Raising the Odds of Success in Developing New Products and Services

Raising the Odds of Success in Developing New Products and Services

by John Senior

In a world of product and service proliferation and growing customer information and power, creating products and services that stand out from the crowd and become truly valued by consumers is becoming more difficult. Gaining that edge requires a deep understanding of what customers are thinking and how their priorities are changing, and  then translating those insights into products and services that they will be willing to pay for.

Without deep customer knowledge, developing new services is like shooting at a target blindfolded. It results in products that don’t address actual consumer needs, in higher development costs, and in wasted effort and investment.

Consider how this plays out in the media and communications industries. Motorola’s $5 billioninvestment in the Iridium satellite phone service is a classic case in point. It failed largely because the handsets were too bulky and the cost of service too high to create sufficient demand.Consumers didn’t find value in wireless phone
services until they were cheap enough for many to afford and the handsets were small and light enough to be carried easily.

Today, companies have even less room for error in developing new products and services, for three reasons. First, products, services, and vendors are proliferating, making it more difficult to capture consumers’ attention. In movie rental, for example, consumers used to have to go to the videostore to rent movies; now, they have many more services and propositions to choose from, from online DVD rental services such as Netflix, to payper-view video on demand from cable TV providers, and more recently movie download services from Apple via Apple TV and Amazon Unbox.

Consumers are becoming more sophisticated as well, basing decisions not only on product and service design, features, and functionality, but also on the vendor’s value proposition and business model. Apple’s iPod exemplifies the combination of a well-designed product and service with a business model (transparent and very attractive pricing for songs, and seamless integration with third-party products) that users find attractive.

Finally, consumers have become used to receiving certain products and services “for free” through advertising-supported business models, subsidized devices, and discounted bundled offers. Consumers have long been able to get the latest mobile phones worth several hundred dollars for free with their service subscriptions. Today, they can buy bundled video, voice, and Internet services at discounted prices for less than $100 per month, and soon, they will be able to get TV channels for free from Joost, the Internet TV start-up.

Exhausted Tactics

To be sure, media and communications firms have not been complacent in the face of product and service proliferation and growing customer power. Yet most of the tactics they have employed in recent years to win and keep customers have delivered mixed results or even driven entire markets into a no-profit zone.

Aggressive introductory promotions or ongoing price discounting, for instance, have had mixed results. Another tactic, service bundling, has in some markets managed to win and lock in consumers, but it has conditioned consumers to expect more for less.

Some firms have tried to enrich existing products with new features. But consumers often don’t notice or care. Indeed, many consumers are overwhelmed with the features on their current products and use only the basic functionality. For example, the vast majority of U.S. mobile phone subscribers still use their phones only to make calls.

The challenge is to identify the next winning products and services with more certainty, to prioritize quickly and effectively between competing ideas and investments, to develop value propositions and business models that customers find compelling, and to implement their product strategy more quickly. In short, managers need a more robust approach to developing and managing their product and service portfolios.

No Crystal Balls

The variables that most affect the success of a new product or service are the degree of forward- looking insight, the robustness of the fact base upon which decisions are made, and the speed of execution. Specifically, there are four ways in which companies can improve their product/service development process.

1. Start with the customer, not the technology. Engineers have a strong influence in new concept creation at most companies. They are closest to advances in technology and have the passion and skill to translate technology into product ideas. But when you put technology first, you risk creating products and services

that are too far ahead of customer priorities, too cumbersome for people to use, or too expensive to produce. A technology-first mindset led to the demise of such products as Apple’s Newton andCreative Technology’s Nomad.

Concept ideation must be guided not just by technology but also by the voice of the customer. There are many tools and techniques available to uncover customers’ unmet needs and future priorities, including online interactive idea generation forums with sophisticated users; analysis of leading-edge consumer activities in advanced international markets; and analysis of product investments being made in related sectors, which reveals what companies in these sectors believe about future customer needs and which products and value propositions could be attractive. Combining insights from these varied sources allows managers to construct a more accurate prediction of the value propositions and products that are likely to be successful, providing a useful counterbalance to the engineers’ view of the world.

Consider the case of a digital communications and media business that we have worked with on a customer-centric approach to develop an online international services strategy. Using analysis of consumer behaviors from the online and offline world allowed the firm to identify forwardlooking consumer priorities and unmet needs and to determine what consumers really wanted from their online experience and services.

Managers found to their surprise that the vast majority of consumers in emerging markets were far more intense users of digital media and communications services than the majority of consumers in the U.S. and they had different priorities for their online experience. In one Asian country, consumers were high-intensity users of online community-related activities, but in another country in the same region, consumers went online primarily for educational purposes and information, and in a third they were very intense online media and communications users.

These insights allowed the firm’s managers to build customer profiles based on current con-sumer activities and future trends and led them to consider a much broader range of potential value propositions for the new online businesses. This has allowed the firm to target its international online services strategy to each new market and use these insights from advanced markets to inform the U.S. services strategy.

