Key takeaways
- Creating a great new innovative products does not guarantee success, people have to find and try it.
- The first key is to build something that people will search for. If there is little innovative or differentiated products, people will not even search for a new product.
- If customers will not find a product via search, you need to develop cues so they will infer that the product is different and valuable to them.
One of the most frustrating results in business is launching a great game or product and then seeing it fail. Unfortunately, this phenomenon happens more often than not. In the game space, at least 80 percent of new launches (from established studios, new studios have a worse rate) are never ROI positive (that is, they never have an LTV that allows for ad spend). Even in retail, according to a recent study of 9,000 new products that generated strong distribution, only 40 percent were sold three years later.
Although I am a huge advocate of Blue Ocean Strategy, one central challenge is getting customers to adapt the new product. In the game space, many innovative and extremely fun products fail because they never gain traction with players.
A recent article in the MIT Sloan Management Review, Why Great New Products Fail by Duncan Simester, shows why so many good products fail and how you can reduce the risk of experiencing this fate. What Simester shows is that while most companies focus on customers’ needs, they do not understand how customers decide what to purchase. By understanding the customer search and inference processes, you can build a better strategy for the customer to discover a new, innovative product.
People don’t search for innovation
The first thing you need to realize is that in a market with little innovation the customer may not realize the value of looking for a better solution, they do not even think they exist. Thus, they may not find your innovative product because they do not know to look.
Alternatively, people may think the cost of searching for an alternative or innovation is too high despite knowing of the benefits. Somebody may realize there is a game in the App Store they would prefer to what they are currently playing but do not believe it is worth the effort to search through the thousands (or millions) of alternatives, download and test tens (or hundreds) and then find the innovative product they prefer.
Additionally, your best customers are the ones least likely to search. Research cited by Simester shows a strong relationship between the amount of prior expertise a consumer has about a product category and the extent they search for information before making a purchase decision. Effectively, the person feels they already know what is best so they see little incentive to search.
Compounding this problem is that potential customers with virtually no knowledge also will not search. They do not know what questions to ask, where to find answers or how to interpret the information if it arrives. Potential customers also do not understand the features that would benefit them. Thus, innovation would not increase the chance of a sale to this type of customer, no matter how much value the innovation adds, because the customer does not understand the value of the innovation.
Customers’ Inference Process
When search is incomplete, customers shift to forming inferences. They use what they observe to infer what is too difficult or costly for them to search for. A good example Simister uses is McDonald’s obsession with keeping parking lots clean. While customers do not really care if the parking lot is messy, if they see a dirty parking lot they will infer that the restaurant itself is dirty and go somewhere else. As Simester writes, “Although purchasing decisions are a different neural process than the visual process, a similar phenomenon occurs when customers are evaluating different products or services. Customers often do not realize they are forming inferences, and even if they do, they are powerless to stop it.”
Branding and inference
The most common cues customers use to infer product value are brand and pricing. Brands infer more than only product quality as consumers use brands to signal information about themselves.
The importance of brands differ by the market and consumer. When it is easy to search and generate information about the product, brands take on less importance. This is particularly the case with the sophisticated customers described above, as they can process the product information and make informed decisions about the opportunity. Conversely, an unsophisticated customer is likely to rely on the brand because they do not know how to process the product information.
In the game space you see very little value of brand because so much information is available to players. They can look at an AppStore description, process screenshots and watch videos to determine if they like a product, rather than care whether the game is from King.com or Supercell.
The role of the brand also varies across product features. Features that are on the spec sheet typically can be discovered by search. Other features, however, such as reliability and ease of use, are not easily available and thus it is these features where the brand’s role are most prominent. Going back to the earlier game example, a player may rely on their perception of a brand to determine how aggressive monetization will be, how often the game will be updated and how reliable the back-end is.
What you should do differently for innovative products
Given the challenges of conveying to users the value (or existence) of an innovative product, you need to build new products where customers can recognize their value. Thus, during your green light or incubation process, you should look at three aspects of the potential product.
- Motivation to search. Will customers discover your innovation? An innovative offering will not succeed if customers do not discover it. First, are customers motivated to search? Are they willing to invest time to find a better option than they are currently using?
- Ability to search.Can customer search effectively? Can reviews, customer or professional, help alleviate the issue.
- Customer inferences. If customers cannot or will not search, you need to understand what cues consumers will use to infer the absent information. You may want to create cues to help customers with this inference process.
Innovation is not just about great products
The key is that innovation is not just about building a great product. When you are planning your new products, you need to understand if and how customers will find out about it. Build that into the product, or possibly seek an alternative if there is no clear way to educate users.
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