When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.
- Instructor’s Guide
TABLE 1.2 – Part I – Learning Objectives and Outcomes
Concepts | Students will gain an understanding that:
- The majority of new products and business ideas fail because people do not do the proper research needed to make data-driven decisions.
- In order for a product to be successful, it is necessary to understand what the market will accept and discover what the customer wants before deciding what products or features to build.
- Starting with a hypothesis is not only a good research practice, it also allows for more effective data collection, more efficient testing, and more conclusive results.
Skills | Students will gain the ability to:
- Recognize the vital role that research plays throughout the product development process.
- Develop a testable hypothesis to prove or disprove assumptions about the types of products and services customers need and the problems they want solved.
- Key Terms
Part I | Key Terms
Product Experience Management (PX): Research done with the intent of developing a product’s concept, using data to guide its design, and identifying user impressions of its related features and functions — which, in turn, influences adoption, usage behavior, updates, and repeat business. PX Management Software: Programs used to track the lifecycle of products from initial concept testing and product acceptance research through its journey through the marketplace. PX tracks things such as feature performance, incident reports, versions or iterations, and reactions to improvements. Dogfooding: Internal testing of a product in the real world (often by the product’s designers) done with the intent of revealing flaws before an official market launch. Hypothesis: A testable explanation based on observations, informed beliefs, or limited evidence that can be used as a starting point for further investigation.
Too Much of a Good Thing
A few years ago, as I was wrapping up some yard work on a sweltering summer afternoon, I glanced over to my sons Moksh and Naman — ages 7 and 5 — playing video games on the couch. Again.
As a father does, I prodded them to get some fresh air. “Maybe sell lemonade on the corner, like the kids down the block!”
Surprisingly, this is exactly what they did. Their first makeshift enterprise was pretty good! “The string of holiday lights is a nice touch,” I commented. But they over-mixed the lemonade by adding way too much sugar. There was no ice, and the foldout table was rickety at best. As frequent spills sloshed and splashed on their clothes, my kids awaited what they hoped would be a barrage of eager customers.
As first businesses go, this was adorable in that way that makes all parents smile. And the boys were having fun, too.
Then, I saw a learning opportunity — as much for myself as for them.
In my day job, I was working on the launch of the world’s leading Experience Management software, and I wanted to test a few features. So I asked Moksh and Naman to help me “dogfood” this new product*. Intrigued as much by the idea of “dogfooding” as anything else, they agreed.
*The term “dogfooding” is often attributed to Google’s early days and the phrase, “Eat your own dogfood.” The meaning is simple; try your own software internally first, and do your best to break it before a customer does. Such internal testing can reveal a lot of bugs and flaws in the UI and can help identify the desirability of a product.
The Short Shrift
The market guides every product along a fraught and fateful journey. A recent McKinsey study found that 25% of a company’s growth comes from introducing new products. However, up to 80% of new product launches fail. Though this number seems high, it doesn’t begin to account for a substantial number of new product concepts that never make it to the launch stage, despite the considerable investment, ramp-up time, and manpower costs required to design, develop, and prototype new concepts. Seemingly endless cycles can be wasted in the pursuit of dead ends.
Creating and launching any new product is risky business. But why is this? What makes some new products successful while so many others fail?
There are a variety of answers to this question. One key finding is that would-be entrepreneurs and well-established companies alike fail to do the requisite upfront work. Of those working to develop a new service or product, 80-90% do not do the proper market concept research needed to make key decisions based on facts. Instead, they often rely on potentially faulty assumptions. Even at that, 57% of companies that do run product concept tests fail to do them regularly.
For Moksh and Naman, it didn’t take long to learn their lemonade was too zesty and warm. Anecdotally, it was clear that neighborly politeness alone was moving cups of lemonade off their table. Repeat business was unlikely. The old sales axiom had come into play: You can sell anything once; repeat business requires a solid product.
Plus, there was a more sophisticated lemonade stand — with more natural traffic whisking by — doing a brisk business down the street. The competition was crushing.
