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Predevelopment activities determine new product success
Predevelopment Activities Determine New Product Success Robert G. Cooper This article focuses on the predevelopment activities of the product innovation process: those often ignored steps that precede the actual development of the product. We first look at the mounting evidence that identifies holes in the way in which many industrial firms handle the predevelopment steps. The evidence also reveals that new product success and failure is often decided before the new product project even enters the product development phase. Second, we turn to ways that managers can, should and have improved the effectiveness of these early and crucial stages of the innovation process.
Is industrial new product success strictly a gamble? No, according to recent studies, which argue that most new product outcomes are within management’s control.* The factors that separate winners from losers most often lie within the hands of the people who manage and undertake the new product project. But too many wouldbe winners fail. Why? Often the answers lie in areas which management has ignored. When a new industrial product fails in the marketplace,
*See, for example, comparative studies on new product success and failure [4, 5, 6, 14, 15, 16, 17, 18, and 191. Address correspondence to Professor Robert G. Cooper, Faculty of Marketing, McMaster University, 1280Main St. West, Hamilton, Ontario, Canada L8S 4M4.
Industrial Marketing Management 17, 237-247 (1988) 0 Elsevier Science Publishing Co., Inc., 1988 52 Vanderbilt Ave., New York, NY 10017
the failure is frequently blamed on culprits such as a “weak market launch,” “tough competition” or “not enough selling and promotional effort. ” A more in-depth analysis, however, often reveals that the true causes of failure lie elsewhere-that the seeds of failure were sown much earlier in the product innovation process than most people had imagined. Indeed, more and more evidence points to predevelopment activities as the pivotal steps in the new product process; it is these early stages where success and failure are largely decided.
WHY PRODUCTS FAIL Too many new products fail. Crawford’s extensive study of failure rate investigations concludes that new products face a 35% failure rate at launch [lo]. A Conference Board study reveals that only 56% of firms experienced a success rate of 60% or better and that 63% of firms rated their new product success rate as “disappointing” or “unacceptably low. ” These figures, however, do not include the many new product projects that were killed prior to market launch, yet still had considerable resources spent on them. An estimated 46% of all the resources that U.S. industry devotes to new product 237 0019-8501/88/$3.50
More and better marketing research. development and commercialization goes to commercial duds, according to a Booz-Allen & Hamilton study [ 11. Of every four new product project that enter development, only one becomes a commercial success [ 11. With “odds against” like these, it’s surprising that more firms haven’t retreated from the new product arena altogether. Why do so many new products fail? Often the answers are not where we’d expect them. Consider the process by which new products evolve from ideas to commercialized products. The new product process can be viewed as a multistage process. New product projects are born as ideas, move through screening, project definition and business analysis steps, and eventually into product development . These early steps, up to product development, are the predevelopment or up-front activities. After product development, the project moves into the commercialization phases: product testing, test markets, trial production and finally market launch, the back-end stages of the process. Most industrial new product failures can be traced to serious weaknesses in the up-front steps of the process, according to several research studies: Three Conference Board studies undertaken over 25 years reveal that inadequate market analysis remains the number one cause of product failure [ 12, 13, 151. A failure to research and understand the market before product development began was the main culprit. The list of failure reasons included a lack of thoroughness in identifying real needs in the marketplace, and in spotting early signs of competitors girding up to take the offensive. Managers frequently confessed to a serious misreading of customer needs, too little field testing, and overly optimistic forecasting of customer needs and acceptance.
In an in-depth investigation of 114 industrial product failures, the predevelopment activities showed the greatest weaknesses [2,3]. For example, in 22% of the projects, no market research study was done at all, and in another 46% of cases, this step was handled very poorly. Project screening and preliminary market assessment were also weakly handled. The recommendations of the Conference Board studies included more and better marketing research, market analysis and sales forecasting. Also high on the list of suggestions were more careful product positioning, more effective concept testing, better test marketing, sharper evaluation of new product projects (including early screening), and better planning of sales and promotional efforts.
WINNERS VERSUS LOSERS What separates new product winners from the losers has been the topic of a number provocative investigations, including SAPPHO, the Stanford Innovation Project, and NewProd. Some of the success factors uncovered in these success-versus-failure studies include: a strong marketing orientation [4, 5, 14, 15, 17, 181: an in-depth understanding of users’ needs and wants [4, 16, 17, 18, 191 a unique superior product; a product with a high performance-to-cost ratio [4, 5, 141 a strong market launch, backed by significant resources devoted to the selling and promotional efforts [4, 5, 14, 16, 17, 181 an attractive market: a high need level, a large and growing market; an uncompetitive market [4, 5, 141
ROBERT G. COOPER is Professor of Marketing at McMaster University in Hamilton, Ontario, Canada and Director of Research at the Innovation Centre, Waterloo, Ontario.
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synergy in a number of areas including technological and marketing [4, 5, 141 top management support [ 141 good internal and external communications 18, 191
[ 16, 17,
a well-planned, ]14, 191
well-coordinated
new product process
Although some of these success factors pertain to the development and commercialization phases, the majority are determined much earlier in the project’s life. For example: 1. A product with “superior benefits for the customer’ ’ and offering ‘ ‘value for money to the user” is most likely to succeed. Arriving at a product with customer benefits is, in part, the result of technological prowess; but it also depends on the definition of the product concept, which should be decided well before development gets underway. Moreover, defining a “product with superior benefits for the customer” presupposes an understanding of the customer’s needs and wants-of what the customer values as a benefit. This customer’s knowledge is often (or should be) the result of market research, market assessment and other market inputs, ideally undertaken ahead of the actual development of the product. 2. Understanding customers’ needs and wants and undertaking the necessary market assessment and market research studies to achieve this understanding stands out as the second key to success, and is closely linked to the product superiority factor. “An understanding of user’s needs” was the most important discriminator between product success and failure in the SAPPHO studies, and separated successes from failures in 83% of the cases [ 16, 17, 181. This factor surprisingly scored above “more attention to marketing” and “R&D strength” as the main determinant of success. (Note that the SAPPHO researchers did not look at product advantage or benefits directly.) 3. Synergy or fit with corporate resources and skills in the areas of technology, marketing and manufacturing was another recurring success factor. Synergy is a factor largely beyond the control of the
Predevelopment
project team; either a new product fits the company’s salesforce or technology base, or it doesn’t. Thus, synergy becomes an important screening criterion in the project selection phase. Projects that are not synergistic with the firm can be weeded out, or steps can be taken to acquire the needed resources through joint venturing, cooperative development, and subcontracting. The point is that synergy issues can and should be decided or resolved early in the project’s life-in the screening and business analysis stages. 4. Market attractiveness emerges as another important success factor: targeting a large, high growth, high potential, high need, uncompetitive market. Market attractiveness is externally determined, and like synergy, beyond the control of the project team. Thus, market attractiveness becomes a project selection criterion, and like synergy, an issue that should be researched and resolved prior to product development.
