The Adventus Advantage – Winter 2009

Why Smart Companies Do Dumb Things – How to Double the Bottom Line by Avoiding 8 Common Blunders in New Product Development – by Calvin Hodock

In “Why Smart Companies Do Dumb Things” a book published in late 2007, former American Marketing Association chairman Calvin Hodock maintains that North American companies can easily double their profit by cutting the failure rate of new products, currently 90%.

Hodock identifies the 8 most common mistakes business makes in launching new products. He then offers 7 reasons why these innovation blunders persist and flourish, followed by suggestions for shareholders, CEOs and business schools on how to cut the failure rate.

In his “Peter Principle” for the 21st Century, Hodock writes that the cost of failure is borne by shareholders in plunging stock prices and by the public in lost national income, lost retirement savings, and vanished jobs.  Examples include Polaroid, where missed opportunity and questionable accounting cost the jobs and retirements of thousands, and General Motors, Ford, and Chrysler, where failure to build cars people want has spread unemployment throughout Central North America.  He maintains that innovation is the engine of America’s growth, and that the engine is in real danger of stalling unless business people learn from their mistakes.

Hodock, previously a marketing executive at consumer product companies such as Johnson & Johnson, Gillette, and Bayer, is now a professor of marketing at New Jersey’s Berkeley College, adjunct professor at New York University, and guest lecturer at the University of Pennsylvania’s Wharton School.  He examines 400 product failures to make his case. 

The 8 recurring errors he found are:

1)  Marketing Misjudgment:  Companies stray from their core competency.  Examples include a magazine from clothier Banana Republic and calculators from razor maker Gillette.

2)  Positioning Poison:  Misrepresenting the product to consumers. Examples include Bayer Select. It degraded the Bayer Aspirin name with a product line which duplicated those of its competitors, Tylenol and Advil, as well as its own.

3)  Dead on Arrival Product:  Think of the Pontiac Aztek, possibly the ugliest car ever, and Vioxx, a pain reliever with the potential to cause heart attacks.

4)  Competitive Delusion:  Underestimating the competition.  Johnson & Johnson’s “Purify” denture cleanser took on market leader Efferdent, which buried Purify in a take-no-prisoners retaliatory marketing campaign.

5)  Defective Marketing Research:  The “New Coke” was developed using a taste test biased in favor of arch-rival Pepsi.  Based on the tests, Coke changed its 100 year old formula to be more like Pepsi.  Faced with a consumer uproar, Coca Cola reversed itself within weeks – at the cost of $250,000,000.

6)  Fatality in Frugality:  Cutting corners kills a new product.  Consider General Electric’s $450 million pretax charge for a failed refrigerator compressor.  They had never field tested it.  Frito-Lay, famous for its potato chips, saved a million dollars entering the cracker business by foregoing extensive product testing.  The $1,000,000 Frito-Lay saved on testing cost it $100,000,000 when their crackers failed to sell.

7)  Timetable Tyranny:  In the rush to be first companies can misjudge the market.  That’s how Motorola fell into the Iridium phone hole – a $3,000 bulky, satellite phone device that competed with sleek, $100 cell phones.  It never sold more than 10 percent of what it needed to break even.

8)  Marketing Dishonesty:  Pepsi ignored focus groups who hated the taste of “Crystal Pepsi.”  They forced it through their distribution system.  When is the last time you saw Crystal Pepsi on the store shelves?

He finds 7 reasons why these innovation blunders flourish. 

1)  The Curse of Me-Too:  The new product may be too similar to an established brand. 

3)  Marketing Waltz of Musical Chairs:  By the time a new product is pronounced dead, the marketers behind it have often moved on to new assignments.

4)  The No-Bad-News Syndrome:  Bad news is ignored or rationalized away.

5)  The Comatose Board of Directors:  Enough said.

6)  Marketing’s Freudian Id:  Marketing is the “Id” of business.  It needs to be checked by science and research, and ultimately the board of directors (the corporation’s ego and superego) to be kept on track.

7)  CEOs Need Short-Term Results:  Companies are willing to sacrifice long-term shareholder value to hit unrealistic earnings targets.