Prominent PX Fails
According to McKinsey, 50% of initial product launches fail to hit their targets. An HBR review states that products often fail because businesses neglect the necessary product concept testing required to refine their product concept.
To learn more, Qualtrics queried 250 verified product management, marketing, and research decision-makers to learn about the role PX plays in successful product launches. This US-based study substantiated that the number one way to help a product launch successfully is to do the necessary product concept testing. But ironically, only 53% of companies sufficiently fund product concept research.
Failure to conduct and follow the results of concept research has led to some notorious product launches that we’ll explain below.
- Ford Edsel — After investing 250 million dollars, Ford Motor Company ignored their own product research and released the Edsel line in 1958. The line was named after the son of the famous founder. Despite building revolutionary features into the vehicle, the car was overpriced, and many considered it ugly. Ford tried to compensate with a hype-filled, Madison Avenue-style marketing campaign, but to no avail. The line was discontinued in 1960.
- Coors Rocky Mountain Spring Water — In 1990, Coors expanded from beer into water. It seemed like a natural fit, as Coors had touted its Rocky Mountain spring water as a key ingredient in their beer for decades. They had the springs to readily fill the bottles. They also had the trucks to deliver their water alongside their beer to retail outlets. But that became part of the problem: the packaging looked so similar to their beer that customers got confused, which turned them off. The product failed in just a couple of years.
Avoiding a Wild-goose Chase
Moksh and Naman needed to find that elusive competitive edge. I suggested
(literally) dumping the lemonade altogether and trying a totally new, unexpected product. “If everyone is selling lemonade, try selling something else,” I coached.
“But how do we know what people like?” the boys blurted back. They were right. And there was no limit to existing lemonade alternatives. Many competitors had sprung up over the past two summers: local gas stations selling frozen drinks, specialty soda shops, and a cascade of fast food chains. Each was making a summertime killing with real storefronts and heavy traffic at their drive-up windows.
Luckily their Mum, Madhavi, had an idea. “Let’s try Indian summer drinks.” Certainly no one in our small Utah town was selling these drinks from half a world away.
The first questions were obvious: Would Indian flavors satisfy a North American palate? Would the neighborhood get hooked on a completely foreign drink, thus generating repeat business? Can Indian drinks, like sweet, iced, or coconut-mango lassi*, compete against the ole fashioned lemonade being sold down the block at the Rutters’ house? Lemonade, after all, was as steeped in the American tradition as pizza and s’mores!
The good news is that there’s a simple way to find out.
McKinsey & Company, management consultants to many of the world’s most influential institutions, has shown that “Multidimensional Creators” will research a potential market before diving into “new products, services, or business models,” and will end up performing better than their expected averages. “The strongest growers were Multidimensional Creators, 43% of whom grew faster than the market.” Additionally, when new products fail, it is often because discovering the needs and preferences of the customer was not an integral part of the development process. Having coached some of the most recognized brands in the world in the use of product lifecycle strategy, I had a ring-side view of the impact that effective product concept testing can have.
“Well, if you build research software, then use it!” Madhavi said, hands on her waist.
With a single glance from Madhavi, the pressure shifted from my boys directly to me. This was the biggest “put your money where your mouth is” challenge of my career. By comparison, talking with a Fortune 500 CEO was easy. My wife’s challenge was simply this — “Is everything you have been working on for the past five years going to work for those who matter most, Moksh and Naman?” Ouch!
And then she added, “And don’t confuse the kids!”
I quickly retreated to safe ground. I asked my wife to put her touted family iced mango lassi recipe on hold for a bit so I could figure out what the market was indicating. This delay was met with an understandable sigh by Madhavi and the boys. Many of my clients, primarily Fortune 1000 brands, sigh as well when I explain how our concept testing works best.
*Lassi: Popular drink that blends yogurt, spices, and often mango, although it can contain other fruit flavors.
