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Patterns of failure in new product
creation: lessons for strategy
Margaux JOUFFE
Tecnológico de Monterrey, Campus Guadalajara, Mexico
Summary ABSTRACT ................................................................................................................................................ 3
1.Introduction .................................................................................................. Erreur ! Signet non défini.
2.Motivation & Question: Why is it relevant? ......................................................................................... 5
3. Definitions of the key terms and explanation of the environment ..................................................... 6
3.1 Key terms ....................................................................................................................................... 6
3.1.1 Defining New product ............................................................................................................ 6
3.1.2 Process of launching a product: the product life circle .......................................................... 6
3.1.3 Why is it essential for a company? ......................................................................................... 6
3.1.4 Definition of failure ................................................................................................................ 7
3.1.5 Some key numbers above Success and failures in NPD ......................................................... 8
3.2 Environment .................................................................................................................................. 8
3.2.1 Overview of the grocery market / Food industry in France ................................................... 8
4. Literature review: major reasons of failures ....................................................................................... 9
4.1 Inadequate product ..................................................................................................................... 10
4.2 Distribution problems.................................................................................................................. 10
4.3 The product is revolutionary, but there’s no market for it ......................................................... 11
4.4 Lack of investment ...................................................................................................................... 11
4.5 Bad marketing research .............................................................................................................. 11
5. Methods and data : examples of failures in food industry in France in last past years. ................... 12
5.1 Failure in international company because of cultural differences .............................................. 12
5.2 Failure due to relationship failures with grocery stores ............................................................. 13
5.3 Failure in a product which is to revolutionary for the market .................................................... 14
6. Analyze .............................................................................................................................................. 15
7. Conclusion and limitations ................................................................................................................ 17
Bibliography : ......................................................................................................................................... 18
ABSTRACT
Purpose
The continuous development and market introduction of new products can be an important
determinant of sustained company performance. For approximately 30 years, conceptual
and empirical research has been undertaken to understand the failures factors of new
product development (NPD). The objectives of this research paper are to identify these keys
reasons of products failures and more precisely in the food industry in France and to see if
there are commonalities between general failures and food products failures in France.
Methodology
In order to define patterns of failures in new food products in France, we are going to see
the commons failures in general industries and compare them with failures in food industry
in France.
Findings
Basing on these examples, some commonalities emerged between general failures and
failures in food industry in France. However, the French market has its own rules and
specificities.
1. Introduction
Too many new food product introductions fall far short of the developer’s expectations,
visions and hopes.
Nowadays, only 10%-20% of new products and services succeed in the market, which by
common definition means they remain in the market, generating profits for the company
three years after introduction. However, this number is even smaller in the food industry
where less than 3% of new consumer packaged goods exceed first-year sales of $50
million—considered the benchmark of a highly successful launch. Also, products that start
out strong may have trouble sustaining success.
Launching a new product is a delicate phase in development and marketing process. Product
failures could occur on an ongoing basis to varying degree within most product-based
organizations. Also, many reasons could explain a failure in new product development: a
market which is not ready for the product, a weak marketing strategy…
To minimize disappointments, the new food product development process should be a
disciplined exercise in which the market environment is truly and fully comprehended.
Opportunities in consumer desires and needs should be identified and clearly defined.
This paper seeks to further understanding the reasons behind the failures that arise when a
company launches a new product. Are they some commonalities about product failures?
Could we identify some patterns of failure?
To narrow down in the research, analyze would be manage in failures in food industry
precisely in France.
By reviewing the main literature on the subject and highlight some particular examples, this
paper gathers the different elements that should be deeply studied to do the patterns of
failure in new product development and try to fund some commonalities that could be
avoid.
The primary goal of this research project is to identify the failures on new product creation
and to compare them with new food product. This will allows us to learn from these failures
so that future product development will be more successful in terms of marketing strategic.
2. Motivation & Question: Why is it relevant?
Studying new product development (NPD) is a topic quite relevant in marketing because it is
the driver of the market, it is also essential to any company for its growth because new
products help the firm to be competitive in a changing market (Patrick, 1997).
The consequences of product development have direct impact on their competiveness. A
successful new product would offer a competitive advantage to the firm if it is sustainable,
valuable, rare and costly to imitate (RBV model).
So we could wondering, if launching new product is so important, how could we explain so
many failures? Studying the reasons of failures and emerge some commons patterns could
be interesting in order to understand what companies are making wrong.