“Why Smart Companies do Dumb Things” ends with tips for shareholders, firms & business schools, including:

1. Shareholder Activism.  Shareholders cannot be passive.  Challenging a bad management has become much easier thanks to internet communications.
2. Have the board of directors audit innovation in the same way that they oversee finance, nominations, and compensation -- via an outside committee.
3. Look behind the PR hype surrounding the CEO – the more of it that there is, the more likely the CEO is to be a failure.
4. Follow Gillette – avoid quarterly predictions of future earnings.  It’s a fool’s game.
5. Mingle with the troops and customers:  CEOs and directors need to eat in the cafeteria and visit the shop floor and stores often.
6. Challenge assumptions behind profit and loss predictions for new products. 
7. Stamp Out Marketing Amnesia.  The lessons of innovation blunders are there to be learned by anyone who looks for them, but most don’t look.
8. CEOs should embrace corporate skeptics rather than surround themselves with “yes men.”
9. Practice corporate ethics.  Sweeping bad product news under the rug can be more costly than embezzlement, and it is just as unethical.  Citing a survey that says 52 percent of MBA students would buy stock illegally on inside information; Hodock suggests that business schools need to emphasize ethics training far more than they now do.
10. Business schools need to teach humility, not attitude.

Published by Prometheus Books, ISBN 978-1-59102-568-9

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The Adventus Advantage – Spring 2008

Sowing the Seeds of Innovation

By Susan Abbott

When you ask executives about what works when it comes to building an innovative organization, it’s hard to get them off the subject of leadership and organizational climate.  That’s what I learned from a major research project on what makes for an innovative organization.

Very often, our response to the pressure to innovate is to seek tactics that will generate an immediate lift in results. We hope that one good offsite meeting will make a difference, even though nothing else has changed. Yet when you ask executives to step back and think deeply on the topic of innovation, they know that really innovative organizations did a lot more than hold an offsite.

Innovation is a blossom that grows best in the conditions provided by a well-managed organization that is actively cultivating it. While pockets of innovation might arise in a department or business unit that has planted a few of its own seeds, an organization that wants to look out over a field of innovation flowers will find they need to devote resources and management mindshare directly to this challenge in order to see results.

There are some specific practices that help. One of these is customer focus. Customer insight is foundational to innovation, whether the innovation is radical, semi-radical or sustaining. A good way to kick-start some innovation is by bringing the voice of the customer more clearly into focus for more parts of the enterprise.

Getting close to the customer doesn’t mean you ask the customer for the solution. Consider RIM’s category creating product, the Blackberry. The driving insight is that people want convenient access to messaging, and pagers simply weren’t delivering the mail. Innovation that is driven by technology rather than customer insight tends to deliver products like the Motorola Iridium, rather than the Blackberry.

As a leader, you need to support this effort by asking for the customer connection, not just once, but so often that people anticipate the question.
Susan Abbott is author of The Innovative Organization, published by Schulich Executive Education Centre in 2008, based on original research with executives in a wide variety of industries. Ms. Abbott is a marketing research consultant. Excerpts from the book used with permission.

When to do Market Research

By Gary Svoboda, President - Adventus Research Inc.

The issue of when is the best time to perform market research for a new product or service is one of the most common questions that our clients ask, and for good reason. Market research is often looked on by clients as a costly and risky activity – one where the developer’s enthusiasm for their technology will be put to the acid test of real-world feedback. So, naturally, there is always nervousness in waiting for the jury of market opinion to weigh in with their verdict.

In our experience in looking at hundreds of clients product and service ideas over the past 25 years, perhaps the best answer to the question of “when” is “start early”.

Early is Important

Understanding the Current Market

As a prerequisite to initiating product development, you should be aware of the current state of the markets of potential interest. Issues like market size and growth, key competitors and emerging market and technology trends are all important metrics for deciding on which markets to pursue. Most importantly, developing knowledge of the degree of market satisfaction with existing product solutions is the key to understanding where the potentially most fruitful opportunities lie.

Early Stage Product/Market Validation

Once you have selected the market(s) that have the best characteristics, its time to begin market validation.

This usually takes the form of testing a relatively brief but specific benefits statement, outlining the points of superiority of the proposed product, with key stakeholders within the intended target market(s).

Feedback received about their feelings and rankings about the importance of various benefits in “the package”, potential pricing and distribution expectations etc., will provide key input to the product development team as they move forward. In some cases it may even result in having to go “back to the drawing board.” But better this result than a high-cost failed product launch.

So, in summary, some time and money spent on market research at the outset of the development process will pay huge dividends down the road, minimizing the chances for product failure, while optimizing the fit of your new product with emerging needs and trends in your marketplace.

