Market Research in Innovation & New Product Development

Structure of Lecture What role does market research have

in NPD? What are the limitations of market

research? How should the use of market

research in NPD be managed?

Market Research & its Influence on NPD

Market research can play a number of key roles, including:

Identify new markets & products Predicting success patterns & obtaining

customer reviews Identifying barriers to success Improvements to existing products Developing new features Reducing risk for the organisation

Helps companies to improve products year-on-year

1974

1984

1991

1997

2003

10 yrs 7 yrs 6 yrs 5 yrs

Uncovering customers needs and wants.

So….. How important is market research to NPD?

“Running a company on market research is like driving looking in the rear view mirror”

(Anita Roddick, Former C.E.O Body Shop)

Why?

Customer Needs“If the major role of market research is to

uncover needs (to develop & improve products), how effective is it at doing so?”

Three types of customer needs: Basic Needs Articulated Needs Exciting Needs(King, 1985)

What is the nature of this problem? Clayton Christensen (1997) investigated why well run

companies later failed e.g. Digital, IBM, Apple and Xerox.

“good management” was the most powerful reason they failed to remain market leaders (fail to continue to

do what made them successful!).

maybe the devotion to focus groups and market research has gone too far?

Research often viewed as a decision making ‘insurance policy’

Two aspects to this issue……

1st Aspect Example: Hard Disk Drives

Competition: 14 inch drives- 200MB storage:

large companies therefore focused on customer needs - developing & improving

8 inch drives- 20MB storage: storage too low, but smaller size made suitable for niche

markets …but improved! Therefore appealing to mainstream

market! 5.25 inch drives… 3.5 inch drives… 2.5 inch drives?...

In each case the companies dominating the mainstream market failed as they focused on meeting their customers needs!!

Christensen & Bower (1996)

No single company able to dominate the market for more than a couple of years, why?

First aspect of the Issue: Market Research Won’t Uncover Opportunities For Discontinuous (Radical) New Products

Morone’s (1993) study of successful US product innovations revealed that discontinuous product innovations (e.g. Fax, Photocopier, TV) are necessary (for continued long-term success)… but research won’t uncover these!

In technology-intensive industries success is achieved through the creation of entirely new products and businesses

Incremental improvements are necessary for maintaining leadership.

unserved

Needs

Unexploitedopportunities

served

unarticulated

articulated

Customer types Source: Hamel & Prahalad (1994)Only this groupis served

Beyond Customer Lead

2nd Aspect Example: Don’t listen to your customers…. Who want’s my new

product?..... The mobile phone?!

Issues: Too big & heavy to carry! Makes me look silly! Network coverage? How many people will have one

(Network of users)? Will it give me brain cancer?!

Limited market opportunity?.....

Mobile Phone

Wouldn’t the results of the market research have been misleading?

Could anyone have predicted the success of mobile phones?

2nd Aspect: Market research may

lead to the rejection of good ideas

Market research results frequently produce negative reactions to discontinuous new products

For example: the fax machine, the VCR and Dyson’s ‘bagless’ vacuum cleaner

Yet companies continue to seek the views of consumers on their new product ideas the debate is long-standing and controversial

So.. To what extent is market research justified and should companies sometimes ignore their customers?

Faster than QWERTY (up to 40%)!

Why do customers often reject innovative new products? Example: The Dvorak Keyboard

Main reasons for rejection1. Lack of imagination & foresight

2. Installed base effect: the massive inertial effect of an existing technology or

product that tends to preclude or severely slow the adoption of a superseding technology or product.

Example: Qwerty- familiar, available, adjustment, software adjustments etc.

radical product innovations frequently have to overcome the currently installed technology base- usually through displacement.

3. Switching costs: The one-time cost to the buyer who switches to the new

offering (Porter, 1985).

Market Research New Product Development Dilemma: What can firms do?

It seems the dilemma facing companies is two fold: 

1. At the policy level: to what extent should companies pursue a strategy of providing more room for creativity and less for market research?

2. At the operational level: to what extent should Product and Brand Managers make decisions based upon market research findings?

To what extent should companies pursue a strategy of providing more room for creativity and less for market research?Policy Considerations

Issues: conservative product development

decision-making To what extent should NPD be driven by research, & aiming to

avoid mistakes?

‘short-termism’ Focus: incremental improvements & cost cutting

damage to a firm’s creativity complimentary market and R&D

capabilities are therefore essential

To what extent should Product and Brand Managers make decisions based upon market research findings?Operational Considerations

arguably the need for innovation and creativity in market research is no less than in any other area of management.

market research is still necessary to bring forth insights and viewpoints from respondents.

the difficulties lie in the selection and implementation of research methods (e.g. use of lickety stick, probe and learn, or lead user analysis- read up on)

in technology vacant consumer markets, the technology agenda is completely dominated by market research findings.

more free-thinking and creativity needs to be afforded to the R&D department? (in all markets!?)

The benefits of the marketing approach have been widely articulated and are commonly understood (Kotler, 1998).

But, as far back as the early 1970s Tauber (1974) argued that such approaches discourage the development of major innovations.

‘customers can be extremely unimaginative . . . trying to get people to change the way they do things is the biggest obstacle facing many companies’.

Therefore market research as one source of ideas & the only method of evaluation is flawed!

Summary: The use of Market Research inNew Product Development

Quotes“Our plan is to lead the public with new products rather than ask them what kind of products they want. The public do not know

what is possible, but we do”(Akio Morita)

“Customers are notoriously lacking in their foresight. Ten to fifteen years ago, how

many of us were asking for cellular phones, fax machines and copiers at home, 24 hour brokerage accounts, multi-valve automotive

engines…”(Hamel & Pralahad, 1994)

“Customers can be extremely unimaginative”(Martin, 1995)

Additional slides

Don’t listen to your customers….

Picture the would be market researcher 90 years ago attempting to gauge market reaction to a proposed new product . . . the motor car

Respondents to any questionnaire may have wondered: would it frighten horses? would it make too much noise? would it go too fast? would it break-down?

Surely market researchers would have arrived at the answer: ‘drop this one it has no future’!

a new entrant into the vacuum cleaner market- but soon became market leader!

Dyson

  

The use of Market Research inNew Product Development

The issue of market research in the development of new products is controversial

“Consumer research can tell you what people did and thought at one point in time: it can’t tell you directly what they might do in a new set of circumstances” (King, 1995)

The tri-partite product concept

The product/service:

This will include technical attributes

and physical features

The buyer:

This maybe the end-user customer, but may

also be a channel member

The supplier:

This may be a retailer,but may also be aservice provider

The true product concept

is built around these three main perspectives

Methods of Testing DiscontinuousNew Products

Lead user analysis E.g. medical equipment- leading research

hospitals

Probe & learn Interacting with customers- probing,

experimenting & improvising

Lickety-stick Developing prototypes from dozens of research

ideas, settling on a prototype that customers like