Keys to New Product Success (Part - 2) - Customer Need Hypothesis.

                                 While making any product or solution strategy, product managers should think along two dimensions to understand the premises of customer need, that is, Product evolution stage & degree of separation.  Windermere Associates (San Francisco), Clayton Christensen (‘SEEING WHAT’S NEXT) and Geoffrey Moore (Crossing the Chasm) have brought this out with similar underlying logic. The contextual nature of customer need, based on underlying basic need & product lifecycle should be looked at, in an integrated fashion. This is like telling that you should take advantage of your day in the sun before next day renders you obsolete. The customer needs should be looked as “Windows of Opportunity” & rather shifting windows along life cycle stages.

Product Evolution Stages: Most products go through a life cycle that is quite similar. Briefly, new products go through following stages before getting commoditized & later obsolete.

1. Stage 1; Functional: Initial customer response would be “Is the product has all functions necessary to satisfy the basic need for which I have paid for?” For example, is mobile phone has necessary functions for user to speak & take calls, when he is mobile. During this stage, performance can be inferior, but the basic drivers for product success can be innovation, status/life style, niche application etc. This stage is largely driven by “technology push” & with almost no competition.
2. Stage 2; Performance Optimization & Reliability: As technology matures to satisfy basic functions & as both customers, competitors get some awareness about product, performance optimization, reliability & non-core functions would be major driving factor. For example, in mobile industry, how large is the coverage? Are highways/rail lines covered? Can I use it as a pager? Can I save address & phone nos.? How much battery life? How much reliable? etc.
3. Stage 3; Safety, Convenience & User experience: Windermere Associates (Christensen, 1997) find that when vendors have improved their product to the point that they satisfy functionality and reliability, the basis of competition shifts to convenience & user experience. Like how sleek is the cell phone? How large the buttons & display? Colors, user interface, friendliness etc. Customers become more demanding & competition intense. The product improvement becomes incremental & most new features added either to retain existing customer base & or make product viable for new users.
4. Stage 4; Customization, Personalization & further market segmentation: This is the phase where competition is maximum, technology is mature & all basic needs as above are satisfied. Now products & solutions shall start targeting asymmetries in the market based on over served & under served market segments (explained below) & new users. Well tuned products are offered for all homogeneous segments with specific needs. There are lots of small & medium players, along with leaders, each addressing various niche segments.
5. Stage 5; Commoditization: If further product differentiation is not possible, then product becomes commoditized & vendors compete on price. Firms stay competitive either by cost cutting or migrating to next generation of products with completely different value proposition.

Degree of Separation: Both Clayton Christensen and Geoffrey Moore argue that every customer cares about certain feature & performance irrespective of an early adopter or mainstream customer, utility or status buyer, customized or cost sensitive buyer. This particular function or set of functions are satisfying fundamental problem financially, productivity wise, convenience or emotionally & is the reason for which customer is buying. That is normally the basis of competition for that particular customer.

For example, for a naïve user of computers, friendly UI is critical whereas for a designer of a real time control system, speed is most critical & for a multimedia programmer, new & creative functions are important & so on. Some buyers may buy for status & then success of the product depends on the ability to satisfy the ego. No matter what customers’ value, based on the degree of separation between critical functions & ability of products to satisfy those set of critical functions, customers can be classified as

• Underserved Customers: These customers demand more than vendor’s current offerings & this segment is the target for sustainable/incremental improvements. Vendors will be able to decide how next generation products should look like if they could correctly understand underlying demand dimension. This trajectory helps in moving the product features along its life cycle.

For example, PC manufacturers targeting high end multimedia market with 3D graphics, require faster & faster systems at an attractive value proposition. Typical PCs & servers, when not offering solution at an appropriate price, is ‘under serving’ the segment & is a case for sustainable innovation.

• Over served Customers: According to Seeing What’s Next, companies continue to improve the products to a point where they eventually over serve the customers. Normally companies innovate faster than customers’ lives change. What people are looking to get done remains remarkably consistent, but products always improve. Eventually products become too good & customers stop paying further improvements in performance & is the driver behind commoditization. Normally vendors target combination of emotions, price, safety & environment impact, reliability etc in a complex proportion & try to define new value proposition.

For a example, for a normal word processor user, using it to write letters & preparing some presentations, latest Microsoft word shall over serve, with not even using 20% of its full capability.

• Non-consumers: People who lack the ability, wealth, feasibility ($) or access to solve some of their problems using offered product. Or they fail to associate emotionally with the product. This can be attractive segment to target by next generation of products & solutions. While deciding features for next releases for an ongoing product, this will be an attractive segment to maintain or improve revenue stream.

To be continues in next post…..

Note : Further Reading; ” Seeing What’s Next” & ” Crossing the Chasm”

The Keys to New Product success (Part - 1) - Collecting unarticulated & invisible customer-needs

 New product success rates are rare: The success rates of new products are less than 10% & consume significant portion of financial, management & technical resources of companies. Though definition of success is a relative term, there is no doubt that survival of many companies depends upon the success of their new products. There may be many reasons for failure like discontinuous macro-economic, industrial, technological, customer & competitive changes; there is consistency with few companies who routinely come on top with significantly higher success rates.

          The 80:20 Rule applies here. More than 90% of overall successes comes from few handful of companies & large number of companies together contributes to less than 10% of new product success. The successful companies are approaching new product development differently from others. Strategic & technology choices based on customer’s current needs as well as future evolution of needs is an important factor for new product success. 

Customer Need Identification - Traditional Approach: Traditionally companies depend upon the sales, distribution channels, customer support & current customers for data collection. The data & ratings are then aggregated, mapped & prioritized. During formal & informal interactions with end users, buyers, decision makers & beneficiaries, these teams make efforts to understand problems, see if some thing is inefficiently managed that existing offerings can improve, assess gaps in existing offerings etc. The data typically collected are through reactions from current customers & focused exclusively on current offerings.

Such VOC is inadequate & some times irrelevant: That brings us back the basic question, that is, what is the most important & fundamental driver for collection of VOC?

Let us ask few questions?

• Does VOC helping the organization in prioritizing the technologies that have solid grounding in customer needs?
• Does the data give necessary information about future product/technology strategy that requires long term prioritization decisions?
• Does it help in predicting the customer need evolution over next 3-5 years with reasonable assumptions on technology trajectory?
• Can we understand customer’s organizational & financial constraints with the data?
• Have we understood what makes the customer win in his business? What functions & features help?

          Traditional VOC is about current products, today’s problems, about gaps in current offerings. It fails to give insight into customer’s unarticulated needs. The products & solutions that are conceptualized based on problems/opportunities of today fails to address the same 2-3 years later when products actually makes it to market. Existing customers are good at telling what next generation features the current products should have. This will only sustain current offerings better with no significant revenue benefits.

          Ultimately, what separates successful ones is the ability to see the underlying customer needs that competition could not see. Rules & success factors for tomorrow would be different than today.  Challenge is to do VOC in a way to prodict what it would be tomorrow. In next couple of parts, I intend to write about VOC collection for technology companies that can help in making strategic choices for technology prioritization with solid grounding on customer needs …… Regards, Narendra Rao

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