As an entrepreneur, I have always had to focus on street logic.  And on the street, new product development concepts are a natural part of our street logic.  I am not talking about Wallstreet and corporate america, but rather the way business really works on mainstreet in the real world.  I recently finished graduate school to get my business degree which was a delightful experience meeting and working with executives across a variety of businesses and industries.

One of my favorite professors was focused on new product development.  The course was an exciting course with a lot of theoretical concepts – concepts such as how to create product innovation teams, cycle time, customer fit, etc. – as well as an emphasis on controlling development costs (we will get back to this often overlooked topic).

The typical "theoretical" NPD development cycle is as follows:

  1. Idea Generation
  2. Idea Screening 
  3. Business Analysis
  4. Development
  5. Test Marketing
  6. Commercialization

One of the most interesting statements came during the opening introduction to the course with the statement:

More than 95% of new product development projects fail to earn an economic return!

This same professor had defined me as a "serial entrepreneur" and a 95% failure rate is not something that a serial entreprneur would ever be willing to accept.  Yet that is what corporate america is routinely experiencing in their new product development cycel – 95% of their new products FAIL TO EARN AN ECONOMIC RETURN!

So I thought I would take a few moments to analyze the first few steps of "traditional" NPD process.

Idea Generation:  The course spent a significant time discussing methodologies of new idea generation.  For many, this step is challenging.  I would suggest that it shouldn’t be – if you find it challenging, then you have the wrong people on the team.  One of my favorite quotes is:

There is no shortage of good ideas, only a shortage of good men capable of executing on them.

Idea Screening:  This is an important stage.  It is human nature to favor ideas that conform to our existing biases about who we are and what we do.  Some of the greatest product innovations have occurred  when businesses have been willing to consider ideas that take them in an entirely new direction  Yet *most* people naturally do not want to consider ideas that are outside the traditional scope of their business or experience.

Business Analysis:  Finally we arrive at the business analysis stage.  The traditional "business analysis" uses both quantitative and qualitative methodologies to evaluate strategic, financial and customers.  However the "customer" analysis typically focuses on wants and needs while leaving out on of the most critical issues.

Are they willing to buy what you want to offer – and at what price?

The traditional NPD process leaves this question to the fifth step – Test Marketing – after they have incurred significant development costs!

This is the single most significant causes of failure for most new product development processes or new businesses.  It is absolutely critical that a "proof of concept" be demonstrated in the context of specifically identifying the potential size of a market, percentage of the market that is willing to buy, and the various price point that they are willing to purchase.  That assumes that they are willing to pay anything at all!

Many new product development projects fail to earn an economic return – not because the product idea was necessarily a bad idea.  In fact, many products are in great demand – everyone wants that solution or that product.  But the question of whether or what they are willing to pay was never asked.  Or more importantly – tested and proved.

In the Internet Marketing world (which is simply a distribution channel) – we have excellent tools to evaluate new product concepts.  We have tools that allow us to research search volume for keywords in the search engines.  All too often, the budding internet marketer follows the traditional new product development cycle:

  1. They generate ideas,
  2. They screen ideas,
  3. They develop their business analysis based on the estimated search volume of people searching for related terms.  
  4. They spend months (or sometimes years) developing a new product.
  5. They beging their test marketing (or take it immediately to the market)

And typically – 95% of them fail.

They fail to generate an economic return.

The internet marketer is often barraged by a variety of messages – if they had only followed this marketing strategy or used or bought this marketing tool or joined this membership site – they will be able to learn that magic bullet that would have allowed them to earn an economic return.

There are always tips and tweaks that could have allowed them to improve their marketing and distribution.  But in most cases, the "traditional" new product development process that they followed failed to simply give them the answer to the most important question.  Are people willing to buy what I want to offer?

Yet this most important question could have been answered in their early business analysis step.  Saving them months or years in the development process.

One of the most common failures is the attempt to build a business strategy around free organic traffic from the search engines.  The typical business strategy often says "why should I pay for traffic or marketing when I can optimize and build a website and get free traffic from the search engines?"  The marketer then builds a website and spends  six months to a year building traffic to the site, creating high quality content, building links, writing articles, and finally develops a product.  They have done "everything right"!

They launch their product – only to find that traffic "aka potential customers" don’t want to buy what they are offering or at a price that they were willing (or able) to sell it for …

The marketing guys recommend all sorts of tweaks to the ad copy – we are getting all of this traffic, so it must simply be a conversion problem right?

Often – the real answer lies in the demographics of the market that is associated with the keywords that are drawing your traffic.  That market demographic just is not willing to buy (often at any price other than free) what you are selling.

Did the marketer do anything wrong?  Not according to the traditional new product development process (NPD)!

But the problem could have been avoided  if the traditional 5th step of test marketing had been moved in front of the Business Analysis step or at least incorporated into that phase.

An excellent methodology to test the conversion rate of keyword demographics is to run a series of test marketing campaigns using PPC (Pay Per Click advertising).   

A simple test marketing campaign can be developed by creating a list of keywords that you *think* will convert and be relevant to your new product idea.  A PPC campaign can be run where you spend $50-$100 on each of these keywords to drive traffic to a simple sales page.  You do not actually have to "charge" anyone to test how many people would have been willing to have made the purchase.

If you can convert 1 in 200 prospects to a sale on a simple sales page, you now have a Proof of Concept that suggests that you should be able to convert at a higher level with a more sophisticated sales process and fully developed product.

You also now know what keywords convert and which ones do not – which can help you in how you develop your product and how you develop and optimize your website and sales process.

And if the project did not convert traffic into sales – you now know that you should move on to the next idea in your idea screening process.

Effective test marketing that includes testing the customer’s willingness to buy is a critical step that should be moved significantly forward in the new product development process.  By advancing this step, you may be able to avoid being part of the 95% of the new products that are developed that fail to earn an economic return.

 

 

 

Filed under: Uncategorized

Like this post? Subscribe to my RSS feed and get loads more!