Last week I wrote about my 7-step CatSight™ Process for Insight Development. The first step is to identify the Category in which you are competing. I got so many comments about this step that I decided to dedicate a whole post to this important topic.
Whenever you want to develop insight, the first task is to decide on the category you want to study. This may seem obvious to you, but in many cases, it isn’t as clear as you might think.
For instance, suppose you are looking to launch a new juice flavoured soft drink. You may think that you are competing with other juices or perhaps other soft drinks.
In working with one client in just such a situation, we actually found that their main competitor was an energy drink!
The reason was that these are seen as being for lively, energetic, fun-loving people who needed a boost. Whether this comes from the caffeine of an energy drink, or from the added vitamins and minerals which was my client’s offer, didn’t seem to matter.
If we’d only looked at other fruit flavoured soft drinks we would have missed a whole – and large – section of category consumers.
By starting our comparison in all beverages and then slowly zooming in as we learnt more, we were quickly able to discover this perhaps surprising positioning for the new drink.
This shows the power of taking the consumers’ perspective, especially when segmenting a market. But more about that in a moment.
The above example is a great start. But many readers have since asked me to help them with their own category definition, so here are the suggested steps to doing it for yourself:
Step 1. What is the category definition you are currently using?
In any process we need to start by identifying where we are today. In this case, it should be the category you think you are competing in. Depending on whether you are offering a product or service, you might define it as:
– All hot beverage consumers ….. or ….. users of an insurance service.
– Consumers of coffee ….. or ….. people who have bought insurance for natural disasters.
– All consumers of instant coffee powder ….. or ….. house owners in Florida who have bought insurance for natural disasters.
– Consumers of instant coffee powder costing less than US$ 2.50 per 100 gms ….. or ….. owners of houses over US$2 million in Florida who have bought insurance for natural disasters.
As you can see from these few examples, the bottom definitions are far more precise and focused than the top ones.
The one you use, will depend upon whether you are looking to grow your brand through your marketing activities or looking to develop a new product or service offer. I call this zooming in and zooming out. In general understanding the category by zooming in is best for growth, zooming out for innovation.
Now take a look at your own current category definition. I bet it’s too broad for general use isn’t it? This is the mistake that most businesses make, big and small. They want to attract all consumers or users of a category, but as is often quoted:
“If you try to please everyone, you end up pleasing no-one”
The more precise you are in the group of customers you are trying to attract, the more focused will be your actions and communications. In addition, they will also resonate more strongly with your target audience.
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Once you have identified the precise category in which you are playing, you need to consider what is currently happening to it. Is it growing or declining? Why?
Understanding how the category is changing and more importantly why, will help you to understand it better. For instance:
- Is the category growing? If so is it the leading brands which are increasing, or are there new brands that were recently launched which are making the difference? Identfying which brands are growing and the reasons for this growth will enable you to take corrective action.
- Is the category stable? Are category shares stable, or are some brands gaining and others losing? Again, why? What do the brands which are gaining have in common? What are the losing brands lacking? Are the changes making a difference to the category definition?
- Is the category declining? Are all major brands in the category losing or are some gaining at the expense of others, but not maintaining overall category size? If so, What are the declining brands lacking? Where are customers who are leaving the category going to? Is there a new category which is better meeting their needs?
Your answers to these questions, will help you to understand whether the category in which you are currently competing is going to remain as attractive as it is today.
Step 3. How will this category change in the future?
In addition to current category trends, you also need to assess what is likely to happen in the marketplace in the coming years and how this may impact it.
Things are changing nd changing fast these days. There is no more "business as usual." Expecting the unexpected has become the norm, which is why I am such a big fan of scenario planning.
Industries are being disrupted. A study from the John M. Olin School of Business (Washington University) estimates that 40% of today's Fortune 500 companies on the S&P 500 will no longer exist in 10 years time!
Understanding who and what will impact your category, is the first step to preparing for the changes which could come. Preparing for likely future opportunities and risks is the second step, and the reason scenario planning is so vital to ongoing busines success.
Step 4. Which of the category users are you attracting?
This question surprises some people. They expect that once they have identified the category in which they are competing that they can just start trying to attract everyone in it. However "You can't please all the people all of the time" as the infamous quote from John Lydgate mentions.
