Archive for the ‘Product Management’ Tag
Fostering customer-centricity and product innovation is fundamental to maintaining competitiveness. In theory, these strategies are simple to understand and write into a strategic plan. However, in practice this vision is tough to realize. For most companies, challenges are rooted in structure, culture and implementation. For example, firms tend to be organized around product, regional or divisional silos not by customer. These structural and process silos are not designed to easily and quickly access, synthesize and utilize customer insights. How can companies drive customer-centricity and unlock product innovation without turning their organizations inside out?
According to the NY Times, one strategy is to situate product development, brand management and sales assets within new customer innovation centers. These structures integrate customers and channel partners directly into the product development process, empowering and enabling customers to drive product innovation while reducing time to market, development costs and risks.
A number of firms are effectively using innovation centers:
3M is a pioneer in the development of customer innovation centers. So far, 22 centers are in operation, typically situated near the company’s research facilities. These places provide a forum for meeting and inputting key customers directly into the innovation process. One of 3M’s innovation and product development strategies is to uncover new synergies between their platform technologies and their customer’s needs by vertical. So far, 3M has leveraged its wide-ranging technical expertise to a portfolio of products including transportation systems, dental & medical devices and electronics.
Successful innovation centers are not just about making customers and senior internal managers feel good. This strategy has helped 3M establish productive, long-term customer relationships and generate valuable insights while improving product development and marketing effectiveness. “Being customer-driven doesn’t mean asking customers what they want and then giving it to them,” says Ranjay Gulati, a professor at the Harvard Business School. “It’s about building a deep awareness of how the customer uses your product.”
Hershey opened its first retailer-focused customer innovation center in 2006. The center features a tasting room, where corporate scientists discuss trends and retailers can sample products under development and offer feedback. Another part of the center includes a mock store where Hershey tests new merchandising ideas. One of the germinated concepts is to organize the candy aisle by how the products are used (candy dish, gift-giving or family movie night) instead of by product line. By walking retailers through the sample merchandising set-up, Hershey can better communicate the concept, solicit feedback and secure earlyinterest as opposed to traditional research and presentation tools.
PB uses its innovation center in many unique ways, one of which is to expand their application footprint in mail management. For example, the company allows customers to integrate their applications into PB’s new IntelliJet color printing system. Customers are encouraged to load their applications onto the system and to experiment with different tasks. “We’re hoping to get at things they wouldn’t have thought about,” says Leslie Abi-Karam, an executive vice president with the Company. “In the long run, we expect that working with customers in our innovation center will alter our development trajectory.”
Innovation centers are growing in popularity and (so far) seem to be an effective method of closing the innovation strategy-execution gap. Likely, there are multiple ways to deploy and leverage these new structures, depending on organizational circumstance and strategies.
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Thousands of new & improved products are launched into market every year. These initiatives represent billions of dollars in investment, the commitment of millions of work hours and the reputation of thousands of managers. Given this sizable commitment, are corporations getting a return on this investment or would they be better off spending their time and money on other growth strategies like advertising, price discounts or M&A?
If market share and profitability is your measure, most new product investment can be considered a serious waste of capital and effort. According to Harvard Business School Research and Quanta Consulting experience, no more than 10-20% of all new product innovations deliver positive ROI and target market share 12 months post launch. For new products that reach this first hurdle, fewer than 50% are flourishing by year 3.
A number of internal and external factors contribute to this low success rate. For example, companies often deploy significant capital on R&D yet under-invest in sales and marketing, dooming awareness building and consumer trial. In other cases, firms fail to follow through on a well-planned strategy by executing poorly in the manufacturing, distribution or sales domains. Finally, bad luck plays an under-appreciated role in scuttling the best laid plans and products.
Our experience suggests that from a consumer’s (jaded) perspective, the majority of “new and improved” products are neither very new nor significantly better than the alternatives. Furthermore, given the ‘perform or perish’ model of many retailers, new products are launched in an environment where they either hit quickly home runs or are de-listed, even if sales are generated.
There are many reasons new products fail to meet business and consumer expectations:
1. Most product categories exhibit significant consumer inertia
- Consumers often underestimate the benefits of the new product; new benefits are not relevant to consumers or; the new benefits are poorly messaged and supported through packaging and advertising.
- Consumers over-value the utility of (and the potential risk of leaving) the incumbent product.
- Despite using the product, many consumers are simply disinterested in the category and will always gravitate to a default behavior and brand (i.e. what mom bought) regardless of inducements or marketing efforts.
2. Management over-exuberance for the new product
- Managers typically over-estimate the value of the upgrade, often because they are psychologically vested in the new product initiative.
- Most managers are consciously or sub-consciously driven by institutional factors including: performance measurement systems, departmental influences (e.g. R&D, Sales) and corporate values that reward employees for launching new products even if they are problematic.
- Many executives willingly follow their peers, historical precedence and industry best practices [sic], which embrace new product development as conventional wisdom.
The potential gap between a consumer’s inertia and a manager’s exuberance could result in a substantial value mismatch between what the buyer wants and what the marketer gives them. This gulf can be so big as to doom any new product launch before it even hits the market and even if it delivers real benefit. Many marketers do recognize these challenges and typically deploy a variety of carrots and sticks to change purchase behavior and usage. However, even with tantalizing and expensive incentives, many consumers may never switch to the new innovation, unless forced to. Click on this link for some tips on how to improve the odds of new product success as well more details on our and the HBS research.
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