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The Adventus Advantage – Winter 2007

Modeling Emerging-Technology Markets

As we learned in the last issue of the Adventus Advantage, the Product Diffusion/Technology Adoption Lifecycle (TAL) model charts the development of technology markets according to the psychographics (or the demographic & psychological characteristics) of defined adopter groups. The original TAL model shows a smooth curve stretching from early-market Innovators all the way to late-market Laggards. In between are Early Adopters, Early Majority and Late Majority. Each group is identified by their acceptance of or aversion to risk.

In Crossing the Chasm, Geoffery A. Moore renames these characteristic market adopter segments to better fit the profiles of technology market end-users. In Moore’s model, Innovators are called the Technology Enthusiasts (or Techies), Early Adopters are Visionaries, the Early Majority are Pragmatists, the Late Majority are Conservatives and Skeptics are Laggards.

Moore takes the TAL model one step further by introducing the notion that market development phases must be identified according to overall environmental characteristics rather than solely by adopter psychographics. The market phases that correspond to the established adopter segments are Early Market, The Chasm, Bowling Alley, Tornado, Mainstreet and Total Assimilation. Moore’s model also introduces gaps between each subsequent phase. These gaps represent transitions where market momentum can be lost if organizations fail to adjust their strategy to accommodate the new adopter segment’s values, priorities, motivations and fears.

The most treacherous of these gaps is the Chasm. Emerging technology markets often stall when they reach this phase. It is too late to attract new Visionaries, who are not interested because they can’t be the first to adopt the technology, and too early to attract Pragmatists, who are too risk averse to invest in solutions from anyone but established market leaders that have been referred by a trusted source. (Pragmatists invest in solutions, not technology, and consider Visionaries to be risk takers - they aren’t inclined to trust them as references.)

The Chasm often becomes a graveyard for those technology hopefuls who appear to have a bright future in the early market but cannot bridge the divide separating the early market from the mainstream. The Chasm can be particularly deadly if it goes unrecognized. This happens because, while the size of the customer and the order may be the same on opposite sides of the Chasm, the customer’s motivation for buying and his perception of the problem that needs to be solved differ radically. In other words, technology vendors who attempt to use their successful early market sales techniques on Pragmatists will be sorely disappointed.

The good news is that the strategies necessary to cross the Chasm provide opportunities for healthy growth and market share acquisition. Furthermore, success in the Chasm positions vendors for market dominance during the chaotic, high-speed, high-volume, run for the money phase: the Tornado.

The Tornado phase occurs when market growth accelerates dramatically, demand far outstrips supply and vendors ship everything in sight as fast as they can to expand market share. Entrepreneurs and investors alike wait and pray for the Tornado. After all, this is the explosive phase during which the great high-tech fortunes are made.

But to get to the Tornado, one must survive the Chasm. While it is possible to cross in other ways, there is one proven method for charting a successful course across the Chasm. This involves a disciplined approach, one that is often somewhat counterintuitive for early market, sales-driven organizations, called niche marketing.

Niche marketing enables an organization to establish a leadership position by dominating small, narrowly defined market segments. The real discipline involved in successful niche marketing is in defining the niche.

The most significant characteristic of a niche market is that its members can and do easily reference one another in their buying decisions. They read the same publications, attend the same conferences and belong to the same professional associations.

For niche marketing to work, markets must be defined vertically by industry, rather than horizontally by technology or application.

If two customers purchase identical products or services for identical reasons but have no way to reference each other in that purchase decision, they are not considered part of the same niche market.

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The Adventus Advantage – Summer/Fall 2006

The Product Adoption Curve

Buyers can be grouped according to how quickly they adopt a new product. On one extreme, some buyers adopt a product as soon as it becomes available. On the other extreme, some are among the last to purchase a new product. The new product adoption process was originally modeled by Everett Rogers in the form of a bell-shaped diffusion curve similar to the following:

Defining categories a standard deviation wide about the mean, 5 product adoption groups can be defined:

Innovators: Well-informed risk-takers willing to try an unproven product, innovators represent the first 2.5% to adopt the product. Innovators are: venturesome, educated, users of multiple information sources, and have a greater propensity to take risk.

Early adopters: Based on the positive response of innovators, early adopters then begin to purchase the product. Early adopters tend to be educated opinion leaders and represent about 13.5% of consumers.

Early majority; Careful consumers who tend to avoid risk; the early majority adopts the product once it has been proven by early adopters. They rely on recommendations from others with product experience, and represent 34% of consumers.

Late majority: Somewhat skeptical consumers who acquire a product only after it has become commonplace. The late majority represents about 34% of consumers, are often skeptical, traditional, and of lower socio-economic status.

