Without a solid understanding of the true needs in the marketplace, innovation is a gamble. The scattershot approach is a hesitant one that allows no focus, no concentration of resources and people, no “damn the torpedoes, full speed ahead!” It seems to be the pursuit of serendipity. No wonder for all the techniques, skill-sets and brilliance, so many innovation projects only have only a 10-20% chance of succeeding.
Chief among the gamble reduction has been the “Customer Driven Movement”, the attempt to understand what customers want before a company invests in the creation of a new product or service. But the sad results are – - after 30 years of this customer driven thinking – - that 50 to 90% of the products and services initiated end as failures. Yes, gaining inputs from the customer is important. But under this widely used methodology neither the innovator or the customer knows how to obtain the type of inputs they really need. The literal voice of the customer does not translate into meaningful inputs. Companies identify opportunities by segmenting markets, conducting competitive analysis, and brainstorming for customer wants, needs, benefits, solutions, ideas, desires, demands, specifications and so forth. None of these can be used predictably to ensure success.
The High Failure Rate
Despite a decade of heavy investment in innovation, and in chief innovation officers and their staff, failure rates for new products have hovered at 60 percent since the 1970’s. Two- out of three new product concepts don’t even launch. The 1950s and ’60s was a period of unprecedented economic growth characterized by a burgeoning middle class. Back then demand was often found by addressing an underserved segment.
Since the wake of the Great Recession (2008 to today) instead of demand we have picky customers and consumers dealing with limited financial resources. For them product choices tend to come down to trade-offs. Our markets are in slow growth mode in spite of the economic pick-up in the last few quarters.
Traditional new product innovation follows these four steps:
First, generate a high-level business growth strategy.
Second, develop a new idea/s based on consumer input.
Third, use quantitative business research to test and validate the new concept.
Fourth, use stage gating (progressively whittle down a number of new ideas to a very few that appear business model viable). The results are then rolled out, by a sequence of commercialization, retail execution and finally launch.
The problem is this tried-and-true process doesn’t work very well. Witness multiple headline-grabbing catastrophes with the big multinationals and the bankruptcies resulting from bet the farm approaches in small and medium-size enterprises. Are we stuck with these high failure rates if we want to innovate?
Better – Price-Product Architecture
Some are solving this innovation dilemma by using “Price-Product Architecture” (PPA). This means using sophisticated business mathematics to gain a clear grasp of which combinations of features, packaging, price, and even labeling will persuade consumers to make a purchase. They adopt dynamic modeling to gauge various combinations of features against benefits to yield a consumer “trade-off” grid analysis. This has shown significant fruit in more mature markets. The value proposition to the customer tends to become better than the competitions’ and market share is gained.
In effect they are developing a simulation model that can evaluate a wide range of scenarios by altering various elements and seeing how each factor affects the value proposition while the product is still in the development stage. This process can cut down time to market and gain first mover advantage as the industry “notices something” such as a new trend; for example the desire for more natural foodstuffs in the grocery store must be met with an appealing product that passes the trade-off test for the consumer. Getting it wrong can foul the waters for everybody. Getting it right means market expansion for the whole industry.
Core Competency Value-Added
Other companies are having greater innovation success because they are doing product development based on their capabilities and core competencies. They gain critical advantage because of their unique expertise. They outsource to (1)other experts where they have a lack and of course, (2) where the manufacturing process has been commoditized i.e. where there can be no unique “value-added”. Innovating outside of our skill set is the number one cause of expensive wild goose chases.
What Is Truly Critical For Success
What has been lost in these approaches to innovation is an in-depth understanding of “underserved markets” where consumers yearn for a solution to their deep frustrations, frustrations they may not even be aware of. Tapping into such underserved markets with our unique capabilities and expertise is the difference between modest, incremental growth (when successful) and dynamic industry-leading growth. Understanding consumer yearning is why Apple has just chalked up the biggest quarterly profits in corporate history.
Like Apple, we would do well to move beyond the customer – driven paradigm.
We can boost our innovation success rate to four out of five … or even higher over time! There are disciplines with identifiable core elements; these breakthrough innovation disciplines can be applied with an above 80% innovation success rate. This is a much better path to innovation. Success improves and the risk of failure is reduced as we become more certain about the critical unmet needs in our marketplace.
To learn more go to our website and read
-
Market Targeting And Decision Making
http://pe-trick.com/specialty_practices/view/market-targeting-and-decision-making
For other useful information on Innovation see