2. Prioritize through sharply defined business criteria, not intuition. Winnowing new concepts at an early stage can be difficult. Comparisons among individual product and service ideas can’t be readily made, stakeholders have strong attachments to certain concepts, and there is insufficient data to support a clear decision. But to rely on crude prioritization methods does not work. On the one hand, too many high-potential products and services get rejected while on the other hand too many ideas will be left to compete for management attention and resources. Decisions based on intuition lead to unfocused, long development cycles and delayed time to market.

Far more effective is to base decisions on predefined criteria that reflect both short- and long-term strategic and financial objectives. The metrics incorporated might include the impact on retention versus acquisition, market share vs. average revenue per user (ARPU), time to market, likelihood of success, and investment resource requirements. The criteria must be applied consistently across the different concepts and supported with hard facts. And senior executives must agree to use the criteria in their decisions.

The benefits of using defined business criteria applied to all new product concepts are that decision- making is faster, is transparent to all the people involved, and instills greater confidence in the outcome. It also enables concepts that are misaligned with the business objectives to be rejected early on and allows the organization to focus on a much smaller set of high-value, highpotential products and services.

3. Define the business design, not just the product or service functionality and features. Most product organizations invest a huge amount of time to develop functionality and
features, including the look and feel of the user interface or device. They invest just a fraction of that time defining the overall business design, and they work with a limited playbook of business designs. The default move tends to be to apply a previously successful business design to the emerging product and service.

When only a fraction of a company’s innovation investment is directed toward designing and testing potential business designs, the company often fails to capture the full value
of the product or service or to earn an optimal return on its investment. For example, mobile phone music and data services have had little success because of unattractive business design elements, such as unattractive subscription pricing models and a limited selection of easily accessible content.

By contrast, companies that are most successful at new product and service development recognize that it often requires a new business design. Business design connotes a set of linked choices about:

BSkyB in the U.K. illustrates a well-considered and successful business design. When Sky launched, the firm adopted a subscription TV model in a market dominated by broadcast TV subsidized through an annual fee or advertising. Sky targeted men in their 20s through 40s and convinced them to pay a premium by gaining exclusive rights to many prominent sporting events.

Sky has continued to innovate on this original business design. It extended the appeal and the stickiness of its TV service to a broader customer set, with exclusive access to popular series such as Lost and 24. It gave subscribers more choice through packages like Movies Mix, Kids Mix, and Variety Mix, even allowing subscribers to assemble their own package. New products such as Sky Active interactive services for major sports embed the sports-fanatic customer further into the Sky experience. The firm is now adding new revenue streams with broadband Internet and phone services.

Getting the service and business design right has allowed Sky to protect its premium price point, increase penetration of higher-value services, and protect its strategic position in the increasingly competitive U.K. pay TV market. Investing time to think through the business design elements of new services early in the development process was as critical to success as the service design itself.

4. Rapidly and rigorously test big bets or ground-breaking concepts with consumers, in order to validate demand prior to investing time in prototype development. Many companies rely on relatively crude methods to test demand for new concepts and to improve their design. Research often assesses only the attractiveness of individual features, rather than demand for holistic concepts and value propositions. Competitor effects or estimated impacts on revenue or profitability rarely get scrutinized. The result is a relatively poor or misleading indication of consumer interest, which clouds product and service design decisions as well as any understanding of the business impact.

Fortunately, there are sophisticated customer analytics tools that can be used to test new concepts and support fact-based design decisions prior to investing in prototyping. For new concepts that consumers are unfamiliar with today, videos or animations that demonstrate the key functionality and benefits of the new offerings can be integrated into the research to allow consumers to make informed decisions. Testing new offerings in a simulated competitive environment to determine which features actually affect demand and how competitor responses might affect the market can provide valuable strategic insight. Going a step further to integrate those customer analytics with Interactive Strategy Models™ allows managers to adjust features and functionality in order to meet financial goals.

A U.S. communications and media firm that we worked with used these advanced concepttesting and analytical techniques with the goal of quickly determining which new digital media and communications services consumers truly valued and defining the product priorities and offer strategy. Together, we defined the new services based on consumer priorities and developed rich graphical representations of each new product complete with use cases. We brought these new concepts to life through videos showing how the new products might look and operate. A quantitative online consumer test in a simulated competitive environment clearly identified which new concepts should be developed to meet consumers’ highest priorities and teased out the value of each of these products to the business. Managers were able to use an Interactive Strategy Model to play through alternative competitive scenarios and model the future impact on the business of different competitor moves. The output of this work determined a clear direction for future online digital media and communications product development, set product
sequencing priorities, and defined the offer design and go-to-market strategy (Exhibit 2).

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Driving product and service development through the lens of technology rather than consumer priorities has led many organizations to invest heavily in offerings that have delivered little or no return. An outside-in approach that rigorously mines consumer, competitor, and market data to create new concept ideas will dramatically raise the odds of predicting successful new concepts. Quickly winnowing the many new ideas using predefined business criteria allows the organization to focus on those with the greatest potential. Finally, testing those high-potential products and services using advanced customer analytics helps managers make faster and smarter choices regarding product/service design and business design—all helping to speed time to market and raise the odds of business success. An effective development process thus is critical to counter the forces of commoditization and stand out from the crowd.