You therefore need to identify which of the category users would be most interested in what you have to offer. The best way is by running a segmentation study and then plotting the groups on the Boston Matrix I mentioned in last week's post. Or you can read "How to Sell Less to More People: The Essentials of Segmentation." for a more detailed explanation on how to divide all category users into relevant sub-groups.
Understanding which sub-group of all the category users you are most likely to appeal to with your offer, is one further step in focusing on the very best target audience for your brand.
Step 5. How are your customers changing?
After identifying which category users are the most attracted to your offer, you also need to consider how this sub-group is changing. Is it increasing or decreasing in size, and how and why is it changing.
As with category changes mentioned above, it is important that you target a viable group. This can either be a growing segment or you should have plans to attract those who switch out with a separate offer.
There are many reasons why a segment may decline:
The introduction of a new category segment that is taking customers away from yours.
Natural decline because of aging.
Behavioural changes that make the category less relevant than in the past.
Having identified how your customers are changing today, you then need to consider societal trends and their impact on your customers. That is the ultimate test to choosing the right group of category users to target.
Going through these five steps will give you the very best understanding of the categroy in which you are competing, as well as the customers who make up the sub-segment you target.
Have you successfully mastered every suggested step? What have you forgotten?
Is there something I myself have forgotten or that you would add? If so, then please share your ideas in the comments below. Thanks
Despite all the great ideas and tips it includes, I believe there is still more I can share. That’s why I am adding to last week’s post on marketing in general, with a post specifically about improving your innovation. In particular, I wanted to help those of you who may be unable to complete all the “best-practice” actions I recommend, through a lack of resources, be it time, money or people.
Not every organisation has access to large market research or marketing departments and extensive budgets. In fact, in many companies these roles are being handled by one and the same person with very few resources; is that your case? If so then you will definitely find this post of interest. But even if you’re one of the luckier ones with a good size team and plentiful budget, I’m sure you will still find value from the ideas shared.
Let’s start by taking a look at some of the reasons why new products fail. And then we’ll identify some creative ways to completely eliminate them from your next launch. Sounds good? Then read on.
Why your innovations fail
Did you know that the proportion of product launches which fail every year is generally “guesstimated” to be somewhere between 74% and 95%?
Why CEOs accept such abysmal levels and accept their organisations’ continued use of the same old innovation process is beyond me!
In this article in HBR, Saul Kaplan, author of “The Business Model Innovation Factory” shared five important reasons that explain why companies fail at business model innovation:
CEOs don’t really want a new business model.
Product is king. Nothing else matters.
Cannibalization is off the table.
ROI hurdles are too aggressive for fledgeling models.
Rogues and renegades get no respect.
I find these five reasons spot-on. They are all based on fear of getting outside the organisation’s comfort zone. If you can identify yourself with even one of these, it might explain why your innovations are not as successful as you would like them to be.
Successful innovation involves change, and human beings don’t like being out of their comfort zone. It may involve challenging accepted ideas and ways of working too. No wonder so many innovations fail.
And with such odds, I think it is incredibly courageous to start a whole company based around just one new product idea, but that seems to be the norm for startups in many areas today.
Taking the organisational reasons mentioned above, I’d like to detail ten more ideas I have found in my work with clients as to why innovations fail:
#1 The process itself: Innovation is by definition a creative process, but many organisations use a well-worn, restrictive and uncreative process to develop their new products. As David Gluckman says:
“Committees are the death of innovation.”
As mentioned earlier, we don’t like things that shake up our comfortable beliefs and actions. Committees are unlikely to come up with groundbreaking innovations, just because they’re a group. In such teams, you tend to go with the least disruptive idea that everyone can accept.
#2 Meeting company quotas: It is surprising that with such miserable success rates, so many companies – and which shockingly include many of the largest CPGs around – continue to fix quotas on the number of annual new product launches.
How crazy is that?! It just encourages too many new products to be launched too early, and almost guarantees their failure!
#3 Lack of customer understanding: This is most likely one of, if not the most important reason for new product launch failures. And I don’t mean that you should ask the customer what he wants; he doesn’t know until you make it available to him in many industries. Successful innovators know their target customers better than they know themselves!