KEY SUCCESS ACTIVITIES How well certain activities in the new product process are undertaken is strongly linked to new product success. In one study of 203 industrial product launches (123 successes and 80 failures), activities such as initial screening, preliminary market and technical assessment, and undertaking a detailed market study were strongly correlated with product outcomes [9]. Figure 1 shows the results of this study, where the rated “goodness” of 13 different process activities were correlated with product success.* In reviewing these results, note how the upfront or predevelopment activities stand out as activities that separate winners from losers. The disconcerting evidence was how poorly undertaken and frequently omitted these key activities were. In only one quarter of these projects was a detailed market *Where an activity was not done, its proficiency
was rated at zero.
activities separate winners from losers.
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study done; initial screening, preliminary market assessment, and the detailed market study were consistently rated as the most weakly handled activities of the entire new product process.
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Success
7
8
products.
Versus Failure [9]
How much money is devoted to these early stages also is linked to performance. Successful firms devote more resources to these early stages, according to Booz-Allen & Hamilton [ 11. And Japanese firms devote still more.
Improvement to build into each stage of the new product process. The Pivotal Stages No one would deny that a good launch effort, a well-
planned R&D effort, and proficient production start-up are essential to new product success. So are steps such as test markets, trial production and product testing. The deciding factors, by which winners and lowers are most often determined, however, tend to occur much earlier in the new product process, often before product design and development even begins. It is these early stages, moreover, that often receive the least management attention and resources, and are so often found lacking in industrial firms’ new product processes.
many deficiencies identified in the new product process, and also is based on what takes place in successful projects and firms. Each step is explained in more detail below.
STAGE 1: IDEA The first stage involves generating new product ideas. and undertaking a first and tentative evaluation or screening of these ideas. These activities are critical; they initiate the new product project. Deficiencies here-poor ideas, too few ideas, and poor screening-result in costly problems in later stages of the process.
A More Effective Game Plan
Idea Generation
What can be done to improve these predevelopment activities of the new product process? Predevelopment activities accomplish three main things:
How can the idea generation step be improved? Here are some ways: LISTEN TOTHECUSTOMER. Undertake periodic surveys of customer needs and problems. Set up a panel of customers that meets periodically and feeds back ideas, suggestions and complaints. Try a customer focus group that focuses on a problem area, or on problems and opportunities in a product category. UTILIZE THE SALESAND SERVICEGROUPS. Sales and service groups have regular contact with customers and customer problems. Review service records and talk to service people to identify customer problems and hence opportunities for new products. Encourage the salesforce to submit new product ideas directly to the new product group. Von Hippel suggests even more [21, 22, 231: Get into the market with a standard product of interest to users who are innovators, anything that will allow the establishment of a sales and service relationship; hire sales people who recognize potential new products in addition to selling the standard line; target innovative users with promotional materials asking them for new product ideas, and provide a reward; and organize the
Idea generation: conceiving the product idea itself. Product definition: defining the winning new productits positioning, benefits to be delivered, and product design (features, attributes and specifications). Project evaluation: evaluating the project from a marketing, technological, manufacturing, and financial standpoint, in order to determine whether the project should be pushed into development. There are a number of steps and improvements which can be built into the new product process in order to achieve the above. Figure 2 shows a seven step model of the new product process. The back-end activitiesdevelopment, testing, trial and commercialization-are familiar ones. But the three predevelopment stagesidea, preliminary assessment and concept-require more focus. Figure 3 shows a detailed game plan or process model for undertaking these predevelopment activities [6]. The process has been designed in response to the
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Idea Preliminary assessment Concept
I Development Testing Trial Launch
FIGURE2.
The Seven-Step New Product Process [6]
new product group so that there is a free flow of information between the sales and service groups. UTILIZE CREATIVITY SESSIONS. Properly structured and implemented, a creativity session (for example, brainstorming) can yield numerous good new product ideas. Try organizing brainstorming sessions with various mixed groups in the firm, with representatives from sales, marketing, R&D, manufacturing, and so on. SUGGESTION CONTESTS AND SCHEMES WORK. Employees and customers can be valid sources of new product ideas. Give them encouragement by organizing a contest or suggestion scheme with prizes and award events. There is no guarantee that implementing any of the above schemes will yield the breakthrough idea. But managing the idea generation phase in a proactive fashion has been shown to enhance the performance of firms’ new product programs. [8].
