new products, innovation and technology

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Sometimes life happens slow, then really fast.

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“It is hardly surprising that dead rabbits are pulled out of the hat when nothing but dead bunnies have been put in.”

William Nordhaus, economist

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The opening image sets the stage for discussing new products and innovation to point out that the term “new products” can be a sweeping term covering a long list of possible market introductions.

I’ve been thinking about new products and innovation (one would hope they are related because I’ve been watching Silicon Valley – painfully chuckling at times) and read this fabulous piece: Web3, the Metaverse, and the Lack of Useful Innovation.

Throughout my career I have worked with technology incubators, large company new product groups and just basic businesses who created new products and brought them to market.

Which leads me to say I have seen more bad ideas then is most likely healthy for me.

But new products are really important to existing businesses in that profits from new products tend to account for a substantial amount of the bottom line of businesses (note: there is a point to be made here about efficiencies and squeezing out profit from existing products in the market but that is for another day). We have all seen the simplistic surveys online showing “reasons why new products fail” as if CPG companies haven’t studied new products in depth. It’s a bit crazy. So, having pulled out an old folder with a bunch of notes scribbled in it about new products from my experience with P&G and other companies, let me say some things about innovations and new products. To be clear. I will share some dated information that I am too lazy to update mostly because I am 90% confident, in principle, the conclusions are the same today as they were then.

Suffice it to say successful new products all deliver a meaningful and perceivable benefit to a large enough market to be sustainable financially and are different in some meaningful and perceivable way from alternatives. The main principles that form the foundation for successful new product programs:

1. know what your product stands for and make its benefits superior
2. discover latent consumer insights which are tied to a specific need
3. ensure the product benefits align with latent insights
4. ensure market readiness
5. make sure it has the ability to scale out (have enough of a market)

Most of that seems fairly basic, yet, the hard realities are that a great majority of new products never make it to market. And those that do face a failure rate somewhere in the order of 25 to 45%. The figures may vary depending on what industry and how one defines a new product and a failure. Some sources cite the failure rate at launch to be as high as 90%, but most of those figures tend to be wild overstatements based on dubious surveys. My guess is the true failure rate is about 35%. Regardless of whether the success rate is 55% or 65%, the odds of a failed launch is fairly significant. I would be remiss if I didn’t note the news gets a bit worse because this doesn’t even include the majority of new product projects that are killed somewhere in process long before launch, yet, have already involved considerable expenditures of time and money. One old study revealed that for every seven new product ideas about four enter development, 1.5 are launched, and only one succeeds. Another study revealed that for every 11 new product ideas, 3 enter the development phase, 1.3 are launched and only 1 is a commercial success in the marketplace. The commonality between those two studies is only one success.

Which leads me to new product failure is fairly easy to identify through a number of reasons:

• Poor planning: it doesn’t really fit into the company strategy, expertise or distribution strengths, or margin, or ROI, market analysis is inadequate, poor timing or the company fails to face up to competitive strengths
• Poor management (tied to poor planning): product doesn’t fit the company character guiding these activities, no management sponsor, no management information system to effectively communicate throughout process, wrong department leads the introduction program, budget and time constraints due to something unanticipated or management direction is vague
• Poor concept: the concept itself doesn’t appeal all the time in the form of execution being evaluated, no unique benefit or one that is unique enough, maybe offers too many benefits and has no simple strong reason for being; maybe it does have unique benefits but fulfills little need; poor price/value relationship; out of sync with the market, maybe too innovative/different
• Poor execution: personality becomes point of difference rather than function or intrinsic benefit; maybe product defects, technical problems, or product over engineered, over/under package; misbranded; mistargeted; mistimed for character of market
• Poor use of research: most often this is because research is done backwards, i.e., attempting to prove out a technology (search for a benefit) rather than assess an existing need
• Poor technology: this typically drives poor execution in that the product, functionally, doesn’t offer a significant enough meaningful benefit
• Poor timing: new products can be too early to market (ahead of natural adoption acceptance) or too late to market (following without a significantly superior benefit)

But. That said. Simplistically, new products fail when consumers do not want to buy them. This is why if you are involved in new products, you really should be problem solvers rather than just idea generators.