Despite the broad scope, we limit the review in several ways:
We focus on the food industry which is known as a competitive market. This sector is a
business with inherent longevity and would always have demand because people need to
eat to survive. So, how companies make the difference and others do not.
Also, we wanted to know if the French market is more specific than others markets. Is it
more or less reactive to innovation?
By taking examples of international companies, we will see that even they are making
mistakes in launching new products.
3. Definitions of the key terms and explanation of the environment
3.1 Key terms
3.1.1 Defining New product
New products are goods and services that differ significantly in their characteristics or
intended uses from products previously produced by the firm.
3.1.2 Process of launching a product: the product life circle
A new product is the result of a product development which could be defined as “the
transformation of a market opportunity and a set of assumptions about product technology
into a product available for sale” (V.Krishnan; Karl T. Ulrich 2001)
J-DEAN (1950) made the idea that product’s life is similar to a human life’s with different
steps in it:
1. Introduction
2. Growth
3. Maturity (or saturation)
4. Decline
Every step must be successful to carry out the survival of the product and the launching
phase is the most important and delicate step.
3.1.3 Why is it essential for a company?
New products play several roles for the organization.
The continuous development and market introduction of new products is an important
determinant of sustained company performance (Blundell et al. 1999; Brockhoff 1999;
Capon et al. 1990; Chaney and Devinney 1992; Urban and Hauser 1993)
They help maintain growth and thereby protect the interests of investors, employees,
suppliers of the organization. New products help keep the firm competitive in a changing
market (Patrick, 1997). The consequences of product development have a direct impact on
competitiveness. They mean the difference between falling behind a leading competitor in
the marketplace and being the competitor who provides leadership, compelling others to
meet similar standards (Wheelwright andClark, 1995).
3.1.4 Definition of failure
Product failure occurs on an ongoing basis to varying degrees within most product-based
organizations. This is the negative aspect of the development and marketing process.
Defining what constitutes a new product success or failure is a critical first step in computing
and assessing success and failure rates.
If a product concept demonstrates enough strength during early stage testing to warrant
investment in product development, but fails to survive beyond product or market testing, is
this a new product failure?
If a new product is launched and gains retail distribution and generates revenues but those
revenues fail to meet stated targets, is that new product a failure?
If a new item is launched and generates significant first-year distribution and revenues, but
loses distribution and revenues after the first year, is that a new product failure?
How do we account for products that are seasonal or are merely replacements for other
products in our existing line? Clearly, a consistent definition of what constitutes new product
success or failure need to be done.
As we can resume a product is a failure when its presence in the market leads to:
The withdrawal of the product from the market for any reason;
The inability of a product to realize the required market share to sustain its presence in
the market;
The inability of a product to achieve the anticipated life cycle as defined by the
organization due to any reason; or,
The ultimate failure of a product to achieve profitability.
3.1.5 Some key numbers above Success and failures in NPD
Some literature review shows that most of the new products launched by companies are not
successful and have to be discontinued. Empirical studies point out high failure rates of new
products, especially in consumer markets (Brockhoff 1999b; Crawford 1987; Urban and
Hauser 1993).
It is estimated that only 1 out 5000 inventions have gone on to successful product launches
(Beyolyn, 1999). It is also seen that for every successful business, there are usually 100 ideas
or more out of which only one is launched in the market with only a moderate success rate
(MacDonald, 1998)
Also, according to a leading market research firm, about 75% of consumer packaged goods
and retail products fail to earn even $7.5 million during their first year.
Moreover, the statistics that we frequently hear cited about product development and the
rates at which new food products fail are frightening.
3.2 Environment
3.2.1 Overview of the grocery market / Food industry in France
Today France is the European country with the highest concentration of supermarkets per
square meter. The country has 10 692 hypermarkets (from the Atlas distribution published in
2008) and over 25 000 outlets representing nearly 20 million square meters of shops.
The French food retail market has experienced weak growth in recent years. This is
predicted to continue in the forecast period.
The French food retail market is expected to generate total revenues of $234.9 billion in
2013, representing a compound annual growth rate (CAGR) of 1.4% between 2009 and 2013.
In comparison, the German and UK markets will grow with CAGRs of 0.7% and 3.3%
respectively, over the same period, to reach respective values of $288.4 billion and $193.1
billion in 2012.
