Why do products fail?
Managers become too ego involved with pet products and overestimate their chance of success.
Over the past three decades considerable progress has been made in developing new marketing research techniques. Similar advances have been made in the understanding of consumer behavior. These developments would be expected to lower the failure rate for new products, yet the product failure rate has remained high and constant—some estimates place it at about 85 percent for consumer goods. Of the many factors that influence product success or failure, the most common one is competence, i.e., management's failure to understand consumer needs and wants. But competence would presumably increase with the use of new marketing techniques because that was what the techniques were designed for. What can account for the fact that it apparently does not?
Marketing managers responsible for new product decisions are typically very experienced. They usually have marketing research information about the new products, often of good quality, and they want new products to succeed. Perhaps it is this very "want" on the part of managers that partially explains high and constant new product failure rates. Perhaps managers are not so much failing to understand consumer needs as failing to see just how many consumers have this need. Indeed, the most common public statements by managers about new product introductions are those concerning market size. Many times products that seem to others to be clear niche products are touted by managers as mass-market breakthroughs. It seems as if managers' views are influenced by their closeness to the product.
Research in decision making has consistently shown that ego-involvement , selective perception, wishful thinking and optimism can lead to biases in the direction of wants. Similar results obtain from studies of vested interest, illusion of control, overconfidence and risk taking. Thus, marketing managers are predisposed to think in terms of product success, not product failure. Consequently, marketing managers usually overestimate product demand because of the way they interpret evidence for the products they care about most. This tendency provides a partial explanation for high and constant new product failure rates. They would remain high due to continual overestimation and not to the lack of success of marketing research techniques.
It is very easy to find examples of managers expressing opinions about the chance of product success despite sometimes obvious evidence to the contrary. AT&T, for example, first introduced the picturephone at the 1964 World's Fair. The product was launched in 1970 but dropped in 1973 due to lack of demand. Other companies launched versions of the picturephone in 1982, 1986, 1987, and 1991 and each time the product was a failure. Undaunted, AT&T itself re-launched the picturephone for the home market in 1992 with similar results. AT&T announced plans to introduce the picturephone yet again in 1996. Today, even in an age of Internet-based cell phones this product's time has not come. Today consumers want smart phones, but they still don't want picture phones.1
New products that do not fulfill consumer needs or wants will fail. To reduce the chance of failure, product managers use tools to help identify consumer attitudes and preferences. These tools range from simple market surveys to sophisticated conjoint studies and pre-test market models. Managers can examine the findings from these studies or models before making a decision to continue with product development, test market a product, or attempt full-scale commercialization. Since product managers usually have profit and loss responsibility for new product introductions, they are ego involved. If the product is a pet project, they have even more ego involvement. In this way, the product is personalized.
So managers are almost always too ego involved with their products, almost always overestimate demand and almost always—since by definition overestimated demand increases the chance of product failure—have products that fail more than succeed. (Recall that about 85% of new consumer packaged goods fail.)
We can see that marketing managers face several obstacles in making good marketing decisions with respect to new products. It seems facile to say reduce your bias and oversimplified to say get an outsider's view through third-party counsel—and yet that is precisely what managers should do.
The most obvious solution to the problem of ego involvement is to have a third party review the market research data or even the product concept itself. Research has shown that when this is done the results are more objective. Many times, however, outside consultants add to the problem because of their own incentives to "please" the client. Where, then, can the unbiased outside view be obtained?
The first alternative is to use independent third parties, where independence is defined by lack of remuneration. Universities, for example, are in a very good position to provide outside views as departmental projects or even class projects. Faculty and students can examine market research data, with appropriate confidentiality agreements, and give unbiased opinions. They can even give opinions without knowing the client's identity, something not possible with traditional paid consulting.
The second alternative is paid consultants who create organizational entities that review market research data without a direct connection to the client. Under this plan clients may subscribe to the consultant's services, but not pay directly for each project reviewed. However, this alternative would require stronger ethical standards than now exist at many consulting organizations.
The third alternative is for the company to try to create an objective unit within its own organization. Rather than regarding realists as pessimists, negativists, poor team players or turncoats, the organization could give credit to those individuals who can see the forest for the trees. After all, most of the time product mistakes are so "obvious" (in the sense that they could have been predicted) that a good organization would be better off with product realists than product champions.
Like the story of the emperor's new clothes, couldn't someone at General Motors have said to a superior, "OMG, that Aztec's ugly."
Marketing research techniques are getting better and better. But managers' ego involvement stays just the same. This is the main reason why product fail.___________________________
1 Smart phones with front-facing cameras allow picture phone functionality but consumer surveys say that consumers regard this as a novelty as opposed to a need or even want.