New product/service development

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Key points

Impact of new products/sevices on brand strategy (and vice-versa)

New product/service development can either be derived from identified customer needs (often unarticulated) within an existing brand framework, or from an idea arising independently from any brand framework. In either case, the question has to be asked "Will this new product/ service enhance an existing brand or does a new brand need to be developed?" Of course, you may ask whether there needs to be a brand at all - the answer is that brands usually last longer than products (and certainly services), and you will necessarily be discarding intellectual property potential if you do not embed a successful new product/service within a brand.

Two approaches to new product/service development

There are ultimately two ways to develop new products/services. There is the "Darwininan" method where you let loose thousands of ideas and see which ones make it in the market, and there is the "systematic" method that attempts to reduce the number of failures through the application of rigorous process. The Darwinian method is currently less popular as it is both expensive and resistant to managerial review, but there is nothing to suggest that it is any less successful than the systematic method. Developing new products/services is a gamble, whichever method you choose to use.

New product/service research

If you are developing new products/services to fit within an existing brand, you will already be aware of the higher level motivations around behavior, needs and wants, and context. If not, you will need to do this as part of developing a brand around the new product/service.

However, even though you may know these higher motivations, you may not know people's requirements for specific new products/services. These are best viewed in the context of people always wanting to solve some problem or other, which can be researched by asking:

• What are the biggest problems your customers are facing?
• Which of these problems are furthest from resolution?

There are at least 2 very effective methodologies designed to answer these questions:

1. Lead-user research

Lead-user research works on the simple premise that certain leading-edge customers will have already identified the next set of problems to solve within an industry, and will therefore:

• be able to tell you what they are
• already be working on the solutions

Lead-user research is therefore about identifying these people - through a screening process - and teaming up with them, as they probably do not want to have to generate a commercial solution themselves. Increasingly, leading companies in major industries (cars, electronics, telecommunications etc.) are turning to partner (so-called "tier 1") suppliers & asking them to solve the problems that they have identified. Or they may go one step further and ask these suppliers to manage an entire category of products, and identify problems as well as solve them.

2. Problem identification research

Problem identification research is about asking customers:

• what are the biggest problems they are facing today
• what are the biggest problems they expect to face over the next 5 years
• how close they have come to having these problems resolved

The premise is that customers find it much easier to identify problems (to which you can devise solutions) than to suggest solutions themselves - especially solutions that are radically different from anything they have yet experienced. Indeed, customers will often not recognise radical solutions as being of value to them, even when presented with them.

However, if you can persuade customers to identify their biggest problems, you can work on the solutions. This is sometimes known as the "garbage can" model. Some people have problems - others have solutions. If these can be "mulched" together, then there could be a breakthrough.

Creative problem solving

Once the problem has been identified, it is time to generate potential solutions.

There is a vast array of creative problem solving (CPS) techniques available, focusing on four areas:

1. defining the problem correctly (the most critical stage)
2. generating potential solutions (the stage which has the most techniques associated with it)
3. screening solutions
4. implementing those solutions

CPS techniques are often particularly effective when combined with scenario planning to generate alternative visions of the future. While you may not accurately forecast the future, you will at least stretch your people's thinking as to what could be possible.

Screening potential developments

Screening ideas for potential winners will normally involve applying a screening formula that will match the strength of the potential market demand with the strategic fit for your organisation. Issues will include:

• How much demand is there potentially for the new product/service? Score against novelty, problem solving, attractiveness to "lead-users", price fit and total market volume/value opportunity
• How sustainable will your competitive advantage be? Will competitors be able to copy your new product/service easily?
• What is the level of brand fit? Will you need to develop a new brand? Are you capable of developing a new brand?
• What is your competence to develop the new product/service? Can you afford to develop it?
• What impact will the new product/service have on your existing new products/services?
• Do you have an innovator, champion and sponsor who is willing to see the new product/service through to launch?

Typically, organisations will screen new concepts down to 4-5 that they will then test quantitatively by interviewing statistically significant numbers of people.

However, there is evidence that the best opportunity ideas are missed this way because organisations tend to screen out ideas they are uncomfortable with as not fitting their current business model (market leaders very rarely develop the next "big idea" because they are wedded to the existing paradigm). Some research agencies therefore recommend testing 15-20 concepts, often finding the best ideas around number 12 in the organisation play list.

