Challenges in New-Product Development

In retailing, consumer goods, electronics, autos, and other industries, the time to bring a product to market has been cut in half.²⁰ For instance, luxury leather-goods maker Louis Vuitton has implemented a new factory format dubbed Pegase so it could ship fresh collections to its boutiques every six weeks—more than twice as frequently as in the past—giving customers more new looks to choose from.²¹

1. THE INNOVATION IMPERATIVE

In an economy of rapid change, continuous innovation is a necessity. Companies that fail to develop new prod­ucts leave themselves vulnerable to changing customer needs and tastes, shortened product life cycles, increased domestic and foreign competition, and especially new technologies. Google, Dropbox, and Box update their software daily.²²

Highly innovative firms are able to repeatedly identify and quickly seize new market opportunities. They create a positive attitude toward innovation and risk taking, routinize the innovation process, practice teamwork, and allow their people to experiment and even fail. One such firm is W. L. Gore.

W. L. GORE Best known for its GORE-TEX high-performance fabrics, W. L. Gore has introduced breakthrough versions of guitar strings, dental floss, medical devices, and fuel cells—while constantly reinventing the uses of the polymer polytetrafluoroeth- ylene (PTFE). Several principles guide the company’s new-product development. First, it works with potential customers. Its thoracic graft, designed to combat heart disease, was developed in close collaboration with physicians. Second, Gore has a distinctly egalitarian culture; it lets employees choose projects and appoints few product leaders and teams. The company likes to nurture “passionate champions” who convince oth­ers a project is worth their time and commitment, and leaders have positions of authority because they have followers. The development of the fuel cell rallied more than 100 of Gore’s 9,000 research associates. Third, all research associates spend 10 percent of their work hours on “dabble time,” developing their own ideas. Promising ideas are judged according to a “Real, Win, Worth” exercise: Is the opportunity real? Can we win? Can we make money? Fourth, Gore knows when to let go, though dead ends in one area can spark innovation in another: Elixir acoustic guitar strings were the result of a failed venture into bike cables. Even successful ventures may need to move on. Glide shred-resistant dental floss was sold to Procter & Gamble because Gore knew retailers want to deal with a company selling a family of health care products. The 10,000-person private company now has operations in dozens of countries around the globe and revenue of more than $3 billion.

Innovation is about “creating new choices” the competition doesn’t have access to, says IDEO’s CEO Tim Brown. It isn’t about brilliant people spontaneously generating new ideas, he argues, but about finding hidden assumptions and ignored processes that can change the way a company does business.²⁴

2. NEW-PRODUCT SUCCESS

Most established companies focus on incremental innovation, entering new markets by tweaking products for new customers, using variations on a core product to stay one step ahead of the market, and creating interim solutions for industry-wide problems. With the widespread adoption of smart phones, mobile apps are becoming a lucrative busi­ness, as the creators of Angry Birds video game have found, securing their leadership with continual innovation.²⁵

ANGRY BIRDS A spectacular success, Angry Birds has transcended its origins as a mobile app to become a cultural phenomenon and entrenched brand franchise. Created in Finland by Niklas Hed and commercialized by Rovio Entertainment, the video game uses a slingshot to hurl brightly colored birds at green pigs trying to take shelter. It scored 50 million downloads in its first year while becoming the top seller at the Apple App Store, spawning a series of sequels, RIO Seasons and Space, and two subsequent releases tied to Star Wars. Rovio has kept users interested in existing titles by continually adding new levels to the games—Angry Birds had 63 levels when it began, which grew to more than 360. Taking a page from Disney, the brand has been successfully extended within and outside entertainment, with toys, games, backpacks, fruit snacks, underwear, and more that have reached $650 million in sales. Rovio— Finnish for “bonfire”—is worth an estimated $9 billion. There is an Angry Birds television show, comic book series, and planned 3-D movie; its YouTube site has had more than 1 billion views. The brand has more than 400 partners, from Coca-Cola to Intel to Kraft. Rovio has also opened up retail stores in China and themed activity parks in Finland, China, and the United Kingdom.

Newer companies create disruptive technologies that are cheaper and more likely to alter the competitive space. Established companies can be slow to react or invest in these disruptive technologies because they threaten their investment. Then they suddenly find themselves facing formidable new competitors, and many fail.²⁶ To avoid this trap, incumbent firms must carefully monitor the preferences of both customers and noncustomers and uncover evolving, difficult-to-articulate customer needs.²⁷

What else can a company do? In a classic study of industrial products, new-product specialists Cooper and Kleinschmidt found that the number-one success factor is a unique, superior product. Such products succeed 98 percent of the time, compared with products with a moderate advantage (58 percent success) or minimal advantage (18 percent success). Another key factor is a well-defined product concept. The com­pany carefully defines and assesses the target market, product requirements, and benefits before proceeding. Other success factors are technological and marketing synergy, quality of execution in all stages, and mar­ket attractiveness. Products designed with other countries and a global perspective in mind also tended to fare better.²⁸

3. NEW-PRODUCT FAILURE

New products continue to fail at rates estimated as high as 50 percent or even 95 percent in the United States and 90 percent in Europe.²⁹ The reasons are many: ignored or misinterpreted market research; overestimates of mar­ket size; high development costs; poor design or ineffectual performance; incorrect positioning, advertising, or
price; insufficient distribution support; competitors who fight back hard; and inadequate ROI or payback. Some additional drawbacks new-product launches face are:

• Fragmented markets. Companies must aim their new products at smaller market segments than before, which can mean lower sales and profits for each product.
• Social, economic, and governmental constraints. New products must satisfy consumer safety and environ­mental concerns and stringent production constraints.
• Cost of development. A company typically must generate many ideas to find just one worthy of development and thus often faces high R&D, manufacturing, and marketing costs.
• Capital shortages. Some companies with good ideas cannot raise the funds to research and launch them.
• Shorter required development time. Companies must learn to compress development time with new tech­niques, strategic partners, early concept tests, and advanced marketing planning.
• Poor launch timing. New products are sometimes launched too late, after the category has already taken off, or too early for sufficient interest to have gathered.
• Shorter product life cycles. Rivals are quick to copy success. At one time, Sony enjoyed a three-year lead on its new products, but Matsushita and others learned to copy them within six months, leaving Sony with barely time to recoup its investment.
• Lack of organizational support. The new product may not mesh with the corporate culture or receive the financial or other support it needs.

But failure comes with the territory, and truly innovative firms accept it as part of what’s necessary to be suc­cessful. Silicon Valley marketing expert Seth Godin maintains, “It is not just OK to fail; it’s imperative to fail.”³⁰ Many Internet companies are the result of failed earlier ventures and experience numerous setbacks as their ser­vices evolve. Dogster.com, a social network site for dog lovers, emerged after the spectacular demise of Pets.com.³¹

Failure is not always the end of an idea. Recognizing that 90 percent of experimental drugs are unsuccessful, Eli Lilly looks at failure as an inevitable part of discovery and encourages its scientists to find new uses for compounds that fail at any stage in a human clinical trial. Evista, a failed contraceptive, became a $1 billion-a-year drug for osteoporosis. Strattera was unsuccessful as an antidepressant but became a top seller for attention deficit/hyperactivity disorder.³²

Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.