Screening The initial selection of new product ideas for further investigation is the role of screening. All too often, screening is handled poorly. It is not a formal step in the new product process, no screening procedure is used, and there is a lack of consistent and well-defined screening criteria [9]. The screening step should be established as a formal step in the new product process-a GO/KILL decision 242
point or hurdle which must be cleared prior to the project receiving any serious funding. Screening can be viewed as a tentative decision to commit initial and limited resources to an embryonic project in order to prove the project’s viability and potential. It is not a decision to commit all the resources needed undertake the project; rather, it is a decision to undertake some preliminary studies and appraisals, after which the project will be reevaluated in the light of new and more complete information. The screening evaluation is intended only to make gross distinctions, weeding out the obvious misfit and “loser” projects. Although many techniques have been proposed to handle the initial screening, including economic models and portfolio optimization methods, the best approaches in term of realism and ease-of-use are benefit contribution methods [20]. Checklists and scoring models are cited as particularly appropriate. Screening should be handled as a culling process. The bank of new product ideas is first subjected to a set of “must criteria”-questions which are relatively easy to answer, yet delete a significant proportion of projects. “Must criteria” include characteristics which every project must meet in order to receive further consideration. Such questions pertain to strategic alignment, feasibility, project size and other company-specific criteria. Those projects that pass the must criteria are then subjected to a set of “should criteria”-criteria which are desirable in a new product project, but not essential. Such criteria are proxies for project success and profitability,
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and describe factors such as market attractiveness, product advantage, and synergy or fit with corporate resources and experience. These “should criteria” are most effectively handled by scoring models where criteria are weighted; the project is scored on each criterion; and a “project score” is computed by multiplying weights by criterion scores and adding [8]. Although a rigorous financial analysis is not usually part of this early screen, there is merit to include a simple financial index. Such indices typically compute the benefit/cost ratio of the project in an attempt to determine if the costs to get in are justified by the profit and sales potential.
STAGE 2: PRELIMINARY ASSESSMENT
The above activities are relatively inexpensive, yet provide considerable insight into a product’s viability in the marketplace.
Preliminary Technical Assessment Preliminary technical assessment involves subjecting the proposed product to the firm’s technical staff for appraisal. The key questions concern the technical viability of the product. Can it be developed? What technical solutions will be required? At what cost? Can the product be manufactured? At what capital and manufacturing costs? A focus group or creative problem-solving session of technical staff is an effective method of undertaking this preliminary technical assessment.
Preliminary Evaluation
Preliminary assessment is the first stage following the initial screening wherein significant resources are spent to gather information regarding the feasibility of the project (see Figure 3). Expenditures at this preliminary stage, which includes market and technical assessment, should be limited to a specified ceiling. In short, the output of the screening decision in stage 1 can be expressed thus: “On the basis of the information available, spend no more than $10,000 and 15 man-days, and report back in one month armed with better information, for a more thorough project evaluation. ’ ’
After the preliminary technical and market assessments are completed, a second evaluation is carried out. The information available at this point in the process is considerably better than at the initial screen. A more thorough evaluation, involving both qualitative and financial analysis, is undertaken. If the decision is GO, the project moves to the next stage, when considerably more resources are expended.
Preliminary Market Assessment
This is the final stage of the predevelopment steps, and is perhaps the most difficult and expensive. One purpose of this stage is to make the final GO/KILL decision prior to product development: a GO at this point signals commitment to an expensive development effort. A second purpose of this concept stage is to define exactly the product’s concept and strategy-the exact design requirements for the product. Properly undertaken, the concept definition stage should result in a winning concept definition-a product that outscores competitive products, that has superior benefits for the customer, and that delivers value to the customer. Value to the customer means delivering a bundle of benefits (see Figure 4). These benefits to the customer are derived from product features, attributes and design specifications. Value and benefits are in the eye of the customer, whereas features and design specs are technical attributes. Thus, an important process in this concept-definition stage is deciding the value-benefits-features-specs linkage shown in Figure 4.
Preliminary market assessment involves a nonscientific market appraisal. Given a limited budget, the task is to find out as much as one can about market size, growth, segments and competition; about likely product acceptance in the market; and about how the product would be marketed. Given the budget and time constants, market assessment is clearly not a full-scale, large-sample market research study. Various other approaches can be used, including: contacts with a handful of key customers focus groups with customers to gage interest, and interest-to-purchase
liking
meetings with knowledgeable experts, including key sales people, reps, distributors and dealers, and industry experts access to published and statistical material, industry reports, association reports, etc.
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STAGE 3: CONCEPT DEFINITION
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“Value”
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What is “value”?
-
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- What is a better product? FIGURE
4.
The Link between Product Design and Value to the Customer
An important tool useful in the concept-definition stage is the development of a product protocol [ 111. The protocol is an all-party agreement on what the product will be; it defines the objectives for the R&D effort. Agreement must be reached on: the definition of the target market; the product’s concept, the benefits the product will deliver, and how it will be positioned in the market; and the product’s features, attributes, design specifications and requirements. The concept definition stage should consist of series of technological and market-oriented activities, each aimed at defining the winning product (see Figure 3). The first activity should be market-oriented-a study (or studies) focused on the marketplace to determine “what This study is called concept is a better product”. identification. Concept
Identification
then what other product or products will it replace? This information gives an insight into who is buying what, how the customer perceives the product he/she is using at present, and what the customer’s choice criteria are. What is the customer’s level of satisfaction with the product he/she is now using? Why? This information shows how strong competitive products or substitute products are, and their strengths and weaknesses are often the clue to a superior design. What is the customer’s level and order of preference for alternative competitive makes? Why? This information identifies the deciding factors that cause the customer to choose brand X versus brand Y; this understanding of choice criteria is critical to product design. How does the customer rate various competitive products on each of the choice criteria? Why? This information can be used to determine the positioning of competitive products in the market and the reasons for that positioning.
Concept identification is a prospecting investigation seeking insights rather than soliciting feedback. The objective is to determine the “ideal product” in the eyes of the customer, or more simply, the customer’s “wish list”. Typical information objectives of such a study include:
What are the good and bad points of the competing products? What specific complaints or suggestions for improvement does the customer have? Again, this is vital information for the design team-knowing what competitors have done wrong, so that their mistakes can be avoided.
What product is the customer using now? Why? If the new product fits in the “new to the world” category,
What is the customer’s ideal product according to each of the choice criteria? What features and attributes 245
should be built it? This information helps to define the ideal product. Most often, this study involves face-to-face and frequent interaction with potential users. Methods include: focus groups with potential users; large-sample surveys based on personal interviews of users; in-depth meetings and frequent contact with key or leading users; and observation of potential customers as they use and abuse competitor products. Competitive analysis is also a vital input here. Identifying competitive products, their strengths and weaknesses and their pricing and marketing strategies is a key input to concept definition. Customer perceptions of competitive products provide valuable clues as to what to build in, and what to avoid, in product design.
