surfaced have been winnowed down based on what was possible-or desirable-internally, then preliminary market testing was conducted to see which ones should be developed further.
At this point, you're not trying to make a definitive judgment about the viability of any one product. You're just trying to narrow the pool of products that you can work on to those that hold economic promise. You only have a finite amount of resources, a finite amount of time, a finite amount of energy, a finite amount of money, so you have to concentrate your new product efforts. You may have started with 100 ideas, and quickly winnowed them down to 50, just by eliminating duplicates and combining those that are similar. And by going through the first stage, you can probably take those 50 and reduce them to 20, based on what you've learned.
You then take those 20 and rank them based on how well they scored on both the business opportunity and demand opportunity assessments, and reduce them to maybe 8 or 10 that really look promising.
Those are the ones to take to the next level of investment.
The second step of the new product process is called "staging" the product. In theater, staging means the play is written and the actors have been cast and now there is an opportunity to see what everything is going to actually look like during a performance. Who is going stand where? What are the costumes going to look like? The set?
It's the same thing with new products. You are now at a point where you've settled in on a few potential product ideas that customers care about in theory. Staging is all about determining what the product should look like so you can find out if anyone will actually buy it if you create it.
Any new product you can come up with can have numerous configurations. Let's say you are going to offer a new consumer product. Typically there are four key components-price; packaging, size, and product characteristics-that could effect how well it sells. And each one of them had three or four options. You could make the packaging upscale, downscale, or utilitarian for example.
During the staging part of the new product process you do research to determine what are the exact set of characteristics that are most likely to get a customer to buy. It is all about the configuration of the product. You are refining the product to get extremely close to how it will actually appear in the marketplace, based on what potential consumers tell you they want.
For example, say you are thinking about introducing a new cheese. You want to find out if people think it should come in different flavors. If yes, you would to find what those flavors should be and what consumers would be willing to pay for the cheese. These are all elements of the ultimate configuration.
Part of this involves testing the positioning you have in mind. You are considering having it found in the specialty cheese section, what do consumers think about that? Would they like it more if it were in the regular cheese section? You were thinking that it should be only in upscale supermarkets; do they think it should be everywhere? You were thinking about introducing it on television to get as much awareness as possible, do customers agree?
All these things set the stage for launching the product and you want to know what consumers think about them.
As you can see in the staging phase you are telling potential customers how you plan to configure, position, and support the new product you are planning to introduce and you are getting feedback at each step in the process. It is all about testing the various factors that contribute to people being motivated to buy your potential product, or keep them from buy it.
Staging complete, you actually put the product out in a simulated test market, where you bring potential customers to a mock store where you present the product as it will actually appear in the marketplace, or you actually get it out into the stores.
For example if you are selling a food product, you get it out into a limited number of stores, have it sit on a shelf for a while and wait for people to buy it, take it home and try it so that you can make sure that it still tastes right. If it's a portable CD player, you've got to make sure it starts and stops 1000 times, and you need to have it used by real people in real situations. You need to have teenagers beat on it and occasionally drop it on the sidewalk because this is how it is actually going to be used in the real world.
But whether you use a simulated test market, or actually get the product out into the marketplace, you are trying to get validation of the data you gained during the staging process.
During the test marketing, you want to make sure that you have intelligence-gathering mechanisms in place so that you can make refinements to your product. For example, you might find that some of the types of cheeses people said they wanted (Jalapeno) during the staging process aren't selling in the stores; or people said they wanted the cheese to have the option of buying the cheese pre-sliced, as well as having it available in blocks, but it turns out that the sliced cheese isn't selling very well at all. You take intelligence and refine the product.
The changes shouldn't be radical, if you have been following a disciplined process all along. It is not likely that you are going to be involved in reconstructive surgery. You have been getting feedback at each step along the way, so you shouldn't be surprised about what you learn during. In fact, coming out of the test marketing, you can pretty much forecast what your product will do on a national basis and be accurate to at least 90%.
So it is not likely that the test market is going to reveal a radical problem, but it's not impossible. If it does, you can just kill the idea. It is early enough in the launch process to save a lot of money and a lot of time if you do. And killing a project shouldn't be fatal to your organization, because odds are you will have a lot of other irons in the fire.
New products are not your children. They are inanimate objects that should only have life not because God ordained it, but because there's a market for them. You should have passion for making the product work, but passion shouldn't overwhelm rationalism, if the data shows that it is not going to work.
The test market probably won't reveal any major surprises. You might make changes in terms of pricing. Or it is possible that you will need to tweak the package. For example, the fact that your product is all natural is not coming through. And more likely than not, you'll be making changes to the overall marketing plan, the spending level, and what it takes to get awareness, i.e. what it takes to get your message across. But again, none of this is major.