Sales generated through hypermarket, supermarket, and discounters are expected to be the
most lucrative for the French food retail market in 2013, with total revenues of $128.2
billion, equivalent to 54.6% of the market's overall value.
In comparison, sales through convenience stores and gas stations will generate revenues of
$53.8 billion in 2012, equating to 22.9% of the market's aggregate revenues.
4. Literature review: major reasons of failures
As an introduction to this literature review, Hoban (1998) conducted a survey of products
manufacturers and distributors to ascertain both positive and negative influences on new
product success.
Respondents were asked how much impact each of 11 different barriers or negative
influences had on the success of their firm’s new product development efforts.
Results indicated that lack of strategic focus, limited understanding of the market, priorities
not set or communicated, lack of financial resources, and focus on short-term profitability
were rated as having the highest negative impact. Poor product quality, limited creativity or
vision, and lack of support for risk-taking were also rated as high impact by more than half of
the respondents. Hoban’s survey respondents were also asked to state in their own words
why some new products are not successful. Answers were coded into eight main categories.
The top four reasons listed by manufacturers were insufficient product marketing,
duplication or lack of innovation, lack of support during rollout, and lack of a compelling
consumer benefit. The top four reasons listed by distributors included: lack of a consumer
benefit, duplication or lack of innovation, insufficient product marketing, and inadequate
market research (Hoban, 1998). Lots of food products get to market, obtain early
distribution, and fail to sustain it. Before too long, distribution is waning, and the product is
being “swapped out” for another new item.
As we saw, numerous factors can cause new products to fail. Joan Schneider and Julie listed
40 reasons of failures in launching a new product. However five reasons of failures of
launching a new product could be resumed. For most of expects they are the main reasons
of failures in NPD (40-reasons for an extensive list.)
Crawford (1997) has also identified a fairly complete set of reasons including poor planning,
poor management, poor concept, and poor execution.
Cooper identifies some of the primary reasons for product failures from past studies are:
4.1 Inadequate product
A poor product concept lacks a compelling consumer benefit, is a simple “me-too” item with
no real and relevant difference from items already available, does not have a defined market
target with adequate sales potential, or is introduced at the wrong time. Products lacking a
significant consumer benefit as well as competitive clone items simply do not provide
consumers a reason to buy. Crawford called it “the me-too product meeting a competitive
brick wall and explain 24% of the failures.
Literature review further iterates incorrect positioning of product and poor promotion,
marketing and advertising as few of the reasons behind new product failure (Goessl, 2009)
4.2 Distribution problems
A study of the Nepalese market shows that quality, promotion & wide distribution channel
are the main determinants of new product success. The study further re-iterates that a
majority of new products fail due to low quality standards, weak promotional efforts,
ineffective advertising campaigns or improper supply of goods. (Sharma, 2006)
As Armand Dayan explained, most of the time, the distribution of the new product is limited
and the company encounters a lot of barriers with the distributors to list its product because
it is new and there is a lot of competition. As a consequence, the final consumer can have an
easy access to the product and do not buy it.
4.3 The product is revolutionary, but there’s no market for it
As Joan Schneider and Julie in their article “why most product launches fail” analyzed as a
failure in NPD is that a product could be revolutionary but there is no market for it.
Also Crawford called it “the better mousetrap no one wanted” which explains 28% of failures
in NPD. The product was innovative and unique, but rejected by the market. The size of
potential market and number of customers was overestimated.
4.4 Lack of investment
In the book of “a strong market orientation” (Cooper, 1976) it revealed that product failures
are intimately linked to insufficient resources, financial and managerial, directed toward
market activities.
It is noteworthy to mention that the impact of failure increases with the product’s
development stage and that this effect is contingent on the resources of the firm ( Buerger,
Patzelt & Schweizer, 2009). As advertising and consumer spend is also linked with available
funds, the lack of investment in the new product’s consumer marketing, significantly
influences the growth of the product.
Poor management is all about the organizational culture, support and resources for new
product process. New product development inherently involves investment, risk, and
rewards that may not be immediately evident. Firms that don’t encourage entrepreneurial
behavior will not observe any.
4.5 Bad marketing research
Also market based variables are also cited key by a 1975 study of Cooper. A sample size of
114 industrial product failures, has been analyzed, concluding that the root causes of failure
were weaknesses in the market research and market studies, test marketing.
