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.
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.
To ensure that customers recognize the value of their new products, companies should ask three questions:
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.
Ideas for Leaders is a free-to-access site. If you enjoy our content and find it valuable, please consider subscribing to our Developing Leaders Quarterly publication, this presents academic, business and consultant perspectives on leadership issues in a beautifully produced, small volume delivered to your desk four times a year.
For the less than the price of a coffee a week you can read over 650 summaries of research that cost universities over $1 billion to produce.
Use our Ideas to:
Speak to us on how else you can leverage this content to benefit your organization. email@example.com