Concept Development The design requirements for what constitutes a better product for the customer are now delineated. Next comes concept development (see Figure 3). There, the market requirements are translated into an operational concept, one that is technically and economically feasible. This activity usually involves problem-solving sessions with both marketing and technical people, but with a heavy emphasis on technical solutions.
Concept Test Will the new product be a winner? Before pushing ahead into product development, it makes sense to undertake a final test-a concept test-to ensure that the product will meet customer needs and wants better than competitive products. A problem faced by many firms is translation. A thorough market study is undertaken that identifies customer needs and wants. The technical team then translates those needs into a tentative product design, but something goes wrong in the translation. The final product isn’t quite what the customer wants, or lacks that special something that differentiates it from what the customer is already buying. The concept test is the final point prior to product development where significant design changes in the proposed product can still be made at relatively little cost. The concept test is a test of the likely acceptance of the product by the marketplace. This market study of potential buyers, different from the “prospecting” concept-
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identification study, presents the technically feasible concept to customers and measures their reactions to it. Note that at this stage, the product has not yet entered development. The purpose is to see if the project is heading in the right direction. Usually the presentation of the concept is made in the form of written descriptions, sketches, models or even a slide show. The object of the study is to gauge the market acceptance: interest, liking, preference and intent-to-purchase, and the reasons for these. Additional information gleaned from such a study involves suggested product design modifications, hints about the nature of the appeal, and in the event of rejection, the reasons why.
Concept Evaluation Concept evaluation is the final GO/KILL decision point prior to moving into full-scale product development (see Figure 3). Here, the results of the concept-identification market study, the technical aspects of concept development, and the results of the concept test are integrated. The GO/KILL decision here is a critical one. Once past this point, it becomes increasingly difficult and expensive to turn back. This GO/KILL decision must involve a combination of qualitative and financial considerations. The checklist of questions used in screening and preliminary assessment can be repeated. But because the next stage, product development, involves major expenditures, a thorough financial analysis is also built into the decision analysis. The project’s protocol is now decided. To recap, the protocol is an agreement between marketing and technical people that guides the product development phase and charts the overall course for the remainder of the project. It specifies the target market, the product concept, positioning strategy, product benefits, and product attributes and requirements.
CONCLUSION With the GO decision made, and a protocol in place and agreed to, the up-front activities are complete. Product development can begin in earnest. Armed with a clear protocol, the design team can go to work. They know who the customer is; they understand what the product is that he or she wants, needs and prefers; they know competitive products and what their good
and bad features are; they have a clear definition of what benefits the new product must deliver to make it a winner; and they know how it must be differentiated from competitors’ products in order to gain an advantage in the market. In short, unlike most R&D teams, they are not working in a market-information vacuum. How well the development phase is carried out will depend in part on the skills, knowledge, resources and management prowess of the development group. Equally important, the success of the development phase depends on how sharply and proficiently the up-front steps have been carried out and the protocol defined. A diligent execution of these up-front steps as outlined in Figure 3 does not guarantee success. But it does pave the road to a successful new product development and helps to avoid the many pitfalls that plague too many new industrial products.
9. Cooper, Robert G., and Elko, Kleinschmidt, An Investigation New Product Process, J Prod fnnov Manag 3, (71-85 (1986). 10. Crawford, C. M., New Product Failure Rates-Facts search Management pp. 9-I3 (September 1979). Il.
1. Booz-Allen & Hamilton, New Product Managemenf for the 1980s BoozAllen & Hamilton, New York, 1982. 2. Calantone, Roger, and Cooper, Robert G., A Discriminant Model For Investigating Scenarios of Industrial New Product Failure, Journal of the Academy of Marketing Science (Summer 1979). Products Fail, Industrial Mar-
4. Cooper, Robert G., The Dimensions of Industrial New Product Success and Failure, Journal of Marketing 43(3), 93-103 (July 1979). 5. Cooper, Robert G., Identifying Industrial New Product Success: Project NewProd, industrial Marketing Management 8, 136- 144 ( 1979). 6. Cooper, Robert G., A Process Model for Industrial New Product Development, IEEE Trans. on Engineering Management EM-XI, 2-l 1 (February 1983). 7. Cooper, Robert G., “Selecting Winning New Product Projects”, of Product Innovation Management 2, 1985, 34-44.
Journal
Strat-
into the
and Fallacies,
Crawford, C. M., Protocol: New Tool for Product Innovation, of Product Innovation Management 2, 85-91 (1984).
Re-
Journal
12. Hopkins, D. S., New Products Winners and Losers, report # 773. The Conference Board, New York, 1980. 13. Hopkins, D. S., and Bailey, Record 8, 16-24 (1971).
E. L., New Pressures, Conference Board
14. Maidique, M. A., and Zirger, B. J., A Study of Success and Failure in Product Innovation: The Case of the U.S. Electronics Industry, IEEE Trans. on Engineering Management, EM-31, 192-203 (November 1984). 15. National Industrial Conference Board, Why New Products Fail, The Conference Board Record. NICB, New York, 1964. 16. Rothwell, Roy, Factors for Success in Industrial Innovation, Project SAPPHO-A Comparative Study of Success and Failure in Industrial lnnovation, Science Policy Research Unit, University of Sussex, Brighton, U.K., 1972. 17. Rothwell, Roy, The Hungarian SAPPHO: Some Comments parison, Research Policy 3, 30-28 (1974).
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3. Cooper, Robert G., Why New Industrial keting Management, 4, 3 15-326 (1975).
8. Cooper, Robert G., The Performance Impact of Product Innovation egies, European Journal ofMarketing 18, l-54 (1984).
and Com-
18. Rothwell, Roy, Freeman, C., Horsely, A., Jervis, V. I. P., Robertson, A. B., and Townsend, J., SAPPHO Updated-Project SAPPHO Phase II, Research Policy 3, 258-291 (1974). 19. Rubenstein, A. H.. Chakrabarti, A. K., and O’Keefe, R. D., Field Studies of the Technological Innovation Process, Progress in Assessing Technical Innovations, Clauser, H. R., ed., Technomic Publications, Westport, Cf 1974. 20. Souder, W. E., A Scoring Methodology for Assesssing Management Science Models, Management Science (1972).
the Suitability of 18, B526-B543
21. Von Hippel, E. A., Has Your Customer Already Developed Your Next Product? Sloan Management Review pp. 63-74, (Winter 1977). 22. Von Hippel, E. A., Successful Industrial Products from Customer Ideas, Journal of Marketing pp. 39-49 (January 1978). 23. Von Hippel, E. A., Get New Products From Customers, Review pp. 117-22 (March-April 1982).
