Musings on Entrepreneurship and Innovation
Tuesday, June 13, 2006The Need for Dramatic Difference
In his book, Jump Start Your Business Brain, Doug Hall asserts the following regarding the need for dramatic difference when launching a new product or service:
The new news is that for uniqueness to be effective, it must be dramatic–ten times bigger than you think it needs to be–and the drama must be focused directly on the Overt Benefit and Real Reason to Believe. [1]
Doug goes on to demonstrate how data shows that high dramatic difference improves the probability of success by a factor of 3.5 times relative to low dramatic difference where success is defined "as a new product or service that maintains distribution or is actively marketed for at least five years."
A recent article in the Harvard Business Review titled Eager Sellers and Stony Buyers: Understanding the Psychology of New-Product Adoption builds upon this theme [2]:
...consumers evaluate new products or investments relative to a reference point, usually the products they already own or consume...[and they] view any improvements relative to this reference point as gains and treat all shortcomings as losses...consumers overvalue losses by a factor of roughly three. Therefore, it's not enough for a new product simply to be better. Unless the gains far outweigh the losses, consumers will not adopt it...[Product] developers overvalue the new benefits of their innovation by a factor of three. The result is a mismatch of nine to one, or 9X, between what innovators think consumers desire and what consumers really want.
A significant number of the product concepts that we see at Evergreen IP assume a relatively high degree of behavior change on the part of users in exchange for a modest improvement in price-adjusted performance. John Gourville, the author of the HBR article, deems such products to be "Sure Failures." (Hall, on the other hand, is careful not to speak in absolutes. His analysis indicates that a concept with low dramatic difference has a 15% probability of success, which, for purposes of comparison, is about half the odds of winning at the slot machine.)
Gourville's analysis is interesting and useful because it summarizes evidence of systematic bias that impacts how aspiring innovators and product users perceive new products. The difference in perception (compounded by the social contingency of many economic decisions) means that it's very tough to increase the odds of success of even a well-executed launch of a very good product to much more than 50%. As Gourville notes:
In the U.S. packaged goods industry, for instance, companies introduce 30,000 products every year, but 70% to 90% of them don't stay on store shelves for more than 12 months...According to one study, 47% of first movers have failed, meaning that approximately half the companies that pioneered new product categories later pulled out of those businesses.
If you are going to play the game, it's good to know the odds. In order to get a quick guage of the chances of success of a new product concept, we ask ourselves a number of questions, including the following:
- For whom, when, and where will the product offer the most compelling value?
- What job does the product allow the user to accomplish?
- What do people use today to get the job done?
- How will peoples' behavior have to change in order to use the new product?
- How much better is the new product than the status quo? How do we know? Based on what evidence?
Smart inventors will recognize the risks inherent in escalation of commitment, will take a hard look at the odds of success, and will hedge their bets accordingly.
[1] Click here to watch a video introduction of Doug's "marketing physics" framework.
[2} Thanks to Mike Blanck at Brand Ranch for pointing out this article.
