New Venture Lab: Equipping Christian Entrepreneurs

I talk to many would-be entrepreneurs that think they have a killer idea, but in most cases they have not adequately field-tested the need for their product or service.  Understanding a customer's need and then helping the customer fill that need is the basic goal for any new product development initiative, yet over 90% of all new product launches fail.  This highlights the need for better customer focus groups and more thorough research into the customer's need. 

Even the best marketers often get this wrong.  When I was a strategy consultant at the Boston Consulting Group, we had a client that made a bug killer product packaged in a spray can.  This client spent millions of dollars each year on R&D, trying to perfect the chemical formula for their product, and they were quite proud of their efforts in this regard.  But the real breakthrough in customer understanding was when we convened customer focus groups and had them actually use the product to spray bugs that were released in the room.  The insight we gained is that the typical housewife user would get down close to the bug and spray and spray until they literally drowned the bug to death.  What this led to was a product design that shot out forceful volumes of liquid that would quickly drown the bug rather than a precise chemical formula that would kill the bug by attacking its nervous system.  Now you can image that the R&D team was quite wed to their work and did not like this outcome, but the customer is king and the way they actually use a product and the need that they are trying to satisfy must be paramount in any new product development initiative.  The article below is a summary of other typical marketing missteps that should be avoided:

Marketing executives focus too much on ever-narrower demographic segments and ever-more-trivial product extensions. They should find out, instead, what jobs consumers need to get done. Those jobs will point the way to purposeful products—and genuine innovation.

Thirty thousand new consumer products are launched each year. But over 90% of them fail—and that’s after marketing professionals have spent massive amounts of money trying to understand what their customers want. What’s wrong with this picture? Is it that market researchers aren’t smart enough? That advertising agencies aren’t creative enough? That consumers have become too difficult to understand? We don’t think so. We believe, instead, that some of the fundamental paradigms of marketing—the methods that most of us learned to segment markets, build brands, and understand customers—are broken. We’re not alone in that judgment. Even Procter & Gamble CEO A.G. Lafley, arguably the best-positioned person in the world to make this call, says, “We need to reinvent the way we market to consumers. We need a new model.”

To build brands that mean something to customers, you need to attach them to products that mean something to customers. And to do that, you need to segment markets in ways that reflect how customers actually live their lives. In this article, we will propose a way to reconfigure the principles of market segmentation. We’ll describe how to create products that customers will consistently value. And finally, we will describe how new, valuable brands can be built to truly deliver sustained, profitable growth.

Broken Paradigms of Market Segmentation

The great Harvard marketing professor Theodore Levitt used to tell his students, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” Every marketer we know agrees with Levitt’s insight. Yet these same people segment their markets by type of drill and by price point; they measure market share of drills, not holes; and they benchmark the features and functions of their drill, not their hole, against those of rivals. They then set to work offering more features and functions in the belief that these will translate into better pricing and market share. When marketers do this, they often solve the wrong problems, improving their products in ways that are irrelevant to their customers’ needs.

Segmenting markets by type of customer is no better. Having sliced business clients into small, medium, and large enterprises—or having shoehorned consumers into age, gender, or lifestyle brackets—marketers busy themselves with trying to understand the needs of representative customers in those segments and then create products that address those needs. The problem is that customers don’t conform their desires to match those of the average consumer in their demographic segment. When marketers design a product to address the needs of a typical customer in a demographically defined segment, therefore, they cannot know whether any specific individual will buy the product—they can only express a likelihood of purchase in probabilistic terms.

Thus the prevailing methods of segmentation that budding managers learn in business schools and then practice in the marketing departments of good companies are actually a key reason that new product innovation has become a gamble in which the odds of winning are horrifyingly low.

There is a better way to think about market segmentation and new product innovation. The structure of a market, seen from the customers’ point of view, is very simple: They just need to get things done, as Ted Levitt said. When people find themselves needing to get a job done, they essentially hire products to do that job for them. The marketer’s task is therefore to understand what jobs periodically arise in customers’ lives for which they might hire products the company could make. If a marketer can understand the job, design a product and associated experiences in purchase and use to do that job, and deliver it in a way that reinforces its intended use, then when customers find themselves needing to get that job done, they will hire that product.

Since most new-product developers don’t think in those terms, they’ve become much too good at creating products that don’t help customers do the jobs they need to get done. Here’s an all-too-typical example. In the mid-1990s, Scott Cook presided over the launch of a software product called the Quicken Financial Planner, which helped customers create a retirement plan. It flopped. Though it captured over 90% of retail sales in its product category, annual revenue never surpassed $2 million, and it was eventually pulled from the market.

What happened? Was the $49 price too high? Did the product need to be easier to use? Maybe. A more likely explanation, however, is that while the demographics suggested that lots of families needed a financial plan, constructing one actually wasn’t a job that most people were looking to do. The fact that they should have a financial plan, or even that they said they should have a plan, didn’t matter. In hindsight, the fact that the design team had had trouble finding enough “planners” to fill a focus group should have tipped Cook off. Making it easier and cheaper for customers to do things that they are not trying to do rarely leads to success.

By Clayton M. Christensen, Scott Cook, and Taddy Hall

Source: Harvard Business Review