Once you gain this feedback, you make adjustments to your offerings and then construct the actual marketing plan. From there, it is all about attention to detail and your executing what you've found works.
By this point, you have come up with a framework that has allowed the best ideas to surface. And once they have, you have done some preliminary forecasting to see if there is a market for what appear to be promising ideas, and then you have refined the product to the point where-based on some extensive market research-you can do a detailed analysis of whether there actually will be enough people to buy what you are planning to sell.
Having done all that, it is time to turn that idea into reality. Implementation, in the words of the old Firestone advertising slogan, is where the rubber meets the road. It is here that you discover the idea is going to work, or it is not. And the most effective way to have learned that is through test marketing. Having covered the first "P" in our PEP model, it is time to move on to the "E," expertise
Step II: Expertise
This has three components as well: Hiring, training and knowledge accumulation.
In hiring, you want to look for people who have been trained in process of developing new products. Creating new products is an interdisciplinary process, and so you are looking for people who have interdisciplinary skills.
It doesn't make sense to hire somebody to run new products when all they've ever done is run advertising. Similarly, you probably don't want to hire somebody to run you new products team when all
they'd ever done was promotion. You want to be looking for somebody who came out of the brand management role, who'd been involved in the fully integrated effort of developing or building a brand.
You also would be looking for someone who had quantitative skills, both in terms of survey research related research and financials. You're building a business, so doing budgeting, doing pro formas, business plans, and the like are a very critical skill set.
And now to really make it impossible, you want to hire people who possess all those traits and are creative as well. People who are Renaissance men and women. Think about it. The most successful entrepreneurs-and introducing a new brand really is a form of entrepreneurship-are Renaissance people, and that's what you're looking for: People who have a blend of quantitative skills and creativity.
The second element in the expertise component is training, in this case, training relative to the process. This doesn't mean the process is immutable and unchangeable-obviously as you discover better ways to do things, you incorporate them-but nevertheless you want to train people in how your organization develops new products (successfully).
You want to have:
- Dedicated new products teams comprised of people who have developed new products successfully in the past, with the rest of the team being comprised of people who have been trained in the process.
- Hire people who have a new products background. Our business schools are not doing a good job of educating students about new products and there should be pressure put upon them to be better. If people are educated about how the new product process works, on the whole are companies should get better at it. That seems to be the case with business education generally. There should be emphasis on new products in business schools.
- A dedicated new product budget.
- A systematic process for understanding what works and what doesn't. The more you know the more efficient you can become. (You also want to build a body of institutional knowledge, to keep you from making the same mistakes twice.)
And last, there's a very valuable role that cumulative knowledge in this area brings. The cliché is right: There is simply no substitute for experience.
Finding people who are effective in developing new products requires a different type of person, one who-as the consultants are fond of putting it-are comfortable with, and have a high tolerance for, ambiguity. In addition, they need to be good team players who can work across disciplines. You are looking for people who can both come up with the new idea and execute it
Step III: Patience
The final factor is patience. Introducing new products takes time. They are going to take longer than you expect to create. It depends on the category, but you should think in terms of at least a year to get a product to market.
Take that as a given, because the benefits of being right and "late," far outweigh the benefits of being wrong and on time, or wrong and late.
Speed kills. When you are rushing through the development process you are not taking the time to get intelligent feedback. American business has no time, and not enough money to do the product right initially. Yet, when products fail, somehow they find unlimited amounts of time and money to try and fix it. That has never made any sense.
It would be far wiser to just do it right the first time. On the surface that it appears more costly, but it's not when you compare the money it takes to get the product fixed once it's been a mistake. The first mover advantage is not only wrong, but potentially harmful.
The Coca-Cola Co. did not invent low-calorie soft drinks, but it has literally made billions of dollars from diet Coke. Neither Dell nor Apple invented the personal computer, but even though they were not first, they have managed to prosper.
The concept of "ready, fire, aim," provided to us by Tom Peters and Bob Waterman In Search of Excellence is not the way to go.
This is not an argument for paralysis by analysis. But your probability for success increases dramatically if you follow a regimented, disciplined path, as opposed to shooting from the hip.
And let's be painfully clear. Patience does not mean being patient when suppliers-or even your own people-miss deadlines. When you are introducing a new product, there are schedules, there are timetables, there are end dates, there are performance criteria, and they all must be met. But having a disciplined process takes longer than simply saying "ready, fire, aim." That's the point.
"New Products: The Next Big Marketing Revolution." Robert S. Shulman. New York: ANA, 2006.