#4 Lack of category understanding: This follows on from customer understanding, in that you need to identify how the customer is currently working around or compensating for their need today. Don’t assume you are competing in a certain category until you have identified what the customer is currently doing or using. That is the way to identify your true competitors.
#5 Not living up to your promises: If you promise a better, cheaper or more enjoyable experience, then customers deserve to be able to confirm this when they buy. Especially in today’s connected world, if you disappoint by not meeting customers’ expectations, your product will fail even more quickly than in the past. Early-adopters will Tweet or leave comments on Facebook, Blogs or other social media platforms for all to see.
#6 Not being sufficiently differentiated: Following on from living up to your promises, customers need a reason to change their behaviours. Depending upon the category this can be costly, whether in time, money or effort.
Many customers prefer to continue buying an inferior product or service than making the effort to change. Just think about industries such as Telecom, Banking, Hotels, Air travel or Insurance. These businesses are in a constant battle to differentiate themselves and provide a real advantage to attract new customers. Luckily for them, at least until recently, the effort of leaving was perceived as greater than the pain of staying.
#7 Being too different: Whilst not being sufficiently differentiated can be a certain cause of failure, being too new can also meet with no success. The reason for this is that if customers are totally unfamiliar with the new product or service offering, you will need to spend considerable resources to educate them. If you are unable or unwilling to invest the time and money in doing this, then you will undoubtedly fail. Attracting more than just a few customers who are willing to spend time understanding what you are offering takes resources.
If you are unable or unwilling to invest the time and money in doing this, then you will undoubtedly fail. Attracting more than just a few customers who are willing to spend time understanding what you are offering takes resources.
#8 Pricing yourself out of the market: I’m not just speaking about pricing your product too high; being too low can also negatively impact your likely success. Part of a customer’s perceived value of a new product, especially before buying, comes from the price and expected usefulness to them of the promise you make.
Part of a customer’s perceived value of a new product, especially before buying, comes from the price and expected usefulness to them of the promise you make.
#9 Inappropriate distribution: This can be the consequence of an incomplete understanding of your customer and is also linked to differentiation. Whilst you can just follow near competitors into their own distribution channels, why ignore the possibility of being available exactly where and when your customers might just be ready to buy it the most?
#10 Being too far ahead of the customer: There are many examples of great products that were ahead of their time. Gillette brought out 2–in–1 shampoos with conditioner and shampoo combined in the early 70’s. They were a dramatic flop! Ten years later most personal care manufacturers offered these products, and were met with huge success.
Following trends is a great way to understand how your customers are changing, but you need to also understand their speed of change to get your timing right.
It took Nespresso almost twenty years to become profitable for Nestle and Philip Morris has needed similar levels of patience in certain markets, before their most infamous of brands, namely Marlboro, took off.
How to innovate successfully
The ten reasons for innovation failure which I have mentioned, each have a number of solutions which you can use. Here are some ideas to get you thinking:
#1 The process: Introduce some creativity into the process. Use a virtuous circle as shown on the right, rather than the usual linear or funnel approach.
All innovation processes should start with a deep understanding of the potential customer segment and then insight development.
#2 Meeting company quotas: Instead of company quotas on the number or proportion of new product launches, a better target is a percentage of sales. This should eliminate all but the very best ideas, which are expected to increasesales rather than merely replace current products.
I also believe that it would be much better to seriously limit the acceptance level of new product ideas proposed in any year. This would be a case for quality over quantity and only the very best would get through the approval process.
This would also mean that brand managers would have to be assessed on sales performance and growth, rather than on the number of new products they launch.
#3 Lack of customer understanding: Steve Jobs is often quoted as saying
“People don’t know what they want until you show it to them.”
The best way to innovate successfully is to start by looking at the target customer’s lifestyle and seeing how you can make it easier and more enjoyable for them. If you already have a new product idea, then consider how it would make the customer’s life better. If it doesn’t, then you perhaps need to reassess its market appeal as it’s probably just a renovation.
Watching and listening to your customers with an open mind, rather than with your hypotheses in your head, will also enable you to identify pain points. The customer may even be unaware that they are compensating for something that they would change. What an incredibly valuable opportunity to offer a solution to them.
