By Douglas Stone
December 4, 2008
“Innovation is . . . the act that endows resources with a new capacity to create wealth” - Peter F. Drucker
The business results of new product innovation are uncertain, at best. Linton, Matysiak & Wilkes’ landmark 1996 study placed the failure rate of new grocery products above 70 percent and estimated that almost half of the resources firms spend on the conception, development and launch of new products are invested in ideas that either fail in the marketplace or never make it to market. Several more recent sources reinforce the validity of that earlier study - indicating new product failure rates of more than 80 percent and perhaps as high as 95 percent. So it’s no that wonder that entrepreneurs, executives and managers are leery of investing in innovation, even though it is one of the only two business activities that create new customers (the other is marketing - again, according to Peter Drucker).
While the odds are low, overall, for the marketplace success of new product innovations, the odds improve dramatically for those companies that follow proven successful processes for evaluating and developing their new products. The same LM&W study that noted 70 percent plus failure rates for new grocery products, placed new product success at closer to 90 percent for innovations from large, established companies. A good portion of this success, of course, can be attributed to the resource advantages of larger companies. But the fact is that these companies, by virtue of their size and structure, follow a regimen for evaluating the marketplace potential of new products ideas that entrepreneurs and managers of smaller companies can readily adapt to improve their own odds of success in launching new product innovations.
In any good program of innovation evaluation, there are five broad criteria every business should include: Consumer, Brand, Market, Product, and Internal. Of course, every industry and every company will need to customize these proven processes to their own unique circumstances, but the following thoughts on evaluating new product innovations may help guide aspiring innovators on the road toward new product success. They are structured as a series of questions the manager or entrepreneur should ask him/herself about their own new product innovations.
In evaluating new product innovations, everything begins with the consumer. You may create a better mousetrap, but if your customers are all cat-breeders, you’ll have a hard time getting an order.
The kinds of consumer questions you should be asking yourself about your new product innovation include:
– Is it consistent with your current consumer base? It’s always easier to sell something new to people who already know you/your company/your brand, so it’s important to understand whether your innovation is intended for the same core consumers you currently serve.
– What is its potential for expanding your consumer target? Expanding your consumer base by offering a new product innovation may also open new sales opportunities for your existing products and services. Many are the computer users who depend on Best Buy’s “Geek Squad” (a service innovation) for regular repairs and updates and leave the store with a DVD, consol game, or USB cord that caught their eye when they came to have memory added to their laptop.
– Is it ahead-of, on, or behind consumer trends? Just a couple of years ago, “low-carb” claims could turn almost any new food product into a massive hit, but much of that magnetism is gone today. But it’s not always best to be ahead of consumers’ curve-of-acceptance. The greatest numbers of consumers are almost always the Mainstream and almost never the Innovators and Early-Adopters.
– Does it require consumers to change their behavior? Ingrained consumer behaviors can be extraordinarily difficult (in other words – expensive) to alter. How long did it take you to shift from a paper to electronic calendar? Do you still print and file computer documents and emails?
It may help you to graphically organize your evaluation in a grid (see example shown below). You may also find it valuable to assign a ‘score’ (a rating of 1 to 5 works well) for each of your evaluation dimensions and you may wish to weight each dimension, based on your understanding of a dimension’s relative importance.
|Criteria||Target Consumer Consistency|
|Dimension||Consistency of innovation concept to current consumer profile|
|Definition||The extent to which this innovation will focus on the business’/brand’s identical core target consumer|
|Score = 1||The target consumer for this innovation is totally different than the current business’/brand’s target consumer|
|Score = 2||The target consumer for this innovation is more different than similar than the current business’/brand’s target consumer|
|Score = 3||The target consumer for this innovation is similar to the current business’/brand’s target consumer|
|Score = 4||The target consumer for this innovation is Very Close to the current business’/brand’s target consumer|
|Score = 5||The target consumer for this innovation is a Dead-On Match to the current business’/brand’s target consumer|
|Weighting for this dimension
1 = Average
.5 = Below average
1.5 = Above Average
Each score will be based on the very best insight and intelligence you can gather. The more accurate your inputs, the better your evaluation of the potential marketplace success for your new product innovations.
Brand Criteria (such as, brand elasticity; brand credibility; brand build/borrow), Market Criteria (such as, number and strength of competitors; market growth), Product Criteria (such as, uniqueness; brand fit; available niche; defensibility; sales potential; marketing costs), and Internal Criteria (such as, can you make it?; margin; R&D required; capital requirements), can each be evaluated in a similar fashion.
Douglas Stone is president of Stone & Simons Advertising, Inc. in Southfield. He can be contacted at [email protected].