Most new product launches are unsuccessful. What makes the few successful? A key parameter of a new product’s attractiveness is its degree of novelty. Our own research, involving hundreds of new product introductions in various countries, consistently revealed that a U-shaped relationship exists between newness and market success. Products of either incremental or radical novelty are more successful than products of intermediate newness. Products of intermediate newness appear to be stuck in the middle: too high in complexity, compared with products of incremental newness, and too low in relative advantage, compared with radical new products. This effect persists over time. Within this general rule, we find that in the longer run radically new products offer the best platform for growth.
To assess the novelty of a new product concept before launch, using consumers and/or outside experts is superior to using managers from the company. In our experience, the company’s executives are prone to overestimate the degree of novelty of their new products. Products that rate as intermediate on newness by outsiders may be identified before launch and subject to close scrutiny in order to assess whether certain features can be modified to enhance the novelty of the products. The measurement of novelty does not have to be complex. In our work, we have successfully used items like the extent to which the respondent (consumer, outside expert) judged the product to be new and unique, measured on straightforward five-and seven-point scales.
One approach that combines both ends of the U is pulse strategy, in which really new innovations are introduced from time to time. This is followed by incremental product improvements and line extensions to fine-tune the product based on market feedback and to fill additional niches until the next really new innovation. Such a strategy is likely to be more successful than continual intermediate-level innovations.
Talk to the right consumers
While incremental new products are often relatively easy to achieve in the R&D process, radical new products are more problematic. It is well known that the generation of major new product ideas is the critical bottleneck for growth. Consumers are a crucial source for new product ideas. Unfortunately, in the new product development process, many interesting ideas are killed because focus groups of consumers reject a radical concept. That is a basic psychological tendency. Many people routinely reject things they are not familiar with.
Unfortunately, most companies talk to the wrong people in the new product development (NPD) process. They should not canvass for the opinions of a “representative” sample, but instead test radical concepts on a purposefully chosen segment of the population, consumers who are high in a personality trait called dispositional innovativeness.
Dispositional innovativeness is defined as the predisposition to buy new products and brands at an early stage, rather than to remain with previous choices and consumption patterns across a variety of goods and services. It is a basic personality trait. Consumers high in this trait have a higher tolerance for ambiguity, are more open to change, are curious, and creative, and have a lower need for clarity and structure. This personality profile indicates that these people are less prone to reject really new ideas while being more likely to come up with less conventional ideas themselves. In short, these are exactly the kind of people whose opinion a company wants to canvass for in developing radical new products.
International roll-out strategy
With rapidly increasing R&D costs, falling trade boundaries, and growing globalisation, new products are increasingly being introduced in multiple countries, rather than being a purely local affair as was common one or two decades ago. The firm can follow a “waterfall” strategy in that the new product is sequentially introduced in one country after another. Alternatively, the firm can introduce the new product in multiple markets simultaneously — called a “sprinkler” strategy.
Our work shows that a sequential, waterfall rollout strategy is most effective for radical new products, while the simultaneous, sprinkler strategy is most effective for incremental new products. For radical new products, getting the marketing strategy right is more difficult, and the brand manufacturer learns from failures in getting it right in subsequent countries. On the other hand, it is much less challenging to develop an effective marketing strategy for incremental innovations, while there is a greater danger that success in other countries will be pre-empted by fast imitation by other brand manufacturers or retailers.
If a waterfall strategy is more effective for radical innovations, then with which country should we start? Economic (game) theory, as well as our empirical research, demonstrates that radical innovations should be introduced in countries with a relatively high proportion of innovative consumers. Within Europe, this means that of the major countries, the UK is the most suitable country in which to commence a sequential rollout strategy for major new product introductions. In the UK, the segment of innovators is 24 per cent, compared with only 15 per cent in France, and 9 per cent in Spain. In fact, our work shows that among all large European countries, the UK is the only country that is not hurt by the fact that the product has not been introduced elsewhere. From a global point of view, the US is a prime candidate in which to introduce radical new products. On average, its population is among the most responsive to innovations in the world.
It may sound boring, believe it or not, but good old-fashioned marketing still matters. New product introductions supported by a well-known brand name, price promotions, feature and display activities, and advertising, achieve more success in the market. This may not be glamorous, but it is nevertheless still true, even in the twenty-first century. And some recent insights, based on work with colleagues, can help brand manufacturers to make more effective and efficient use of their advertising weapon.
The combination of advertising and new products is especially powerful. A dollar spent on advertising for new products is, on average, five times more effective in boosting sales than a dollar spent on on-going, maintenance advertising in boosting sales. And if a new product is supported by heavy advertising, as opposed to limited advertising, it is 70 per cent more likely to be bought by consumers. Last but not least, advertising for a new product introduced by a well-known brand name increases the effectiveness of the ad spend because the consumer can draw on existing associations with the brand stored in memory.
Not only advertising expenditure but also advertising content matters. More specifically, in categories where functional performance plays a role (that is, the product is not only all about image, like perfume), ads using distinctive functional benefits generate stronger sales. Worryingly, though, is the trend to de-emphasise distinctive functional benefits in many categories. Such ads may be more enjoyable, but generally turn out to be less effective.
Professor of Marketing and co-director of Aditya Birla India Centre at London Business School
JAN-BENEDICT E M STEENKAMP
Professor of Marketing at Kenan-Flagler Business School, UNC-Chapel Hill