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Is industrial new product success strictly a gamble? No, according to recent studies, which argue that most new product outcomes are within management’s control.* The factors that separate winners from losers most often lie within the hands of the people who manage and undertake the new product project. But too many wouldbe winners fail. Why? Often the answers lie in areas which management has ignored. When a new industrial product fails in the marketplace,
*See, for example, comparative studies on new product success and failure [4, 5, 6, 14, 15, 16, 17, 18, and 191. Address correspondence to Professor Robert G. Cooper, Faculty of Marketing, McMaster University, 1280Main St. West, Hamilton, Ontario, Canada L8S 4M4.
Industrial Marketing Management 17, 237-247 (1988) 0 Elsevier Science Publishing Co., Inc., 1988 52 Vanderbilt Ave., New York, NY 10017
the failure is frequently blamed on culprits such as a “weak market launch,” “tough competition” or “not enough selling and promotional effort. ” A more in-depth analysis, however, often reveals that the true causes of failure lie elsewhere-that the seeds of failure were sown much earlier in the product innovation process than most people had imagined. Indeed, more and more evidence points to predevelopment activities as the pivotal steps in the new product process; it is these early stages where success and failure are largely decided.
WHY PRODUCTS FAIL Too many new products fail. Crawford’s extensive study of failure rate investigations concludes that new products face a 35% failure rate at launch [lo]. A Conference Board study reveals that only 56% of firms experienced a success rate of 60% or better and that 63% of firms rated their new product success rate as “disappointing” or “unacceptably low. ” These figures, however, do not include the many new product projects that were killed prior to market launch, yet still had considerable resources spent on them. An estimated 46% of all the resources that U.S. industry devotes to new product 237 0019-8501/88/$3.50
More and better marketing research. development and commercialization goes to commercial duds, according to a Booz-Allen & Hamilton study [ 11. Of every four new product project that enter development, only one becomes a commercial success [ 11. With “odds against” like these, it’s surprising that more firms haven’t retreated from the new product arena altogether. Why do so many new products fail? Often the answers are not where we’d expect them. Consider the process by which new products evolve from ideas to commercialized products. The new product process can be viewed as a multistage process. New product projects are born as ideas, move through screening, project definition and business analysis steps, and eventually into product development . These early steps, up to product development, are the predevelopment or up-front activities. After product development, the project moves into the commercialization phases: product testing, test markets, trial production and finally market launch, the back-end stages of the process. Most industrial new product failures can be traced to serious weaknesses in the up-front steps of the process, according to several research studies: Three Conference Board studies undertaken over 25 years reveal that inadequate market analysis remains the number one cause of product failure [ 12, 13, 151. A failure to research and understand the market before product development began was the main culprit. The list of failure reasons included a lack of thoroughness in identifying real needs in the marketplace, and in spotting early signs of competitors girding up to take the offensive. Managers frequently confessed to a serious misreading of customer needs, too little field testing, and overly optimistic forecasting of customer needs and acceptance.
In an in-depth investigation of 114 industrial product failures, the predevelopment activities showed the greatest weaknesses [2,3]. For example, in 22% of the projects, no market research study was done at all, and in another 46% of cases, this step was handled very poorly. Project screening and preliminary market assessment were also weakly handled. The recommendations of the Conference Board studies included more and better marketing research, market analysis and sales forecasting. Also high on the list of suggestions were more careful product positioning, more effective concept testing, better test marketing, sharper evaluation of new product projects (including early screening), and better planning of sales and promotional efforts.
WINNERS VERSUS LOSERS What separates new product winners from the losers has been the topic of a number provocative investigations, including SAPPHO, the Stanford Innovation Project, and NewProd. Some of the success factors uncovered in these success-versus-failure studies include: a strong marketing orientation [4, 5, 14, 15, 17, 181: an in-depth understanding of users’ needs and wants [4, 16, 17, 18, 191 a unique superior product; a product with a high performance-to-cost ratio [4, 5, 141 a strong market launch, backed by significant resources devoted to the selling and promotional efforts [4, 5, 14, 16, 17, 181 an attractive market: a high need level, a large and growing market; an uncompetitive market [4, 5, 141
ROBERT G. COOPER is Professor of Marketing at McMaster University in Hamilton, Ontario, Canada and Director of Research at the Innovation Centre, Waterloo, Ontario.
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synergy in a number of areas including technological and marketing [4, 5, 141 top management support [ 141 good internal and external communications 18, 191
[ 16, 17,
a well-planned, ]14, 191
well-coordinated
new product process
Although some of these success factors pertain to the development and commercialization phases, the majority are determined much earlier in the project’s life. For example: 1. A product with “superior benefits for the customer’ ’ and offering ‘ ‘value for money to the user” is most likely to succeed. Arriving at a product with customer benefits is, in part, the result of technological prowess; but it also depends on the definition of the product concept, which should be decided well before development gets underway. Moreover, defining a “product with superior benefits for the customer” presupposes an understanding of the customer’s needs and wants-of what the customer values as a benefit. This customer’s knowledge is often (or should be) the result of market research, market assessment and other market inputs, ideally undertaken ahead of the actual development of the product. 2. Understanding customers’ needs and wants and undertaking the necessary market assessment and market research studies to achieve this understanding stands out as the second key to success, and is closely linked to the product superiority factor. “An understanding of user’s needs” was the most important discriminator between product success and failure in the SAPPHO studies, and separated successes from failures in 83% of the cases [ 16, 17, 181. This factor surprisingly scored above “more attention to marketing” and “R&D strength” as the main determinant of success. (Note that the SAPPHO researchers did not look at product advantage or benefits directly.) 3. Synergy or fit with corporate resources and skills in the areas of technology, marketing and manufacturing was another recurring success factor. Synergy is a factor largely beyond the control of the
Predevelopment
project team; either a new product fits the company’s salesforce or technology base, or it doesn’t. Thus, synergy becomes an important screening criterion in the project selection phase. Projects that are not synergistic with the firm can be weeded out, or steps can be taken to acquire the needed resources through joint venturing, cooperative development, and subcontracting. The point is that synergy issues can and should be decided or resolved early in the project’s life-in the screening and business analysis stages. 4. Market attractiveness emerges as another important success factor: targeting a large, high growth, high potential, high need, uncompetitive market. Market attractiveness is externally determined, and like synergy, beyond the control of the project team. Thus, market attractiveness becomes a project selection criterion, and like synergy, an issue that should be researched and resolved prior to product development.