The results of market research are an invaluable decision input throughout the entire
development process. Thus market assessment can and should assume a pivotal role in
industrial new product development.
Moreover, Joan Schneider and Julie in their article “ why most product launches fail” explain
that the biggest problem that they have encountered in their studies is a lack of preparation:
Companies are so focused on designing and manufacturing new products that they postpone
the hard work of getting ready to market them until too late in the game.
As defined by Crawford, poor planning also includes failure to properly analyze the market to
understand whether and what type of opportunity may exist in a category and what specific
unsolved problems consumers have. Also included in this category of reasons for failure is
not understanding the stakes of the game, that is, the cost to enter and sustain a position in
a given product category.
As we saw, many reasons could explain failures in NPD. The question in stake here is to know
if same failures happen for the launching of new food product in the French Market.
For the data analysis, some examples of failures in France will allowed us to see clearly about
it.
5. Methods and data: examples of failures in food industry in France in
last past years.
5.1 Failure in international company because of cultural differences
International companies launch plenty of new products in every country in the world. When
a product is doing well, most of the companies want logically to implement it in a new
market.
The Oreo, most famous biscuit of the group KraftFoods (Mondelez International currently) is
the perfect example of a successful product with aim to be famous in France too. The group
wants to bring Oreo before five in the top 10 brands of biscuits most sold in France.
Since its invention in 1912 to the United States, Oreo became the object of a cult. Kraft
Foods, the owner, was able to impose a very specific ritual consumption. "Turn, taste, dive"
said the slogan. American children are followers of Oreo and dipped in their glass of milk.
Unknown in France, the game was tight. Bitterly contested, the market growth is low - 1-2%
per year. the French biscuit market is already matured and lead by famous brands: Prince (
Kraftfood) Pepito ( Kraftfood) and BN ( United biscuits).
Kraftfood, confident about its famous brand did not analyze further the French market and
its key aspects.
Some key mistakes could be highlight:
- the absence of mascot for the brand Oreo, unlike most of the famous brands in
France ( Prince and it knight, Pepito and its friendly Mexican or BN and its nice
face all smiles) For the French market, most specialists see it as a key aspect to be
strong in the market because “these characters help to identify the product by
children" (Nicolas Chomette, president of Interbrand Paris)
- Also, the mode of consumption of the biscuit, very Anglo-Saxon, which is to
soften the Oreo in a glass of milk, does not match with the habits of French kids.
- The cookie recipe also poses question because for French people the question of
nutrition is well implement contrary as others countries where the product is very
famous.
- Last key point is that the price per kilo of Oreo is almost 30% higher than the
Prince, BN and Pepito.
Here, Kraftfood misleads the market research that did not accurately reflect the actual
French consumer’s behavior for the targeted segment.
5.2 Failure due to relationship failures with grocery stores
The retailers in the French grocery industry play a key role and have a strong impact on the
success or failure of new products.
Indeed, today in France, retail accounts for 70% of the food market. A report presented to
the National Assembly in 2000 noted that "the relationship between the producers of
consumer goods (70,000 businesses and 400,000 farmers) and 60 million consumers are
similar passage through the bottleneck of an hourglass. The choke point is that five groups of
distributors control the sale of more than 90% of consumer products"(LSA source)
This true oligopoly allowed the Supermarkets to benefit of an enormous power over the
industrials what they are and wherever they are. A lot of companies, most of them small and
medium companies tend to have difficulty to be present in the stores and further the
pressure of the retails is so important that a lot of companies failed.
Most failures in this case are due to:
- The retail stores are making their own rules and the company could not provide
enough to promote its product in stores.
- A lack in communication
- The new product is hide in the category because there is too much product
- The retail stores decide the price of the product : too high to succeed
5.3 Failure in a product which is to revolutionary for the market
Two years ago, Nestlé, the biggest food company in the world launch a new product in
France called: Nesfluid. This flavored coconut water should achieve 100 million euros in sales
by 2015. However, the launching of this product on the market was balance by tens of
millions of losses. What happened?
The product has everything in hands to work in the advertising and promotion aspects,
Nestlé invested a lot in order to make known the product. (Than 10 millions)
- First of all, the concept of the product was hard to get for the consumer: "To each
one his hydranutrition" the promise was essentially marketing and in a product
category, soft drinks, which the French are not fond.