Laggards: Those who avoid change and who do not adopt a new product until traditional alternatives are no longer available. Laggards are about 16% of consumers, and often use neighbours and friends as main info sources and have a fear of debt.

The rate of adoption depends on many factors, such as:

• Perceived benefits over alternative product
• Communicability of the product benefits
• Price and ongoing costs
• Ease of use
• Promotional effort – how well-advertised is it?
• Distribution intensity – how easy is it to find?
• Perceived risk
• Compatibility with existing standards / values

Even if a product offers high value to the customer, the firm also faces the challenge of convincing potential customers to try the product and eventually to adopt it. The product diffusion curve is partly responsible for the product life cycle concept, which calls for different strategies depending on the product's stage of life.

The Innovation “Chasm” or Gap

In his 1991 landmark book Crossing the Chasm, Geoffrey Moore builds on the diffusion of innovations theory from Rogers, but argues that there is also a gap, or “chasm” between the early adopters of the product and the early and late majorities (the “mainstream market”), as follows:

Moore argues that this is because early adopters and the early majority have very different expectations. Failure to understand the nature of this gap, in turn, can often produce a needlessly high new product introduction failure rate.

Bridging the Gap

To cross the chasm, Moore advocates that a company focus on a single market, a beachhead, win domination over a small specific market and use it as a springboard to adjacent, larger markets. He uses a war analogy:

1. Target the point of attack: Target a specific market niche as your point of attack and focus all resources on achieving the dominant leadership position there. Identify main market parameters: target customer, compelling reason to buy, whole product, and competition.

2. Assemble an invasion force: Create the whole product, "by thinking through your customer's problems-- and solutions-- in their entirety". This includes the core product plus everything else you need to achieve your compelling reason to buy, including additional software, hardware, integration, installation, debugging, training and support, standards and procedures, etc. These may be provided in-house or by using partners/alliances.

3. Define the battle: that is, create the competition, define positioning, develop the elevator pitch, and build this into all your company communications.
A. Focus the competition within the market segment established by your must-have value proposition.
B. Create the competition around what, for a pragmatist buyer, is a reasonable and reasonably comprehensive set of alternative ways of achieving this value proposition.
C. Focus your communications by reducing your competitive claim to a two-sentence formula in every piece of company communications. Reinforce the second sentence of this claim, the one that identifies your primary competition and how you are differentiated from it.
D. Demonstrate the validity of your competitive claim that you are the indisputable leader"

Moore concludes that direct sales is the optimal channel for high tech. It is also the best channel for crossing the chasm.

Adventus Client Feedback

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The Adventus Advantage - Spring 2006

What is Primary Research?

In the world of market research, primary research refers to all information that is collected directly from the market, rather than already-published data. Surveys, focus groups and stakeholder interviews are all examples of primary research.

Primary research is very important simply because companies can only gather so much useful data about their markets from published sources, because by its nature published information is general data. To get specific data, we turn to primary sources.

When it comes to understanding how the market will react to their product, and how to position their product to maximize success, companies have to conduct their own research – talking to current and potential customers to understand their needs.

At Adventus, we specialize in primary research design and execution. In this issue of the Adventus Advantage we review 2 primary research methods: focus groups & stakeholder interviews.

When to Use Focus Groups

A focus group is a form of qualitative research in which a group of people are asked about their attitudes towards a product, concept, advertisement, idea, or packaging. In particular, focus groups allow companies wishing to develop, package, name, distribution or test market a new product, to discuss, view, and/or test the new product before it is made available to the public. This can provide invaluable information about potential market acceptance of the product.

The key to understanding why qualitative research in general, and focus groups in particular, are so important in the realm of today’s market research, can be summarized in a single sentence: Unlike traditional quantitative research (i.e. surveys), focus groups are mainly concerned with understanding attitudes rather than measuring them.

In most focus groups, the group gathers in the same room. They are pre-screened to ensure that members are part of the relevant target market and that the group is representative of this market segment. There are usually 6-10 members in the group, and the session usually lasts for 1-2 hours. A moderator guides the group through a discussion that probes attitudes about a client's proposed products or services. The discussion is loosely structured, and the moderator encourages the free flow of ideas.

Today, roughly 70% of all consumer research dollars are earmarked for qualitative research, and it is nearly impossible to find a Fortune 500 company that does not use focus groups to develop its corporate image and/or marketing strategy.

Focus groups do have their limitations. Participants are chosen scientifically but, as a group of 6-10 people, the findings cannot be projected onto the entire population. The results are dependent upon the interaction between the respondents and the moderator, and unprofessional moderating can lead to inaccurate conclusions.