KEY SUCCESS ACTIVITIES How well certain activities in the new product process are undertaken is strongly linked to new product success. In one study of 203 industrial product launches (123 successes and 80 failures), activities such as initial screening, preliminary market and technical assessment, and undertaking a detailed market study were strongly correlated with product outcomes [9]. Figure 1 shows the results of this study, where the rated “goodness” of 13 different process activities were correlated with product success.* In reviewing these results, note how the upfront or predevelopment activities stand out as activities that separate winners from losers. The disconcerting evidence was how poorly undertaken and frequently omitted these key activities were. In only one quarter of these projects was a detailed market *Where an activity was not done, its proficiency
was rated at zero.
activities separate winners from losers.
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study done; initial screening, preliminary market assessment, and the detailed market study were consistently rated as the most weakly handled activities of the entire new product process.
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Success
7
8
products.
Versus Failure [9]
How much money is devoted to these early stages also is linked to performance. Successful firms devote more resources to these early stages, according to Booz-Allen & Hamilton [ 11. And Japanese firms devote still more.
Improvement to build into each stage of the new product process. The Pivotal Stages No one would deny that a good launch effort, a well-
planned R&D effort, and proficient production start-up are essential to new product success. So are steps such as test markets, trial production and product testing. The deciding factors, by which winners and lowers are most often determined, however, tend to occur much earlier in the new product process, often before product design and development even begins. It is these early stages, moreover, that often receive the least management attention and resources, and are so often found lacking in industrial firms’ new product processes.
many deficiencies identified in the new product process, and also is based on what takes place in successful projects and firms. Each step is explained in more detail below.
STAGE 1: IDEA The first stage involves generating new product ideas. and undertaking a first and tentative evaluation or screening of these ideas. These activities are critical; they initiate the new product project. Deficiencies here-poor ideas, too few ideas, and poor screening-result in costly problems in later stages of the process.
A More Effective Game Plan
Idea Generation
What can be done to improve these predevelopment activities of the new product process? Predevelopment activities accomplish three main things:
How can the idea generation step be improved? Here are some ways: LISTEN TOTHECUSTOMER. Undertake periodic surveys of customer needs and problems. Set up a panel of customers that meets periodically and feeds back ideas, suggestions and complaints. Try a customer focus group that focuses on a problem area, or on problems and opportunities in a product category. UTILIZE THE SALESAND SERVICEGROUPS. Sales and service groups have regular contact with customers and customer problems. Review service records and talk to service people to identify customer problems and hence opportunities for new products. Encourage the salesforce to submit new product ideas directly to the new product group. Von Hippel suggests even more [21, 22, 231: Get into the market with a standard product of interest to users who are innovators, anything that will allow the establishment of a sales and service relationship; hire sales people who recognize potential new products in addition to selling the standard line; target innovative users with promotional materials asking them for new product ideas, and provide a reward; and organize the
Idea generation: conceiving the product idea itself. Product definition: defining the winning new productits positioning, benefits to be delivered, and product design (features, attributes and specifications). Project evaluation: evaluating the project from a marketing, technological, manufacturing, and financial standpoint, in order to determine whether the project should be pushed into development. There are a number of steps and improvements which can be built into the new product process in order to achieve the above. Figure 2 shows a seven step model of the new product process. The back-end activitiesdevelopment, testing, trial and commercialization-are familiar ones. But the three predevelopment stagesidea, preliminary assessment and concept-require more focus. Figure 3 shows a detailed game plan or process model for undertaking these predevelopment activities [6]. The process has been designed in response to the
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Idea Preliminary assessment Concept
I Development Testing Trial Launch
FIGURE2.
The Seven-Step New Product Process [6]
new product group so that there is a free flow of information between the sales and service groups. UTILIZE CREATIVITY SESSIONS. Properly structured and implemented, a creativity session (for example, brainstorming) can yield numerous good new product ideas. Try organizing brainstorming sessions with various mixed groups in the firm, with representatives from sales, marketing, R&D, manufacturing, and so on. SUGGESTION CONTESTS AND SCHEMES WORK. Employees and customers can be valid sources of new product ideas. Give them encouragement by organizing a contest or suggestion scheme with prizes and award events. There is no guarantee that implementing any of the above schemes will yield the breakthrough idea. But managing the idea generation phase in a proactive fashion has been shown to enhance the performance of firms’ new product programs. [8].