- This segment of nutraceuticals, called "functional food" among the Anglo-Saxons
failed to European industry. Nestlé is not the only one; Danone had already
experienced a crushing defeat in 2009 Essensis, a yogurt which should "nourish the
skin from the inside."
- French consumers are much more reluctant to food innovations: the French public is
slower to adopt food innovations that English and German public.
- The price was too expensive compared to competitors, 1.65 euros for 25 cl, two
times higher than the Vitamin Water to Coca-Cola.
- Then, the position of the brand was not good: the feature before pleasure.
6. Analyze
Through general failures and the study of specific cases in France, we should be able to see
some common patterns of failures. However, the French market has its own specificities
which need to be taking into account.
Comparing general failures and specific ones show that new product launching should be
analyzed from the point of view of the entire distribution channel. From this vantage point,
other “truths” about new products are (1) a new item or line needs to add incremental
dollars and profit for both the category and the brand, (2) new products should enhance the
manufacturer’s and the retailer’s competitive position in the market, (3) launches should be
carried out with minimum disruption to the distribution system as a whole;(4) a launch
should be accompanied by both a product service plan and a consumer target plan defined
by both the manufacturer and distributor, and (5) There should be an identification of
activity-level costs.
As Cooper highlights in its studies and what we could see with the examples is most of
companies are missing the key point of research marketing. Companies are so focused on
designing and manufacturing new products that they postpone the hard work of getting
ready to market them until too late in the game.
As we saw, managers must learn to engage the brand team and marketing, sales,
advertising, public relations, and web professionals early on, thus gaining valuable feedback
that can help steer a launch or, if necessary, abort it. Hearing opposing opinions can be
painful—but not as painful as launching a product that’s not right for the market or has no
market at all
Another common failure in this study is that most of the time companies encounter
relationships problems with distributors. As Armand Dayan emphasize, the distribution of
new product is limited and the company encounters a lot of barriers with the distributors to
list its product because it is new and there is a lot of competition.
Even if the new products in France are confront to the same problems, two specific aspects
need to be taking into account are (1) five groups of distributors control the sale of more
than 90% of consumer products. The oligopoly is really strong in France and they have all the
power pressuring companies, (2)The food industry is one of the most competitive sectors.
As we conclude, a lot of failures in France are due to relationship with distributors more than
in others countries.
However, key aspect could emerge from this analyze. Launching a product in the food
industry required to work on the five senses. The taste of the product is as important as the
sight or the smell of the product. Every aspect needs to be seen in comparison of the
launching of goods products. To successfully launch a food innovation, it is imperative to
border all the scientific, nutritional, regulatory and marketing.
According to a Nielsen database of 100,000 products in 60 countries, France is a unique
country in which the only promise that health work must be based on the naturalness and
the soil. "
As we saw, French consumers are much more reluctant to food innovations: the French
public is slower to adopt food innovations that English and German public.
With the example of the launching of Oreo in France, we saw that multinational
companies sometimes fail to read the cultural foundations as they move from country to
country selling their products. They feel that the strategy which had delivered them success
in the other countries would be replicated in most of the countries. However it is not true.
Here we saw that French consumers have different habits from anglo saxon countries.
KraftFoods have two possibilities: educate the French people to a new way of consumption
for them or re-invent a specific strategy for France.
.
7. Conclusion and limitations
Some elements could emerge from this project. As we saw, many things need to be
taking into account for a NPD. Most of the time, companies are missing some key points
which lead to the failure of their product. Many reasons are involve in the success or failure
of a product and somehow no matters the market selected, some reasons of failures could
be apply in any situation: bad research marketing, a product which do not correspond to the
market…
Another key point is that with globalization, international companies forgot most of the time
that every country has its own behavior. For the success of the new product and especially in
the food industry, companies need to take into account the specificities of the market.
However, this research project provides a new source of information: failure depends
on variable reasons also, as the relationship of the actors in stake. Thus, these variables
could be managed but a part of uncertainty would always stay.
Studying product failures allows us to learn from the mistakes of other product and
brand failures. Each product failure can be investigated from the perspective of if anything
might have been done differently to produce and market a successful product rather than
one that failed. The ability to identify key signs in the product development process can be
critical. If the product should make it this far, assessing risk before the product is marketed
can save an organization’s budget, and avoid the intangible costs of exposing their failure to
the market.
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