#4 Lack of category understanding: Never assume you are competing in a certain category until you have identified how your customers are choosing and what they are currently using. That is the way to identify your true competition.
#5 Not living up to your promises: In today’s connected world, false or exaggerated promises are quickly identified and shared on social media. However, speaking about possible pain points you have identified and sharing your solution, will avoid your having to make any such misleading claims.
#6 Not being sufficiently differentiated: With such an abundance of information available to everyone, comparisons are easy to make. In fact, there are many websites which make a good living out of doing just that and then sharing their results.
Categories with little differentiation rapidly see that competing becomes largely price based. As a result, the products quickly become mere commodities. Better therefore to understand the category in which you are competing and its customers, so you can offer a point of differentiation. Solution based offers will always be able to charge more than product based ones. It’s up to you to decide which you want to do.
Solution based offers will always be able to charge more than product based ones. It’s up to you to decide which you want to be.
#7 Being too different: There are many startups today which offer only a few products or services. The successful ones have identified one or more pain points which the “big guys” have not, and take full advantage of them. In this case, their being different is a plus, because they offer the customer a solution.
However, for most brands, their problem is not being different enough, as mentioned above. It takes more than a new colour, aroma or packaging to be perceived as positively better than others. Identifying a sub-category of users with a precise need and then meeting that need better than anyone else is the more successful way to differentiate.
#8 Pricing yourself out of the market: Understand how much potential customersvalue your offer is essential to the success of any product. Getting it wrong can result in lost revenue or worse a promotional spiral leading to brand hell or commoditization. (read more about this in “Are you on the way to brand heaven or hell“)
#9 Inappropriate distribution: Appropriate distribution means being available where and when your customer is ready to buy. It also means reducing the effort needed for them to change their habits and buy your new offer. Trial will only come if you make it easy for customers to purchase.
This doesn’t mean being in stock everywhere at the lowest price. But it does mean being in the retail outlets that your target customers visit more often. Forget the exaggerated 100% distribution claims you used to get your new product line approaved; be selective in where you distribute, to attract your target customers first. The other customers will be your second priority as you get wider availability.
#10 Being too far ahead of the customer: If you can’t afford to wait for your customers to catch up with your new product or service idea, then you should certainly reconsider your launch decision. Keep the concept in your “back drawer” and follow the societal changes of your customers, so you will be ready when they are.
Most organisations are working on multiple new concepts at the same time, each at a different level of preparedness. Trend following will allow you to identify when the customer is ready for each offer. This will avoid too early, as well as tardy launches.
Identifying relevant trends to follow will also enable you to plan a multi-national roll-out in a more solid foundation than mere geography.
These are ten of the most common reasons for new product launch failure and a few ideas on how to resolve each of them. Which do you think is most prevalent in your business?
What are you going to change to increase the success of your future new product launches? Is it some other reason altogether, that I’ve missed? Let me know and share your thoughts below.
I will be sharing more tips on innovation excellence in future blog posts, but in the meantime feel free to send me any questions you still have. I’m always ready to have a short Skype or phone call to assist you with your own brand building challenges.
If you enjoyed reading this article, please recommend and share it, to help others find it! Thanks.
C3Centricity used images from Wiley, C3Centricity online and “Winning Customer Centricity” in this post; it has been updated from the original first published in 2014.
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Whether you believe that 60% of new product launches fail, or the number is 80% or 95%+, the truth is that successful innovation is rare. Why is this? Read on for my own ideas of the reasons and propositions for some simple solutions.
This time, I want to examine the role of the customer in successful innovation. And why they should actually have a prominent position throughout the process.
Start with the Category rather than (just) the Customer
Every customer-centric organisation should start their processes with a review of the customers they are looking to please. But to do this, the first step to both insight development and successful innovation is to identify the category in which you are, or want to compete. Especially when looking to innovate, it is vital to identify what business you are in.
Now you probably can immediately answer that question but would you be right?
A recent client of mine was looking to launch a juice flavoured soft drink. They naturally (?) thought they would be in competition to juices. When we dug deeper, using our “Home or Away™” decision tool, we found they were actually competing with energy drinks for athletes!
