Better Products

Despite technological advances, today's techniques for obtaining customers' reactions to new-product concepts are costly, time-consuming and not well integrated into the product-development process. Current Web-based methods of conducting customer research offer companies hope but have limitations. From a product-development perspective, notes Alex Cooper, president of the Management Roundtable in Waltham, Massachusetts, “The challenge is on the back end.” What matters most is how the rest of the organization responds and uses the information.

The Virtual Customer Initiative (VCI), a research program under way at MIT's Center for Innovation in Product Development, is working on prototypes of new-product-development tools and methods. The tools could help product-development teams obtain customer evaluations of new-product concepts, prototypes and preproduction models more quickly, accurately and inexpensively. By taking advantage of new computational algorithms, multimedia visualization tools and the interactivity of the Web, companies can apply the tools throughout the product-development process — exploring and identifying new market opportunities, improving the design phase, soliciting input during product testing, and gathering reactions from customers after a purchase.

“It's a quantum change. Normally, when you do a voice-of-the-customer or a conjoint-analysis project, it would take six weeks or more and cost from $20,000 to $200,000, depending on the complexity of the project,” says John Hauser, a professor of marketing at the MIT Sloan School of Management. “With the VCI, we will be able to do the same project more effectively at a fraction of the cost and time.” For example, a camera manufacturer could create in a few hours a Web site that would do consumer testing of more than 20 different design features, such as picture quality, ease of picture taking (one-step or two-step), picture removal, light selection, picture size and type, camera size, battery type and styling. The engineering team would need to focus only on those features that the consumer strongly desires. Indeed, one of the first commercial tests of VCI methods was in the design of a camera launched last December.

In a research paper titled “The Virtual Customer: Communication, Conceptualization and Computation,” Hauser and co-author Ely Dahan, assistant professor of management science at the Sloan School, review six interactive, Web-based methods of gathering customer input. The methods were developed by VCI faculty and students, including Dahan, Hauser, Dražen Prelec and Duncan Simester. The paper describes promising pilot tests of all six methods and suggests a more than 90% correlation between Web-based conjoint-analysis measures and consumers' preferences for a camera's features. The six methods for gathering customer input are:

1. Web-Based Conjoint Analysis. Conjoint analysis is the most widely used method to understand customer tradeoffs. The VCI has moved the method to the Web, with applications for automobiles and a new kind of laptop-computer bag.
2. Fast Polyhedral-Adaptive-Conjoint Estimation. By exploiting new computational algorithms to select questions rapidly, a tool called FastPace gathers considerable information on preferences using far fewer questions than existing methods. This is extremely important for hurried Web-based respondents.
3. User Design. The customer can design a product using a drag-and-drop application. Costs and engineering constraints are computed automatically — the prices and the entire virtual product change as the customer makes choices.
4. Virtual Concept Testing. Rather than waiting for physical prototypes, product-development teams can test virtual prototypes with customers in a media-rich presentation.

5. Securities Trading of Concepts. Product concepts are represented by “securities,” which respondents buy and sell in a stock-market–like environment. Research suggests that the security price is a good predictor of how the market will accept the product.
6. Information Pump. A Web-based interactive game, with fine-tuned incentives for truth telling, elicits information from customers about their needs and shows how they describe those needs.

“You want to be able to design products that will sell and be profitable. That's what these techniques enable you to do,” Hauser says. He predicts the move to adopt the techniques will be led by the large, consumer packaged-goods companies, but he says the methods can be used by any type of company.

Hauser warns, however, that companies should not expect to see an immediate dramatic reduction in market-research costs. Although the situation should change soon, he says, customized programming is still required. The more important, long-term cost remains recruiting and maintaining panels of customers who agree to complete Web-based surveys quickly. “VCI methods are going to diffuse when all the companies that run Web-based panels start adopting these methodologies. When these companies make the investments, the cost of the methodologies will come down.”

For more information on VCI techniques, including the text of the “Virtual Customer” paper, see http://mitsloan.mit.edu/vc.