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Manager's Journal:
Launch Your Product Without Getting Sunk
By Steven E. Permut

12/04/95
The Wall Street Journal
Page A12
(Copyright (c) 1995, Dow Jones & Company, Inc.)

Most technology-intensive companies are experiencing marketplace chaos. Customers are becoming competitors, new technologies are becoming obsolete as they are being shipped, and the quest for new sources of revenue to fund innovation while expanding profits is changing the rules of the marketing game.

Because senior managers are setting high hurdles for deciding which projects to nurture and fund, marketing teams have learned to create customer forecasts and corresponding revenue forecasts that approach $30 million to $50 million or more within one or two years of a new product launch. The race for marketplace success has led to the creation of overly optimistic business cases by market management and product management teams.

All too often such scenarios occur by working backward from the team's required end-result objectives. The process is like building a new house by starting with the roof and the second story. As a result, the new product landscape is littered with examples of optimistic predictions that failed, from videotex and electronic yellow pages, to home banking and personal digital assistants.

How do successful marketers reduce risk in launching new offerings? Here are some of the new rules:

-- Rule No. 1: Understand the target buyer's current situation, current alternatives and immediate needs. The critical questions to be answered are:

-- "How did our target customer get along before our new product or service was available?" If her existing 75 channels of cable TV have little to offer, why would she want 400 more? If his existing analog-based cellular phone is doing the job, why would he buy the new digital model?

-- "What alternatives or substitutions already exist to solve the same problem?" If the hotel provides a fax machine at the front desk, why would the target customer want to pay for a "fax store and forward" service? If AAA gives him free maps and directions, why would he want to buy GM's new automobile navigation system?

-- "Is our new product or service superior enough from the customer's point of view to justify the time and effort to switch, and to remain brand loyal long enough to justify our time and effort to nurture and retain him?" The high switching rates among AT&T, MCI and Sprint customers illustrate this concern.

-- Rule No. 2: Assume the product life cycle will never reach maturity. Put all your emphasis on understanding, predicting and managing the introduction and growth phases. This is a radical notion to many, but it recognizes a few simple truths of technology marketing : Managing the initial launch is the most critical of all stages if a product is to become successful; the third and fourth buyers will not emerge until the first and second buyers have come forward, thus managers should not get too far ahead of the curve; and competitive challenges, changes in customer needs and preferences, plus evolving technology suggest that product revisions and updates will occur in cycles lasting less than 12 months.

Think of the forecasting and product management problem as if the cycle started over from scratch every 12 months. As Edward R. McCracken, president of Silicon Graphics, sees it: "Three years is long-term. Even two years may be. Five years is laughable."

-- Rule No. 3: Stay very close to the existing product or service, and innovate incrementally. The excitement over interactive television, for example, has drawn attention away from how to give different customer segments more value for their current dollar, whether in terms of more tailored programming, or more pricing options so that perceived value is enhanced. But to assume that even a small segment within the viewing public is clamoring for "interaction" begs the bigger questions of specifically who will pay and how much for programming that is somehow "interactive," whatever that means. There are so many unanswered questions, yet massive investment proceeds with unbridled enthusiasm.

-- Rule No. 4: Resist the use of large-scale random surveys in trying to understand a potential new marketplace. Explore the richness afforded by small-scale analysis with a limited number of the right respondents. If you believe that the earliest buyers are most critical to market success, then why create a random sample of all potential buyers in order to calculate survey "averages"?

Imagine placing your right hand in a large bag of ice, while placing your left hand in a bowl of boiling water. One could say that, on average, you were quite comfortable! There is no such thing as an average customer. This is one more reason forecasts for innovative products and services are so often off the mark.

-- Rule No. 5: The newer or more novel the product, the less useful will be the traditional measures of marketplace success. Even Windows 95 ought not to be judged in terms of market share, since it is meaningless to create a comparison against the old version, nor does the new program have a direct competitor given the lackluster sales of IBM's OS/2.

The bigger questions for most technology-based offerings revolve around the fundamental measures of customer acceptance, including "churn rate" (the number of people who try the product but then switch to another), "frequency of use" (how often the product is used), and "rate of adoption" among innovators and early adopters (the number of early buyers as a function of time). Just ask the cellular phone industry or the on-line information service providers, such as Prodigy and CompuServe, how important these factors have become. Penetration rates (the proportion of buyers out of the total potential market) can also provide a useful index, but only when applied to the segments of early buyers in the target market of interest.

In the final analysis, marketplace success in the world of high-tech revolves not around aggregate sales volume, but around getting the right target customer to try, and then enthusiastically use, the new offering as early as possible. More than ever before, marketing 's job is to craft a strategy that allows it, in effect, to build the business one sale at a time.

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Mr. Permut is the president of Guilford, Conn.-based Marketing Sciences Inc. and a lecturer on marketing at Yale University.