Product Pivots Using Research
- Youtube — YouTube began as a video dating site with the tagline “Tune in, Hook up.” But founders Chad Hurley, Steve Chen, and Jawed Karim were disappointed to find that their user base was small and tended to stray from the site’s intended purpose. They decided that instead of trying to compete in an already-crowded space, they would research the market and find where there was a need they could fulfill. During the course of their research, they realized that finding videos online was surprisingly difficult, and even when you could find one, the sites were buggy and unreliable. Plus, sharing was a chore: video email attachments were unreliable, and most sites failed to provide dedicated video links. The trio determined that they had a great shot at solving online video sharing better than anyone else and revamped their site to what we know today. And it paid off – in 2006, Google bought YouTube for $1.65 billion.
- Twitter — In 2005, Evan Williams and Biz Stone designed a platform to create, browse, and share podcasts. However, they were facing competition from the giant Apple, which had introduced podcasts in iTunes that June. The team decided to research the market and see how they could tweak what they had built. They looked at existing social networks like Facebook, and researched customer dissatisfaction. Users loved Facebook for photo-sharing and friend-snooping, but often found the News Feed to be overwhelming and cluttered. They realized that they could differentiate on simplicity and made a portal where people could share what they were up to. Their new venture, Twitter, would provide a back-to-the-basics feed of information, with a focus on news and celebrity. It seemed crazy, but they pulled it off, accomplishing one of the most successful pivots of the 21st century.
Be True To Your Hypothesis
Andy Rachleff, the founder of Wealthfront and a professor at the Stanford Graduate School of Business, famously said, “Between a great product and a bad market, the market wins.” I translate that to mean, “We need to understand what the market wants (or will accept) well before we decide what products or related features to build.”
A working hypothesis can start us toward the answers we need. We can compare the hypothesis against the actual voice of the customer to help us prove and disprove a range of new product ideas. Writing random questions without a guiding hypothesis can make data collection confusing and more time-consuming; ergo, more expensive and less conclusive.
Fortunately, there are inexpensive ways to get a directional sense for your hypothesis before you launch your full research study. There are many free tools like Google Trends and Bing’s Keywords Research Tool, which won’t necessarily tell you exactly what’s on your customers’ minds, but will provide a good sense for the importance of consumer topics, how they can change over time, and which related terms appear in abundance with those terms most relevant to your product.
For example, if you enter the word “lemonade” into Google Trends, you will immediately find a wealth of information to inform your hypothesis. For example:
- Hypothesis 1: People generally buy more lemonade-type drinks in summer months.
Looking at the number of times people search “Lemonade” on Google, you will learn immediately that this is a seasonal business.
Data Source: Google Trends (https://www.google.com/trends).
It appears that lemonade’s appeal varies considerably by state, too. For example, it seems that people in the hotter Western states searched for lemonade more often than in the cooler ones. As it happens, Utah is a hot desert state in summer. A lemonade stand in Utah can be a winner, especially when compared to cooler Western states such as nearby Montana or Wyoming.
- Hypothesis 2: People go to Starbucks or similar tea and coffee emporiums to buy lemonade.
- Hypothesis 3: Many people like to combine lemonade with other things, like ginger soda.
For some reason, “Canada Dry Ginger Ale” and “Lemonade” were searched together with some frequency. This suggests that combining lemonade with a soda drink (e.g., Canadian ginger ale) seems to go over nicely. (Either that, or a lot of expatriate Canadians are conducting a disproportionate share of the searches.)
Data Source: Google Trends (https://www.google.com/trends).
If you dig in deeper, here is what the market for selling a drink different from traditional lemonade may look like:
- What to Sell: Lemonade drinkers often look for a non-traditional lemonade drinks. Alternatives include lemonade soda, lemonade with another fruit flavor, creamy lemon milkshakes, or lemonade mixed with Ginger Ale.
- When to Sell: Lemonade is a seasonal product.
- Where to Sell: Lemonade sells well in a hot, dry, Western states like Utah.
- To Whom to Sell: Office-goers and college students often go to coffee shops and drive-up drink windows to grab a lemonade-style drink.