Which leads me to a lesson to technology folk.

Technology is actually learning a lesson that the Consumer Packaged Goods industry learned a long time ago. More products can mean more sales, but you have to be smarter about your new product that you offer to the public. In 1964 there were about 1,300 new product introductions in supermarket/drug stores. In the early 1980s the packaged goods industries were introducing around 3000 to 5000 new products a year. By the 1990’s, we saw this number jump to about 18,000 to 20,000 and now we were over 25,000 a year. To be clear. Maybe only about 10% of new product introductions are truly new; for the most part they are extensions or additions to existing products/product lines (see opening image). The incredible thing about this phenomenal growth during that period (1960 to 2000ish) is that failure rates, while high, did not increase. It seems like consumers were finding space in their lives for five to 10 times more products per year than they were in maybe 1980. This suggests that the market likes to experience experiments as well as have been convinced specialty or ‘niche use’ has efficacy value. It’s like the culture has grasped the nature of change and finds value through experimenting with new products. But every business needs to remember with as much as 40%+ of new product ideas hitting the trash can, it’s just tough to swallow the failure rates and invest real money. In fact, I remember a number that there was an estimated 46% of all the resources allocated to product development and commercialization by US firms are spent on products that are cancelled or fail to yield an adequate financial return. There was an old study with some rough splits of innovation costs across stages in the new product process but basically it suggested for every $1million spent on product innovation, roughly only $150,000 is spent on exploration and screening research or even idea generation, i.e., the initial attempts to qualify the idea. This is kind of nuts. This also suggests ideas searching for a market rather than a market defining an idea. This whole section is something technology folk should ponder long and hard.

Which leads me to markets decide the fate of a new product.

There was an old study looking at General Electric products and the conclusions with regard to technological and market variables that decided their fates. The products had several things in common that created a well-defined product prior to the development phase and into market introduction:

1. Market needs were recognized and R&D was targeted at satisfying those needs
2. When a technological success did not meet a specific market need the product was adapted to suit an identified need (or dropped)
3. Involved managers communicated the possibility of a technological breakthrough clearly to all other departments whom, in turn, facilitated the identification of a real market need
4. Communication existed between engineers, scientists, and all other departments involved

But the bottom line, which I think some technology startups ignore, is the lessons that CPG has given the new product world that are timeless:

1. A unique superior product in the eyes of a customer (not the creator), one with a real differential or distinct advantage in the marketplace**
2. A strong market-orientation building in solid market knowledge and sound market inputs, and an undertaking of market research and effective marketing launch tasks done well
3. Technological synergy (both development and production technology) and competence in the technological tasks fundamental to the success of the product

• ** in the wayback machine with P&G we knew that new products with overall superiority (as indicated in consumer testing), met their objective 1.5 to 2 times more often. A strong product also almost doubled the repurchase rate.

Which leads me to efforts and assumptions.

In the early stages of any new product project, we make many assumptions in order to justify the project.

• We make technological assumptions: we assume the product is technologically feasible; we map out a probable route to the technical solution, manufacturability at a certain cost is assumed and so on.
• We make marketing assumptions: we estimate market size, growth, and need; we expect that the product’s features or performance will really be superior to competing products, and that while the world may not beat a path to our door the world will at least open the door of possibility of purchasing. We make competitive assumptions.

Based on all these assumptions someone gives a “go-to-market” decision and then most efforts tend to be devoted to verifying and validating the assumptions (rather than adapting as we learn more). That said. One of the most interesting factoids I remember from my way back machine with P&G is that about 75+% of total efforts ($ and work time) goes into technological and/or production activities while only about 15% is devoted to marketing activities (most of which goes into the launch).

I imagine my point on almost all of this is most new product innovations fail because, well, a business imagines a market, imagines a need and imagines a real benefit offered, and the market tends to choose how to spend its hard earned money not on imagined, but reality. Ponder.