Many innovative new products don’t succeed in the marketplace. One common reason: Companies don’t focus enough on understanding how customers evaluate products and make purchase decisions.
A lot of great new products fail — and companies often wonder why. Although the companies were careful to listen to their customers, the products still failed. This is not a rare occurrence. A recent study of almost 9,000 new products that achieved broad distribution at a national retailer revealed that just 40% of them were still sold three years later.1 (See “About the Research.”) Some of these products did not create value for customers and deserved to fail. However, many would have created value if customers had adopted them. But customers could not, or did not, recognize their value.
While most companies focus on customer needs, they do not think hard enough about how customers decide what to purchase. We now have ample insight into how customers evaluate new products. Yet companies generally focus primarily on creating value — without enough regard to whether customers will recognize this value.
To decide what to buy, customers need to know what products are available and how their features vary. Whether you are an airline choosing which aircraft to purchase, a college graduate choosing your first car, or a parent buying diapers for your infant, there are only two ways you can collect this information. You can search, or you can infer. The inference process uses the information you can search for to guess the information that you cannot easily search for. We will start by discussing the search process before turning to the inference process.
Customers’ Search Process
In July 2012, United Airlines Inc. announced a large commercial aircraft purchase, with an agreement to purchase 150 Boeing-737 aircraft for $14.7 billion. The deal took a year just to negotiate,2 and before that, the team from United engaged in extensive research trying to understand the capabilities of different aircraft and the costs of operating and servicing them. Imposing structure and discipline on this search process is one of the primary roles of a procurement department. The length and intensity of the search process is a function of its cost, the importance of the decision, and the customer’s expertise.
For a customer, the perceived benefit of searching for a better solution may not be the same as the actual benefit, particularly in markets with little recent innovation.