New products are a high-risk game; failures widely outnumber successes. Of course, failure can be a rich instructional tool, provided that we learn from our mistakes. American business, however, continues to make the same mistakes over and over as it brings new products to market. Ninety percent of new products in America fail.
Each year, an estimated $20 billion to $30 billion is lost on failed food products alone. Look no further than would-be breakfast beverage Gatorade A.M., launched earlier this year. If Pepsi opened up the filing cabinets of history, it would have seen that it had already tried and failed with Pepsi A.M. in the late 1980s.
Coffee is our morning drink, reinforced by Starbucks, Dunkin Donuts, McDonald's and the corner diner. This is a culture war neither brand could win. Those who forget their history are condemned to repeat their mistakes.
The eight basic mistakes listed here are real. Our rules for CMOs, meanwhile, are varied. Some are easy to implement. Others are tougher. As the old Iowa farmer said, "Talk is cheap, but it takes money to buy whiskey." Innovation is the engine of growth. The engine needs a tuneup.
WHAT GOES WRONG
EIGHT RECURRING ERRORS IN NEW-PRODUCT FAILURES
1. Marketing misjudgement
Procter & Gamble stumbled going up the Citrus Hill in 1983. Smart marketing managers mistakenly thought they had identified a key dynamic: Citrus Hill was a better-tasting orange juice. Taste buds didn't count. They got beaten on the battlefield of trade promotions. Two cartons for $5 was what orange-juice lovers really wanted. P&G pulled the plug on Citrus Hill in 1992.
2. Positioning poison
This can be defined as much ado about nothing with insignificant product positioning -- think dry beer from Anheuser-Busch or Bayer Women's, a combination aspirin and calcium tablet. Both are solutions to problems America does not have. This also can be positioning that confuses the consumer, or when the positioning benefit and the product are not in sync.
3. Dead-on-arrival product
Think of the Pontiac Aztek, possibly the ugliest car ever; Vioxx, a pain reliever with the potential to cause heart attacks and strokes; blue and chocolate french fries, introduced by the Oreida unit of Heinz; and the X-Type, a cheap Jaguar that looks like a Taurus. Enough said.
4. Competitive delusion
Be careful not to underestimate the competitive response. Beware of testosterone brands that are cash cows or sentimental businesses. Quaker Oats, for example, annihilated upstart Total Instant Oatmeal. It was a predictable response from a company that is oatmeal personified and an authentic brand icon in American culture. General Mills blithely ignored that.
5. Defective marketing research
Most failures are heavily researched, but the marketplace votes thumbs down. Much of the activity is justification research. Innovation teams go to research departments and say, "We need to do such and such research to reinforce what we are doing." The researchers morph into obedient wimps.
6. Fatality in frugality
This is when new products must be marketed with play-and-pay budgets. The cheapskate strategy does not work. Two common examples: skipping research steps to economize and introducing a product with an anemic media budget.
7. Calendar innovation
In the rush to be first, companies can misjudge the market. That's how Motorola blew $6 billion on the failed Iridium phone. There were problems with the product, service and support, but the launch date was sacrosanct. It never sold more than 10% of what it needed to break even.
8. Marketing dishonesty
Pontiac Aztek research was heavily edited and modified to please General Motors management. The bad taste of Crystal Pepsi was ignored. Two forecasts for Campbell's Souper Combo surfaced -- one predicted failure, and the marketing department disregarded it. Nobody told Apple's CEO that the Newton had more than 1,000 documented bugs at its launch.
WHAT MUST BE DONE
EIGHT GUIDELINES TO HELP CMOS IMPROVE THEIR INNOVATION BATTING AVERAGES
1. Stamp out marketing amnesia
Establish a knowledge base of past innovation on a category basis, including both successes and failures. The data and information should be developed and updated by outside sources with no ax to grind.
2. Leverage value-added marketing
Hire a research director who knows how to develop and steward a value-added research department that has management's respect. Such a person will not be easy to find. In marketing research's embryonic days, pioneers such as Alfred Polite and Ernest Ditcher presented their research findings to boards of directors. Today's market research is often never seen by the board.
3. Challenge assumptions
Every new-product failure had a rosy sales forecast. Marketing people can, and do, either consciously or unconsciously cook the books with deceptive numbers to make bad new products look good. CMOs must focus on the assumptions behind the numbers and challenge them. Nothing should be taken at face value. Form an alliance with the chief financial officer in this effort.
4. Reinforce the unvarnished truth
Before a CMO reviews a new-product plan, key players -- manufacturing, marketing, finance and marketing research -- must review the plan and verify that the assumptions are correct, balanced and not distorted. Differences must be resolved before the plan moves forward. This mitigates the "creative number crunching" that comes with optimistic assumptions.
5. Press the kill button
Frederick the Great said, "The mark of a great general is to know when to retreat and how." CMOs must have the courage to kill carefully nourished new products when evidence warrants it. Innovation teams may try to beat the system, because their love is blind. But should we move forward with America's next great new product, Kool-Aid pickles?
6. Assign accountability
Robert Lutz, GM's styling and design czar, observed that the company had trouble figuring out who was responsible for the ugly Aztek. Accountability is elusive in the innovation game because marketing people are moved around the chessboard too frequently. The new product's champion should follow it out the door at launch, assuming ongoing responsibility for a specified period.
7. Realize that one size does not fit all
Corporations assume that any M.B.A. from a top-tier school qualifies for a brief tenure in new products. Nothing could be further from the truth. In the rotation process, too many square-peg brand managers are forced into round holes. CMOs should put only their most creative people in complex new-product positions.
8. Attend ethics boot camp
The innovation team should attend ethics boot camp early in the development process. This should include everybody, even the ad agencies. Manipulating the forecast for a new product is unethical. It cheats the shareholders even more than it cheats the public.