Reducing the Risks of New Product Development

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New products suffer from notoriously high failure rates. Many new products fail, not because of technical shortcomings, but because they simply have no market. Not surprisingly, then, studies have found that timely and reliable knowledge about customer preferences and requirements is the single most important area of information necessary for product development. To obtain such data, many organizations have made heavy — but often unsuccessful — investments in traditional market research.

The authors provide an alternative. Companies including Threadless, Yamaha and Ryohin Keikaku have begun to integrate customers into the innovation process by soliciting new product concepts directly from them. These firms also ask for commitments from customers to purchase a new product before the companies commence final development and manufacturing. This process — called “collective customer commitment”— can help companies avoid costly product failures. In essence, collective customer commitment enables firms to serve a market segment efficiently without first having to identify that segment, and it helps convert expenditures in market research directly into sales.

Susumu Ogawa is a professor of marketing at the Graduate School of Business Administration at Kobe University in Kobe, Japan. Frank T. Piller is an associate professor at the TUM Business School, Technische Universität München, in Munich, Germany, and a visiting scholar at the MIT Sloan School of Management. They can be reached at ogawa@kobe-u.ac.jp and piller@mit.edu.

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