How do you know if a newly launched product is doing well in the marketplace? We all talk of how a new cell-phone brand is a success, or how a new malted food beverage drink is not faring so well. But are our conclusions correct?
Not entirely.
Because the truth is, as common people, we can never be sure which products are successful and which are failures. This is because a product’s performance is always assessed against the objectives set during the time of its launch. What I mean is that it is mostly left to the manufacturer to define success parameters.
To each, his own
Each organisation decides how to measure the performance of a new product, and whether such products have met their targets. This ‘target’ is a function of many factors, the main being the industry to which the new product belongs.
Some industries require high investment in terms of time and money. In pharmaceuticals, for instance, the gestation period for product development and time to reach the market, is long. The R and D team puts in a lot of effort and the market research team conducts elaborate testing procedures before the product is released.
So, while defining success in this category, these points need to be taken into account. In some others, the end users’ preferences keep changing frequently, like the snack category in foods. Here, the success parameter needs take into account this oddity.
The three parameters
According to the Product Development Management Association (PDMA), new product success measurements fall into one of the three categories — consumer, technical or financial.
Consumer parameters : These could be acceptance that shows up as trial rates or repeat rates of the new product. When a new soap enters the market, the company would like to know if consumers tried it at least once and, if they did, what they thought of the quality.
This is the first level of acceptance. If the users liked it, they will endorse it by buying it again. This is the second level of acceptance. By knowing how the product fares against these two parameters, the company can arrive at a reasonable conclusion on whether the product will stay in the market. This defines success for the new soap.
Technical parameters : This involves being a pioneer in the field, in terms of know-how, using a breakthrough formulation, and other such variables. Most industrial or manufacturing companies use these assessment measures.
This parameter gains importance as it determines how competitive the product will be in the marketplace in the long run. Many times, patents and intellectual property (IP) are manifestations of the organisation’s expertise in the product knowledge domain. Once, an employee from Larsen and Toubro shared with me how the organisation ensures adequate training programmes for the research department, so they can stay abreast of the happenings in their field, and develop new products based on that knowledge.
Financial parameters : This is probably the most important parameter. Whatever be the level of technology involved or however unique the benefit of the new product, it fundamentally has to make business sense. That is, the returns from the product need to be more than the investment that has gone into it.
Of course, it can be spread over a period of time, but the new product business proposition needs to be profitable. This is the most common measurement used by industries, and is calculated in many ways.
One is return on investment, or ROI. Simply put, it is the difference between the money made and the cost incurred. The second is net present value, or NPV. This is a little more sophisticated than ROI, as it considers the returns over a period of time versus the expenses incurred.
Composite measure
In reality, it is rare that companies consider only one particular measurement. Given that new product development activity is complicated, a lot of discussions take place before a verdict is given on whether the product is a success or a failure. More often than not, a combination of measurements is used to arrive at a decision.
In conclusion, it is crucial to define what constitutes success for a new product, depending on the context and the industry. What cannot be measured cannot be improved upon, and this is very true in the context of new products.