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Marketing Management Article on How to Assess Market Viability of New Products

Marketing Management Article on How to Assess Market Viability of New Products

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Published by Hongjun Li
Detailed illustration of a systematic analytical framework that enables effective assessment of market viability of new products
Detailed illustration of a systematic analytical framework that enables effective assessment of market viability of new products

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Published by: Hongjun Li on Jul 16, 2008
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03/21/2013

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Surveyor
of the Fittest
BY HONGJUN (HJ) LI
With the correct methodology,companies can effectively assesswhat market is viable andwhat market is not.
Industry research shows that75% of new-product launchesfail in the marketplace (visitwww.microsoft.com to read its sec-tion about new–product developmentperformance). That number does noteven include product concepts that neversuccessfully enter the market. There aremany reasons for such failures, but lack ofmarket demand for new products introducedis definitely the most important one.
Surveyor
of the Fittest
Reprinted with permission from
Marketing Management 
, September/October 2007, published by the American MarketingAssociation.
 
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According to an AMR Research Inc. report released in June2005: Out of 20 large manufacturers polled about poor per-formance of product launches, 47% cited failing to understandand meet customer needs exactly—compared with 33% citing being late to market and 23% citing poor pricing.No company will develop and introduce a new product if it knows beforehand that there will be no market demand.Unfortunately, most companies try to justify new-productdevelopment (NPD) expenditures by doing some marketanalysis—only to find out later that projected market demandhas failed to materialize. Thus, a critical question to industryplayers is how they can become more effective in their marketassessment efforts. This article offers a practical methodologythat answers the question.
Defining “New Product”
For the purpose of this article, “new product” refers to oneof the following:a product that creates or implements a new technologya product that implements an existing technology ona new platforma product that integrates multiple technologies or functionsinto a single product for the first timea product that provides significant enhancements to anexisting product categoryThe focus of our discussion is the overall market, not com-pany-specific issues that can also lead to new-product intro-duction failures. There are many cases in which marketdemand for a new-product category exists but a particularcompany’s product—falling into that category—fails in themarket because of poor internal execution. Although internalexecution is certainly critical, companies must first and fore-most understand whether there will be a market for their newproducts being conceived or developed. Market investigation,in other words, remains highly relevant.We will also assume that when a new product is intro-duced, it works—and its functionality conforms to originaldesign requirements or intentions. Product failures attributedto unintended design flaws or quality problems are excludedfrom the scope of discussion. Again, such issues are internaland not market-related.
Common Pitfalls
Because so many new-product introduction failures can beattributed to lack of market demand, it is necessary to under-stand why companies fail to foresee them in the first place.Granted that market forecasting is sometimes a very difficultthing to do, companies can significantly reduce risks of new-product introduction failures if they do some basicmarket assessment homework the right way.In general, the following are the common market assess-ment pitfalls into which companies fall:blind faith in one’s capability to drive or createmarket demandlooking at technological merits onlyselective use of incomplete, biased, or deceiving marketdata and feedback in line with product concepts orinitial decisionstaking input from direct customers only, without lookingat demand from customers’ customers (when applicable)relying on feedback or data of customer/consumer interestonly, without looking at many other market factors thatdrive actual purchase decisionsdepending on third-party market forecasts only, withoutlooking at or fully understanding the methodology usedand assumptions madeSome companies might achieve market success even if theyfall into one of these pitfalls, but such success requires reallygood luck and can hardly be duplicated in different settings.
Assessing the Market
Market assessment can be viewed as a science or an art.The challenge to market research professionals: Althoughsome commonly used research techniques and tools exist, theymight not be adequate to address the complete scope of marketassessment required for sound business decision making. Thechallenge to senior executives is that they don’t have the time todo detailed market investigations themselves. In addition, theymight not have an effective framework for judging the qualityand reliability of their subordinates’ market assessments.Both dedicated market research professionals and seniorexecutives can use the methodology suggested here. The for-
You might be surprised at how many new-product introductions fail every year. Unfortunately,such failure is not necessarily due to lack of market investigation. That is not to state, however,that market investigation is not relevant anymore. On the contrary: The industry’s poor perform-ance with new-product introductions pinpoints the importance of doing the right market investigation the right way. Hereis a systematic, effective, and easy-to-follow methodology that illustrates exactly how to accomplish that.
EXECUTIVE
briefing
 