Another practice I use is to zoom in or out when looking at a category, in order to identify new opportunities. Today’s technological world is forcing many organisations to take another look at their complete business models – whether they like it or not!
Telecoms have become geolocalization data providers to other industries.
Pharmaceuticals are being forced (?) to move from treating illness to maintaining wellness.
Food companies are moving into nutraceuticals, concentrating the health benefits of certain foods. (have they really only recently understood that our health comes primarily from the food we eat?!)
Tobacco companies are reinventing personal pleasure systems with e-cigarettes and other tobacco replacement products. In fact, André Calantzopoulos, Philip Morris International’s CEO recently predicted a “phase-out period” for cigarettes.
Alcohol providers are turning more and more to lower and non-alcoholic drinks trying to keep up with the interest in wellness. They have understood that whereas drinking is a social behaviour, most people no longer include getting drunk with that sociability.
From these examples, it is clear that most companies could benefit from a re-evaluation of their assumed category, to see whether it has or will change in the near or longer-term future.
Once the category is defined, it becomes much easier to identify the correct customer segment to target. Of course, you still need to get to know them through customer connection sessions. And then complete both a customer persona and journey map for them. (You do have these don’t you?)
For more ideas about developing a customer-first strategy so as to be better prepared to develop successful innovations, join the FREE Customer Centricity Champions Webinar? It shares many tips, tools and templates to catalyse your business and improve your customer understanding immediately.
Your business is or will change - fast - so don't depend on your skills alone
One of the problems I see when I first start working with a new client is that they start their innovation process from their strengths, their technical and product skills. While this may deliver quicker introductions, it is more likely to produce renovations and certainly not ground-breaking innovations.
This is such a standard "no-brainer" way of innovating that many companies find themselves out of business as a result.
Kodak thought it was in the photo business and not in the memory and souvenir business. They consequently lost out to digital, despite having the technology
Borders thought they were in the print book business rather than the storytelling business. As a result, they lost out to Kindle, despite a late reaction with the launch of Kobo. For now, Barnes & Nobles have managed to join the race with their Nook, but for how long? It will be interesting to see whether Amazon's quiet expansion of its physical bookstores will support or sound the death knell for other outlets.
Blockbuster video rental lost their dominance of the home entertainment industry to streaming options like RedBox and Netflix.
These are a few examples of businesses that have changed, leaving the category leaders high and dry with no-one to blame but themselves for their lack of scenario planning. (This won't happen to you, will it?)
And what about AI and VR and their impact on TV, gaming, music today?
Speaking of which, look at the graph on the right which shows the incredibly fast change from offline to online music. In less than ten years online passed offline and all but annihilated it!
This is how fast and well prepared all businesses need to be today.
Many industries have been cloned into totally new businesses as a result of technology and new customer priorities.
As already mentioned, Telecom companies now make more money selling geolocalization data than they do selling phones and lines.
So what about some other industries that are being impacted by changes in customer behaviour and preferences?
As just one example of this, Food companies must now adapt to delivering family time, not just ready-made meals. There has therefore been an explosion in meal kits because families want to eat better and even prepare together.
The future of the future
But enough about the past and present, how can you prepare for the future and have successful innovations? What new areas are some of the larger online companies buying into today and why?
Google has gone from Internet-related products and services to hardware such as Pixel smartphones and GoogleHome, an AmazonEcho-like device. It has also expanded into a multitude of other industries, through partnerships and investments. These include energy, AR (augmented reality), VR (virtual reality) and eye-tracking. It's clear that they intend to stay up-to-date if not ahead of fast-moving trends and be ready to take advantage of them. Read more on Wikipedia.
Perhaps in preparation, in the last year or so Google has reorganised its various interests into a conglomerate called Alphabet. Google remains the umbrella company for Alphabet's Internet interests, but this restructuring no doubt announces more to come.
Virgin has gone from airlines, media and entertainment, to travel, health and aerospace. You can read about all their industries and investments on Wikipedia.
Amazon has gone from an online bookstore to the general retail of a vast selection of products. Today it is testing bricks and mortar stores for both books and general groceries. You can again read more about this on Wikipedia.