Armed with carefully formulated hypotheses and insights into our market, our little team was ready to start building our lemonade study.
Prominent PX Wins
For every brand that got product concept testing wrong, there are brands that have used product concept testing successfully.
- Shinola — To stay relevant in a competitive industry, this upstart fashion brand tested several watch concepts. With feedback from 1,700 customers, Shinola felt confident in its decision to feature two of the best-rated watch silhouettes in its spring 2018 line.
- Yamaha — When designing the Montage keyboard, Yamaha had to determine whether knobs or sliding faders would be best. Rather than rely on instinct alone, Yamaha opted to test the issue with musicians, who strongly preferred the fader.
- Chobani — To fill a gap in breakfast options, Chobani created Chobani Oats and Ancient Grains as a meal-on-the-go in Australia. To make sure they got it right, they tested the product rigorously, and even made changes to the packaging based on customer feedback, by fixing the cap on a pouch. Attention to detail is one of the reasons Chobani is the top yogurt brand in Australia.
- Instructor’s Guide
Part I | Discussion Questions
- How can you take some of the risk and guesswork out of the new product development process?
- Can you think of examples of products that have failed and are no longer on the market? Why do you think they failed? How could their shortcomings have been discovered before they were launched?
- Why should you develop a hypothesis before you start collecting data (instead of collecting data first, then using that information to develop a hypothesis)?
- Why do you think so many people jump straight into developing a product without testing out the concept, talking to potential customers, or adequately researching the market first?
Part I | Additional Resources
Learn more about:
- Developing a Hypothesis: Work through questions that will help you develop a testable hypothesis to use in your new product research using the “New Business Assumptions Exercise” (Source: giffconstable.com)
- Tips for Interviews to Discover Customer Needs and Wants: Learn more about talking with potential customers as a research tool, and get access to tips and best practices for using these interactions to get the type of information you need to create a better product.
- Videos about the Customer Discovery Process: Watch these short videos to learn how to prepare for and carry out effective interviews with potential customers, in order to discover the types of products and innovations they need and want. Visit https://venturewell.org/i-corps/team-materials/ and scroll down to “Customer Discovery Videos.”
Part I | Related Student Activities
Exercise 1: Product/Environment Observation Journal – Have students pay close attention to the daily activities they participate in and the products they interact with for one week. During this time, they should create a list of the products, technologies, and services that they used that could be improved in some way. Using the format below, have students reflect on how to improve these products and services to make their lives (or experiences) easier or better. For each thing on their list, they should describe its attributes, limitations, new product ideas, possible improvements to existing products, or ways to add to current product lines. Ideally, they should record at least 50 ideas in one week.
- Record observations using the following format for each product/service:
Product, Service or Activity
What is it?
Where is it?
When is it used?
What is the issue or problem that makes it less than ideal?
How could this be improved?
New product / services?
Additions to existing lines?
1. Product X 2. Product Y 3. Service X
(Source: Dr. Nathalie Duval-Couetil, Purdue University)
Exercise 2: Customer Discovery Interview Practice – Have students read this article included in the “Additional Resources” section, which provides tips for interviewing potential customers to discover their pain points, needs, and wants.
- Next, have students break up into pairs and take turns interviewing each other. One student will start as the interviewer and one will play the “customer.” Allow 10-15 minutes for each interview and have the “interviewer” take notes so they can report out on what they learned.
- Sample questions they can use include:
- What is a typical day like on your job? (or What is a typical day like as a student?)
- What are the top 3 challenges you encounter?
- How often do they occur?
- How much time do you spend on those challenges?
- Can you tell me a story about the last time that challenge happened and what you did?
- What, if anything, have you done to solve these challenges?
- What don’t you like about the solutions you tried?
- At the end of the activity, have students share what they learned with the class:
- What are the pain points their partner encounters on a regular basis?
- What did they discover during the interview about their partner’s needs and wants?
- What would make their partner’s life easier?
- What did they learn about interviewing during the exercise?
- What was the most challenging part?