BY HONGJUN (HJ) LI
With the correct methodology,
companies can effectively assess
what market is viable and
what market is not.
Industry research shows that
75% of new-product launches
fail in the marketplace (visit
www.microsoft.com to read its sec-
tion about new–product development
performance). That number does not
even include product concepts that never
successfully enter the market. There are
many reasons for such failures, but lack of
market demand for new products introduced
is definitely the most important one.
M M S e p t e m b e r / O c t o b e r 2 0 0 7R 39
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 performance with new-product introductions pinpoints the importance of doing the right market investigation the right way. Here is a systematic, effective, and easy-to-follow methodology that illustrates exactly how to accomplish that.
According to an AMR Research Inc. report released in June
2005: Out of 20 large manufacturers polled about poor per-
formance of product launches, 47% cited failing to understand and 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-product
development (NPD) expenditures by doing some market
analysis—only to find out later that projected market demand has failed to materialize. Thus, a critical question to industry players is how they can become more effective in their market assessment efforts. This article offers a practical methodology that answers the question.
Defining “New Product”
For the purpose of this article, “new product” refers to one of the following:
• a product that creates or implements a new technology
• a product that implements an existing technology on
a new platform
• a product that integrates multiple technologies or functions into a single product for the first time
• a product that provides significant enhancements to an
existing product category
The 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 market
demand for a new-product category exists but a particular
company’s product—falling into that category—fails in the market because of poor internal execution. Although internal execution is certainly critical, companies must first and fore- most understand whether there will be a market for their new products 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 original design requirements or intentions. Product failures attributed to unintended design flaws or quality problems are excluded
from the scope of discussion. Again, such issues are internal and not market-related.
Because so many new-product introduction failures can be
attributed 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 difficult thing to do, companies can significantly reduce risks of
new-product introduction failures if they do some basic
market 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 create
• looking at...