Some new product/service concepts perform appallingly in research but excellently in the market, especially if the ideas are so revolutionary that people have nothing to relate them to. It is therefore important to recognise among whom you are testing these ideas - people who are at the leading edge ("early adopters"), fast followers ("early majority") or people who resist change ("laggards"). Recognise where the leading edge people are going - the others will usually follow in time.

In order to test 15-20 concepts, it is critical to reduce these concepts to a format that passes the "fax test" - if you were to fax the concept to someone, without explanation, would they understand it? You should therefore present interviewees with concept boards comprising one picture and 5-10 words for each concept.

Criteria you could use for scoring your new concept might include:

• how much they like the concept
• how likely they would be to buy it
• whether it solves a problem for them
• how novel it is
• how different it is from anything else available

It is best to "top box" the results - only count the most positive point on the scale "very likely", "definitely" etc.. Some agencies have normative data they can use to assess the relative attraction of your new concept.

New product/service testing

From the concept test screening, you should have a clear idea of what your customers are looking for. The next stage is to test the product/service against this template in the context of whatever is on the market already.

Several research agencies have specialised predictive models for new products/services that have been validated as reliably demonstrating high levels of predictive power.

Most new product/service testing models use an approach technically known as "expectancy value modelling", whereby each product/service is evaluated against customer expectations, weighted by the importance of each expectation. The product/service that gains the most points will usually be chosen by that individual.

Fit with existing brands

A piece of research that should be tacked onto the new product/service (concept) test is the fit between the new concept and the brand under which you wish to market it.

Within branding theory, a product/service is the physical evidence of a longer-term brand, and a new product/service (however promising) should not be attached to a brand with which it does not fit because the resulting customer confusion will limit:

• the market opportunity for the new product/service
• the longer-term brand opportunity

So the question is whether the new product/service will:

• enhance the brand by stretching it in appropriate & desirable ways, or
• fit within the existing brand, or
• undermine the brand by introducing attributes which are inconsistent with, & damaging to, the existing brand

If the new product/service will undermine the existing brand, you have a choice as to whether to:

• take the risk & launch it anyway
• build a new brand around it
• license it to someone else

Optimising the mix

Typically, the new product/service will go through a series of additional judgements, whether based upon research or not, prior to launch:

• How should it be priced to meet your brand/marketing objectives?
• Through which distribution channels should it be made available, and will they stock it?
• What is the most effective communications strategy in terms of channel and content?
• How should it be merchandised in store?
• Does the packaging have sufficient impact

Most of this is classic marketing theory and there is no need to cover it in detail here, except to comment that there are ever more sophisticated predictive research techniques being developed to answer these questions.

Is your new product/service still alive?

The most likely outcome for any new product/service launch is failure - that it will be withdrawn in 2 years. This is the fate of 70-80% of new/products. The cost of continuing to support a "turkey" comes in 2 stages:

• the actual support costs that are to no purpose
• the opportunity costs of using resources on a failure when those same resources could have been applied to a successful program

However, there have been many examples of "slow burners" - products/ services which have taken off slowly, sometimes even after they have been withdrawn. In this respect it is critical to differentiate between 5 different types of new product/service innovation:

• incremental improvements - variations around an existing theme
• incremental fusions - combinations of existing themes
• radical landmark innovations - new-to-the-world concepts which are not dependent on any other developments
• radical system innovations - new-to-the-world systems
• techno-economic paradigm shifts - technological revolutions, such as steam, electricity and computers

Incremental and radical new products/services have very different sales take-off patterns, where they succeed at all:

• incremental new products/services follow the classic "S" curve, lifting quickly from the base & rising sharply
• radical new products/services follow a much more extended pattern, especially if they are reliant on other developments in the market, as will be the case with radical systems innovations (where a supportive network has to be created within the industry) or techno-economic paradigm shifts (where the whole basis of the world economy will be transformed)

The defining difference between incremental and radical innovations is that radical innovations require customers to change their mindsets and their working practices. For radical systems innovations, a whole new supplier network will have to emerge.

If you have a techno-economic paradigm shift at your disposal, dispose of it! It is virtually unheard of for the pioneers to become the market leaders as there may well be a 20-30 year gap before the market takes off.

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