mer can use it to investigate all the key aspects of a new prod-uct’s market potential; the latter can use it to evaluate theirsubordinates’ work. The methodology, if used the right way,can help companies avoid the aforementioned pitfalls.The individual elements in the suggested market assess-ment framework are nothing new (see Exhibit 1). What might be new, however, are identification of all major market-relatedfactors that affect demand for a new product, categorization of these factors within a systematic framework, and a step-by-step process that is easy to follow: (1) define target segmentand needs, (2) analyze relative value, and (3) evaluate food-chain and ecosystem risks.
Defining Target and Needs
With rare exceptions, a particular new product serves onlya particular market segment or niche. This is especially true inthe consumer-technology market. If a new product to be intro-duced simply targets “everybody,” then it will most likelyhave a tough road ahead—because different segments andniches have different needs. There is a direct correlation between clarity of market-segment definition and ability tomeet target customers’ specific needs. Not surprisingly, thephenomenon of “shoot and aim” can explain why so manynew products fail.Defining the target market segment entails a detailedanalysis of key segment characteristics such as size, demo-graphics, and purchasing behavior. Without a clear under-standing of the target segment, it will be difficult to identifythe needs that a new product can meet.Associating a generic need with a product is easy, and itcan mislead companies into believing that their new productmeets target customers’ needs. To avoid that pitfall, compa-nies can ask a simple question: What, exactly, is the problemthat the new product solves?Take the failed WebTV (a set-top box that consumers connectto their television sets, which allows dial-up Internet connec-tion), for example. Consumers with a personal computer (PC)at home do not need it for Internet access. WebTV does allownon-PC households to access the Internet; unfortunately, theamount of non-PC households with such a need is very small.Moreover, WebTV cannot address that need well because of poor display of Web content on a standard-definition TV.Even if the specific need for a new product is identified ordefined, companies must assess the strength of that need, asdifferent strength levels mean different market sizes. In gener-al, two variables influence the relative strength of the need fora product: cognizance and perceived importance.
Cognizance.
This determines to what extent target cus-tomers are aware of a particular need. There are two levels:explicit needs and implicit needs. Explicit needs are well-recog-nized and can be clearly articulated. They normally indicate ahigh level of need strength. Only new products with meaning-ful differentiation (to be discussed next) can turn these needsinto corresponding market demand. Implicit needs, on theother hand, are not well-recognized or clearly articulated. Theytypically represent a new market that takes time, resources,and market education to develop.
Perceived importance.
Depending on how strong the per-ceived importance of a particular need is, products meeting aparticular need can fit into three categories: must-have, nice-to-have, and can-live-without. Must-have products meet theneeds with the highest level of perceived importance and havethe broadest market reach. Nice-to-have products addressless-important needs and therefore have lower marketdemand. Can-live-without products generally have the lowestmarket-penetration rate.Although measuring need strength can be difficult andsubjective, it is a critical element of market analysis. Acom-mon method of need-strength assessment is conducting aquantitative survey to ask consumers their interest level ina particular new product or service. The challenge, howev-er, is that different survey designs can yield significantlydifferent results even if the same topic is addressed. Thus,as mentioned, understanding methodologies used andassumptions made is vital to appropriate interpretation of survey results.One example of different survey results on the sametopic is a study on consumers’ interest in watching videoon mobile devices. Asurvey by RBC Capital Marketsshows that only 24% are interested, whereas a study byThe Diffusion Group shows that 32% are interested. Thedelta can be attributed to differences in measurement scales(true/false versus a 7-point scale) and age groups of sur-vey respondents (ages 21-65 versus ages 15-50). (Read “TheAppeal of Mobile Video: Reading Between the Lines”under the TDG Opinions section at www.tdgresearch.com.)Regardless of which is right (or closer to being correct),consumer interest is only one variable; other factors also
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I
Exhibit 1
Framework for market assessment
Needs of targetmarket segment
What is the targetmarket segment andits size?What are the targetcustomers’ needs thatthe new product canmeet?What is the strength ofsuch needs?What are the alterna-tives to the newproduct?How does the newproduct compare withits alternatives?How much are targetcustomers willingto pay?Are there risks in thenew product’s foodchain?What ecosystemdependencies does thenew product have?Will the ecosystemdependencies supportthe new product?
Relative valuefor the moneyFood-chain andecosystem factors
Note: Customers are those that make purchase decisions (in the case of business-to-business and business-to-consumer). Customers might be different from end users in the case of business-to-business-to-consumer.
PassPassStep No. 3Step No. 2Step No. 1

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