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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