Screening The initial selection of new product ideas for further investigation is the role of screening. All too often, screening is handled poorly. It is not a formal step in the new product process, no screening procedure is used, and there is a lack of consistent and well-defined screening criteria [9]. The screening step should be established as a formal step in the new product process-a GO/KILL decision 242
point or hurdle which must be cleared prior to the project receiving any serious funding. Screening can be viewed as a tentative decision to commit initial and limited resources to an embryonic project in order to prove the project’s viability and potential. It is not a decision to commit all the resources needed undertake the project; rather, it is a decision to undertake some preliminary studies and appraisals, after which the project will be reevaluated in the light of new and more complete information. The screening evaluation is intended only to make gross distinctions, weeding out the obvious misfit and “loser” projects. Although many techniques have been proposed to handle the initial screening, including economic models and portfolio optimization methods, the best approaches in term of realism and ease-of-use are benefit contribution methods [20]. Checklists and scoring models are cited as particularly appropriate. Screening should be handled as a culling process. The bank of new product ideas is first subjected to a set of “must criteria”-questions which are relatively easy to answer, yet delete a significant proportion of projects. “Must criteria” include characteristics which every project must meet in order to receive further consideration. Such questions pertain to strategic alignment, feasibility, project size and other company-specific criteria. Those projects that pass the must criteria are then subjected to a set of “should criteria”-criteria which are desirable in a new product project, but not essential. Such criteria are proxies for project success and profitability,
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and describe factors such as market attractiveness, product advantage, and synergy or fit with corporate resources and experience. These “should criteria” are most effectively handled by scoring models where criteria are weighted; the project is scored on each criterion; and a “project score” is computed by multiplying weights by criterion scores and adding [8]. Although a rigorous financial analysis is not usually part of this early screen, there is merit to include a simple financial index. Such indices typically compute the benefit/cost ratio of the project in an attempt to determine if the costs to get in are justified by the profit and sales potential.
STAGE 2: PRELIMINARY ASSESSMENT
The above activities are relatively inexpensive, yet provide considerable insight into a product’s viability in the marketplace.
Preliminary Technical Assessment Preliminary technical assessment involves subjecting the proposed product to the firm’s technical staff for appraisal. The key questions concern the technical viability of the product. Can it be developed? What technical solutions will be required? At what cost? Can the product be manufactured? At what capital and manufacturing costs? A focus group or creative problem-solving session of technical staff is an effective method of undertaking this preliminary technical assessment.
Preliminary Evaluation
Preliminary assessment is the first stage following the initial screening wherein significant resources are spent to gather information regarding the feasibility of the project (see Figure 3). Expenditures at this preliminary stage, which includes market and technical assessment, should be limited to a specified ceiling. In short, the output of the screening decision in stage 1 can be expressed thus: “On the basis of the information available, spend no more than $10,000 and 15 man-days, and report back in one month armed with better information, for a more thorough project evaluation. ’ ’
After the preliminary technical and market assessments are completed, a second evaluation is carried out. The information available at this point in the process is considerably better than at the initial screen. A more thorough evaluation, involving both qualitative and financial analysis, is undertaken. If the decision is GO, the project moves to the next stage, when considerably more resources are expended.
Preliminary Market Assessment
This is the final stage of the predevelopment steps, and is perhaps the most difficult and expensive. One purpose of this stage is to make the final GO/KILL decision prior to product development: a GO at this point signals commitment to an expensive development effort. A second purpose of this concept stage is to define exactly the product’s concept and strategy-the exact design requirements for the product. Properly undertaken, the concept definition stage should result in a winning concept definition-a product that outscores competitive products, that has superior benefits for the customer, and that delivers value to the customer. Value to the customer means delivering a bundle of benefits (see Figure 4). These benefits to the customer are derived from product features, attributes and design specifications. Value and benefits are in the eye of the customer, whereas features and design specs are technical attributes. Thus, an important process in this concept-definition stage is deciding the value-benefits-features-specs linkage shown in Figure 4.
Preliminary market assessment involves a nonscientific market appraisal. Given a limited budget, the task is to find out as much as one can about market size, growth, segments and competition; about likely product acceptance in the market; and about how the product would be marketed. Given the budget and time constants, market assessment is clearly not a full-scale, large-sample market research study. Various other approaches can be used, including: contacts with a handful of key customers focus groups with customers to gage interest, and interest-to-purchase
liking
meetings with knowledgeable experts, including key sales people, reps, distributors and dealers, and industry experts access to published and statistical material, industry reports, association reports, etc.
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STAGE 3: CONCEPT DEFINITION
We want a product with “value”
“Value”
to the customer
is in the eye of the customer.
We must study the customer -
What is “value”?
-
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- What is a better product? FIGURE
4.
The Link between Product Design and Value to the Customer
An important tool useful in the concept-definition stage is the development of a product protocol [ 111. The protocol is an all-party agreement on what the product will be; it defines the objectives for the R&D effort. Agreement must be reached on: the definition of the target market; the product’s concept, the benefits the product will deliver, and how it will be positioned in the market; and the product’s features, attributes, design specifications and requirements. The concept definition stage should consist of series of technological and market-oriented activities, each aimed at defining the winning product (see Figure 3). The first activity should be market-oriented-a study (or studies) focused on the marketplace to determine “what This study is called concept is a better product”. identification. Concept
Identification
then what other product or products will it replace? This information gives an insight into who is buying what, how the customer perceives the product he/she is using at present, and what the customer’s choice criteria are. What is the customer’s level of satisfaction with the product he/she is now using? Why? This information shows how strong competitive products or substitute products are, and their strengths and weaknesses are often the clue to a superior design. What is the customer’s level and order of preference for alternative competitive makes? Why? This information identifies the deciding factors that cause the customer to choose brand X versus brand Y; this understanding of choice criteria is critical to product design. How does the customer rate various competitive products on each of the choice criteria? Why? This information can be used to determine the positioning of competitive products in the market and the reasons for that positioning.
Concept identification is a prospecting investigation seeking insights rather than soliciting feedback. The objective is to determine the “ideal product” in the eyes of the customer, or more simply, the customer’s “wish list”. Typical information objectives of such a study include:
What are the good and bad points of the competing products? What specific complaints or suggestions for improvement does the customer have? Again, this is vital information for the design team-knowing what competitors have done wrong, so that their mistakes can be avoided.
What product is the customer using now? Why? If the new product fits in the “new to the world” category,
What is the customer’s ideal product according to each of the choice criteria? What features and attributes 245
should be built it? This information helps to define the ideal product. Most often, this study involves face-to-face and frequent interaction with potential users. Methods include: focus groups with potential users; large-sample surveys based on personal interviews of users; in-depth meetings and frequent contact with key or leading users; and observation of potential customers as they use and abuse competitor products. Competitive analysis is also a vital input here. Identifying competitive products, their strengths and weaknesses and their pricing and marketing strategies is a key input to concept definition. Customer perceptions of competitive products provide valuable clues as to what to build in, and what to avoid, in product design.