Facebook started as a social media and networking service. One year ago, its CEO Mark Zuckerberg revealed his ten-year vision, centred around artificial intelligence, global connectivity, VR and AR. Read more on Wikipedia.
Tesla started in the automotive industry but has since moved into energy storage and residential solar panels. Today it is advancing into underground high-speed transport and space travel.
All these examples show the importance of being ready to adapt to fast changes impacting many industries at lightning speed. We no longer have the luxury of time to wait, watch and learn as we once did. Future scenario planning is the only way to be ready for all eventualities and to be able to quickly jump into any new opportunities before our competitors do.
Your next steps to future-proofing your innovation
Some of my clients understand that they are not as well-prepared as they need to be for successful innovation. In my training course I propose many different ideas; here are just a few of them:
#1. Working with new innovation levers
As already mentioned, most organisations start innovating from their past successes and current skills. While this is certainly quick, it is unlikely to lead to successful innovations. Why not challenge yourself to look at your business from a new perspective?
The diagram on the right is a simplified example of the innovation wheel that I use in brainstorming sessions with clients who are tired of thinking within their boxes.
A personally adapted and developed wheel is a powerful tool to get people to think differently about their brand, category or offer. The brand expansion it encourages has seen brands like:
Gerber and Purina move into insurance.
Nespresso move into china and chocolate.
Mars move into ice cream.
Vicks (P&G) move from various cold remedies into a sleep-aid.
What all these examples have in common is a deep understanding of both their customers and their own brand image.
When one or both of these are missing, you get epic failures like the examples below:
Coca-Cola Clothing: while it may work for sponsorships and promotions, clothing didn't work for them - this time around?
Zippo perfume for women: Zippos got it spectacularly wrong with this offer on many fronts. Smoking and especially Zippo lighters have very masculine images. Replacing the wonderfully exotic and luxury glass bottles of perfume by this was never going to work!
Colgate frozen food: The only thing that frozen entrees and toothpaste have in common is that after the first you need the second! From that to expecting consumers to make the jump from minty mouths to chicken was just too much!
#2. Zooming out for brands and categories
When you are successful in one category, it can be tempting to extend into others. However, this needs to be done after careful thought. Go too far from the parent brand, as the above examples did and you'll be doomed to failure. Stay too close and you'll not benefit from anything more than a mere renovation.
Companies which expand successfully are those that build on their strengths, whether image, position or technical know-how. One example I like to share of a successful innovation using this idea comes from Nespresso's owner Nestle.
They expanded from capsules for coffee (Nespresso) into capsules for both hot and cold drinks (Dolce Gusto).
Nestle then expanded their systems into BabyNes, a capsule system for bottle feeding.
I can imagine they will be looking to extend their system even further in the future. Perhaps they will consider adding minerals, vitamins and supplements to food and drinks, or targeting specific groups of consumers such as seniors or athletes. It will be interesting to see what comes next.
#3. Zooming into a category niche
It is possible to innovate by zooming in rather than out of the category in which you are in. There are again many examples of this since, in theory at least, it is simpler to do. You already know the category customers and can segment to appeal more strongly to certain groups of them.
Food manufacturers use this strategy a lot. They often extend into low calorie or low fat, and more recently into gluten-free, OMG-free or lactose-free offerings.
Online marketers depend a lot upon finding the right niche for their product or service offer. They have the advantage over bricks-and-mortar stores of collecting a wealth of personalised information. Together with machine learning, they can quickly develop algorithms to precisely target each person with relevant offers. Offline retail will never catch up, however long they collect data - unless they have an online sales strategy too, of course.
So there you have some ideas on how you can improve the frequency of launching successful innovations. Whether working with scenarios, innovation levers, zooming in or out, the one element every strategy has in common is customer understanding. You wouldn't expect anything less from me, would you? Going forward just remember:
It's important to know and understand your customers intimately today but also how they are likely to change tomorrow.
It's important to understand the category you really are competing in and what customers think about it.
It's important to understand your brand's image and ensure it's aligned with any future innovations you consider.
What new ways are you looking to successfully innovate in this fast-paced, constantly changing and challenging world? Please share your ideas and thoughts about the above ideas or add new ones below. Thanks.
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