Adventus Client Feedback

Client feedback from IRAP-supported clients of Adventus Research continues to come in – and the results point to very satisfied clients! Based on completed IRAP-supported projects to date, clients rated their Adventus experience as follows:

Stakeholder Interviews

There are frequently times when specific market research data needs to be gathered but focus groups are not feasible or the best technique under the circumstances. In these cases, we recommend stakeholder interviews

For instance, the client may not have something for the target market to react to, since prototypes or drawings may not yet be created. Potential target market participants may be too physically scattered or unwilling to sit with their competitors to bring them together in the same room.

Stakeholder interviews can be very insightful when sensitive questions are raised as well. For example, we recently asked a Product Manager from a well-known national chain whether he would believe focus group results supplied to him by a client. In a one-on-one interview, he is more likely to give his “true” response to this question.

Stakeholder interviews can be conducted in person, but are usually most cost-effective when conducted by pre-arranged telephone appointments that usually last 10-15 minutes.

For consistency and to ensure that all relevant questions are asked, it is useful to create a discussion guide that includes a product and/or benefits description followed by the key questions to be asked. Sharing this guide with interviewee ahead of time ensures that they have the time to review the information and formulate thoughtful responses.

The selection of stakeholders to speak to is also a very important part of the process, and one where the client and consultant should both have input.

In our experience, 8-10 stakeholder interviews per target market segment will often offer enough information and insight to be useful in gaining insight into understanding attitudes and drawing reasonable market conclusions

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The Adventus Advantage - Winter 2006

What is Technology Alignment?

Market-driven companies can expand their horizons by moving into a broader technological base and technology-driven companies can learn more about the marketplace and seek greater opportunities for their products. While most manufacturing companies need to concentrate on market-pull activities, they should not neglect to develop new technologies.

However, strictly market-driven companies have a risk of suffering when their market experiences a downturn because they will have no new technology available to enable them to move rapidly into other markets.  They also run a greater risk that their competitors will pull ahead of them with a new product line that is driven by a new technology.

The best outcomes are realized when a technology-driven product becomes pulled by the needs of the marketplace.  Until this balance is reached, the product is not likely to be a success.  The best situation is where technology push is balanced by marketplace pull as quickly as possible.

At Adventus Research we strongly believe in market development programs that are based on a technology aligned market-pull philosophy. That is why we usually get involved in projects before the final technology offering is set in stone, so that market research feedback can complete the alignment process and ensure that the optimal product is being developed for the target market.

Adventus Client Feedback

Client feedback from IRAP-supported clients of Adventus Research is starting to come in – and the results point to very satisfied clients! Based on the first four completed projects, clients rated their Adventus experience as follows:

Take Your Company to the Next Level with “Strategic Market Identification”

Adventus Research has developed a new research tool to help companies grow their business to the next level - the Strategic Market Identification Program (SMI).

The Strategic Market Identification Program was designed to help companies that have been successful in their current markets, but are now facing market maturity and are looking to increase sales growth by breaking out into new markets.

The key to the SMI is that it is an alignment process that identifies market segments new to the company that best align with these competencies.

It begins by working closely with the client to understand the company’s key core competencies and values. Step two is a brainstorming exercise that identifies up to 25 potential markets where the company is not currently active. Step three involves researching each of these 25 new markets and developing a rating of each of these markets against the competency/value criteria developed in step one. The last step involves another session with management to present and discuss ratings for all segments, including the top-rated 2-3 new markets that the company should consider for market development.

Custom Foam Systems of Kitchener is a recent client of the Adventus Strategic Market Identification Program. President Bob Germann comments – “Adventus has really helped us focus on the key question of “what’s next” for our company as we move forward in our continuing vision to be the very best at developing innovative solutions for our customer’s polyurethane foam needs. With the assistance of Adventus, we feel that we have identified our next major strategic market development opportunity.”For more information on the Strategic Market Identification Program, contact Gary Svoboda at 519-824-7456.

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The Adventus Advantage - Fall 2005

In the first of a series on how to reduce the risks of technology commercialization through more effective market research, we offer our experience in conducting surveys for technology-based start-ups and SME’s, summarized in a handy “top 10” list.  Many of these “rules” reflect the most common mistakes that tend to be made in survey design and execution by technology based clients.

Better Survey Design for Technology–Based Clients – A Top 10 List

Adventus Research Inc.

In our next letter we will discuss the key differences between surveys vs. stakeholder interviews.  When is the appropriate time to use one or the other?