KEY CONCEPT

Many excellent new products fail because companies fail to understand how customers make their purchasing decisions. Specifically, customers decide what they want to buy based on one of two things: their search for new information or the inferences they make based on the information they have. Great new products fail when through their searches or inferences, customers fail to recognize their value.

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IDEA SUMMARY

Customers make a decision about which product to buy in two ways. The first method is to search for information about the product. For example, a customer might read online reviews of restaurants or hotels.

The second method is to infer information they don’t have from information they do have. Litter in a parking lot of a restaurant can discourage travellers passing through town, while a parking lot filled with cars can encourage those same travellers. In the first case, travellers infer that a restaurant that takes poor care of its facilities probably also takes poor care of its food. In the second case, they infer that if the restaurant is popular with locals, it is probably a good restaurant.

The benefit of a search must be worth its cost (in money, time and effort). A new car buyer might check the safety and reliability reputation of different car manufacturers online before deciding which auto dealership to visit. (In contrast, shoe buyers, only interested in appearance and fit, will forego any pre-shopping research.) For many products, the Internet has significantly reduced the cost of product searching.

Prior expertise also plays a role in new product searches. Someone with deep knowledge of computers will be better able to understand detailed product reviews or online specifications about a new computer than a layperson who just wants reliability and Internet bandwidth.

Unlike a product information search, the inference process is often a subconscious reaction rather than a deliberate effort. For example, hungry travellers do not consciously note the litter in the parking lot and decided that the litter reflected the quality of the food; instead, they just don’t have a ‘good feeling’ about the restaurant and decide to continue searching.

The inference process is also related to branding. A traveller with little information about local hotels will prefer to stop at a chain hotel: the brand of the chain allows the traveller to draw inferences about the quality of that particular hotel.

Understanding the search and inference processes can explain why great products fail. Great products fail because customers fail to recognize their value — which means that customers either fail to search for the information that would have revealed the value of the new product or fail to infer its value.

It’s not enough to develop great products. Companies must take steps to ensure that customers recognize the value of the new product through their searches or the inferences they draw about the product.

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BUSINESS APPLICATION

To ensure that customers recognize the value of their new products, companies should ask three questions:

1. Are customers motivated to search for information about the new product? Will customers take the time and effort to discover an innovative new product? A British shower company developed a new system that resolved the low water pressure issue common in the UK. The product failed; customers used to the low water pressure assumed that there was no alternative — and didn’t search for one. If there has been no innovation in your industry in 20 years, your innovative new product won’t be discovered through customer searches; you will have to bring the innovation to their attention in some other way. The length of the decision process for your product will also make a difference in search motivation. New car buyers are willing to spend 20 hours looking through information on cars; they won’t spend the same time on shoes or detergent or printer paper. Are your customers motivated to spend the time and effort that will reveal your innovative new product.
2. Are customers able to search effectively? As noted above, the Internet has made it easier for certain products. Customers without expertise can also search through expert advisers, such as real estate agents, financial advisers, IT consultants, or workplace-benefit consultants. Are the potential customers of your innovative product able to search effectively for that product.
3. If customers cannot search, what cues will they use to infer the absent information? McDonald’s recognizes the inference that potential customers can draw from the state of their parking lots and thus ensures that those parking lots are always clean. Are you helping your customers infer the value of your new products? Do you know what cues they are using?

Customers who are motivated to search for information and have the expertise to interpret that information are more likely to recognize the value of a great new product. If they are not motivated or do not have the expertise, they will use inference to make their decisions. In sum, companies have to develop innovations that customers can easily recognize — or find ways to draw their attention to innovations that they will not uncover on their own.  

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REFERENCES

Why Great New Products Fail. Duncan Simester. MIT Sloan Management Review (Spring 2016). 

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