Concept Development The design requirements for what constitutes a better product for the customer are now delineated. Next comes concept development (see Figure 3). There, the market requirements are translated into an operational concept, one that is technically and economically feasible. This activity usually involves problem-solving sessions with both marketing and technical people, but with a heavy emphasis on technical solutions.
Concept Test Will the new product be a winner? Before pushing ahead into product development, it makes sense to undertake a final test-a concept test-to ensure that the product will meet customer needs and wants better than competitive products. A problem faced by many firms is translation. A thorough market study is undertaken that identifies customer needs and wants. The technical team then translates those needs into a tentative product design, but something goes wrong in the translation. The final product isn’t quite what the customer wants, or lacks that special something that differentiates it from what the customer is already buying. The concept test is the final point prior to product development where significant design changes in the proposed product can still be made at relatively little cost. The concept test is a test of the likely acceptance of the product by the marketplace. This market study of potential buyers, different from the “prospecting” concept-
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identification study, presents the technically feasible concept to customers and measures their reactions to it. Note that at this stage, the product has not yet entered development. The purpose is to see if the project is heading in the right direction. Usually the presentation of the concept is made in the form of written descriptions, sketches, models or even a slide show. The object of the study is to gauge the market acceptance: interest, liking, preference and intent-to-purchase, and the reasons for these. Additional information gleaned from such a study involves suggested product design modifications, hints about the nature of the appeal, and in the event of rejection, the reasons why.
Concept Evaluation Concept evaluation is the final GO/KILL decision point prior to moving into full-scale product development (see Figure 3). Here, the results of the concept-identification market study, the technical aspects of concept development, and the results of the concept test are integrated. The GO/KILL decision here is a critical one. Once past this point, it becomes increasingly difficult and expensive to turn back. This GO/KILL decision must involve a combination of qualitative and financial considerations. The checklist of questions used in screening and preliminary assessment can be repeated. But because the next stage, product development, involves major expenditures, a thorough financial analysis is also built into the decision analysis. The project’s protocol is now decided. To recap, the protocol is an agreement between marketing and technical people that guides the product development phase and charts the overall course for the remainder of the project. It specifies the target market, the product concept, positioning strategy, product benefits, and product attributes and requirements.
CONCLUSION With the GO decision made, and a protocol in place and agreed to, the up-front activities are complete. Product development can begin in earnest. Armed with a clear protocol, the design team can go to work. They know who the customer is; they understand what the product is that he or she wants, needs and prefers; they know competitive products and what their good
and bad features are; they have a clear definition of what benefits the new product must deliver to make it a winner; and they know how it must be differentiated from competitors’ products in order to gain an advantage in the market. In short, unlike most R&D teams, they are not working in a market-information vacuum. How well the development phase is carried out will depend in part on the skills, knowledge, resources and management prowess of the development group. Equally important, the success of the development phase depends on how sharply and proficiently the up-front steps have been carried out and the protocol defined. A diligent execution of these up-front steps as outlined in Figure 3 does not guarantee success. But it does pave the road to a successful new product development and helps to avoid the many pitfalls that plague too many new industrial products.
9. Cooper, Robert G., and Elko, Kleinschmidt, An Investigation New Product Process, J Prod fnnov Manag 3, (71-85 (1986). 10. Crawford, C. M., New Product Failure Rates-Facts search Management pp. 9-I3 (September 1979). Il.
1. Booz-Allen & Hamilton, New Product Managemenf for the 1980s BoozAllen & Hamilton, New York, 1982. 2. Calantone, Roger, and Cooper, Robert G., A Discriminant Model For Investigating Scenarios of Industrial New Product Failure, Journal of the Academy of Marketing Science (Summer 1979). Products Fail, Industrial Mar-
4. Cooper, Robert G., The Dimensions of Industrial New Product Success and Failure, Journal of Marketing 43(3), 93-103 (July 1979). 5. Cooper, Robert G., Identifying Industrial New Product Success: Project NewProd, industrial Marketing Management 8, 136- 144 ( 1979). 6. Cooper, Robert G., A Process Model for Industrial New Product Development, IEEE Trans. on Engineering Management EM-XI, 2-l 1 (February 1983). 7. Cooper, Robert G., “Selecting Winning New Product Projects”, of Product Innovation Management 2, 1985, 34-44.
Journal
Strat-
into the
and Fallacies,
Crawford, C. M., Protocol: New Tool for Product Innovation, of Product Innovation Management 2, 85-91 (1984).
Re-
Journal
12. Hopkins, D. S., New Products Winners and Losers, report # 773. The Conference Board, New York, 1980. 13. Hopkins, D. S., and Bailey, Record 8, 16-24 (1971).
E. L., New Pressures, Conference Board
14. Maidique, M. A., and Zirger, B. J., A Study of Success and Failure in Product Innovation: The Case of the U.S. Electronics Industry, IEEE Trans. on Engineering Management, EM-31, 192-203 (November 1984). 15. National Industrial Conference Board, Why New Products Fail, The Conference Board Record. NICB, New York, 1964. 16. Rothwell, Roy, Factors for Success in Industrial Innovation, Project SAPPHO-A Comparative Study of Success and Failure in Industrial lnnovation, Science Policy Research Unit, University of Sussex, Brighton, U.K., 1972. 17. Rothwell, Roy, The Hungarian SAPPHO: Some Comments parison, Research Policy 3, 30-28 (1974).
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and Com-
18. Rothwell, Roy, Freeman, C., Horsely, A., Jervis, V. I. P., Robertson, A. B., and Townsend, J., SAPPHO Updated-Project SAPPHO Phase II, Research Policy 3, 258-291 (1974). 19. Rubenstein, A. H.. Chakrabarti, A. K., and O’Keefe, R. D., Field Studies of the Technological Innovation Process, Progress in Assessing Technical Innovations, Clauser, H. R., ed., Technomic Publications, Westport, Cf 1974. 20. Souder, W. E., A Scoring Methodology for Assesssing Management Science Models, Management Science (1972).
the Suitability of 18, B526-B543
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