“Anything of value, is defenseless”
Lucebert, Dutch poet.
All businesses are in business because they sell something. We will call this a product, although businesses might also sell services, ideas, experiences etc. In this chapter we will discuss the core dimensions of a product, the launch of a new product and also the barriers to introducing new products within SMEs.
To make a long story short: a product is more than just the materials used in order to make it. The tangibles used to create the product are the basic elements but customers are actually buying more than just that. Products can also be non-tangible: customers obtain a service or an experience. A basic definition for a product is: “anything that can be offered in a market for attention, acquisition, use, or consumption that might satisfy a need or want” (Kotler & Armstrong, 2012: 248).
Needs and wants are two essential stepping stones to creating a product. Needs can be seen as goals people strive to achieve. In his seminal work Abraham Maslow describes needs as universal and hierarchical. All human beings are prone to the same five basic needs (see box 4.1). Wants, on the other hand, are cultural representations of these needs. Different cultures have different wants to fulfill the same needs: people need to eat but food people eat in one cultural part of the world is different to food people eat in another part of the world. The way people protect themselves from weather conditions differs worldwide and so does the way people strive for self-actualization. Needs are universal and do not change over time, wants do… In the past people needed to keep in contact with their friends and families and they wanted a landline telephone, now people want Whatsapp, Telegram, Snapchat, or the next new communication tool or app.
Products are bought, used, consumed, and/or observed by customers in order to fulfil needs. A classical example of this is the “¼ inch drill bit” (MacMath & Forbes, 1998: 21); people don’t buy a drill bit because they need a hole in the wall. They want a hole in the wall because they want to hang a painting to the wall. They want a painting on the wall because they want a cosy atmosphere in their home because they need to feel loved in their home. By the way, if Japanese homes really have rice paper walls, the need may be the same but wanting to drill a hole in the wall is probably non-existent…
Box 4.1 – Maslow’s Need Hierarchy
According to Maslow, human beings are motivated for action based on five goals which he calls basic needs. The five basic needs are visualized in figure 4.1. The reason the needs are shown in the form of a pyramid is because the needs are usually sought after from bottom up. First, people aim to fulfil their basic physiological needs before moving up the hierarchy to the next levels. The final level is that of self-actualisation; “the desire to become more and more what one is, to become everything that one is capable of becoming” (Maslow, 1943: 382).
Although it is possible to criticise the validity of the model, Maslow’s hierarchy of needs offers an interesting insight into customer behaviour. The model implies that people buy, use, consume, and/or observe products because of one or several goals they might have: a physiological need, a need for safety, a need for love or belonging, a need for esteem and/or a need for self-actualisation.
Also, Maslow himself wrote that behaviour cannot only be explained through motivation for “while behaviour is almost always motivated, it is also almost always biologically, culturally and situationally determined as well” (Maslow: 371).
Figure 4.1 –Maslow’s hierarchy of needs
A product can be seen as consisting of three different layers. The core customer value is the central layer and represents what the customer actually needs, is looking for and actually buys. It is interesting to link this to Maslow’s model. The next layer is called the actual product and is the product in terms of tangible elements like brand, features and design but also the price, the way the product is distributed and where it is sold, and also the way a business communicates about the product. The third layer is called the augmented product and this consist of the intangibles that come with the product like after-sales service, delivery conditions, easy ordering, installation, or product support.
An interesting way of analyzing a product is by trying to describe it to someone who is not familiar with it. Take a cup of coffee for example; it is a hot, dark-brown colored, liquid in a small cylindrical container. Sometimes the container is placed on a round plate. Right? But what makes Starbucks’ coffee different then?
Remember this from chapter 1?
Figure 4.2 – three product levels (Kotler, 2016)
To end this paragraph, a product represents something of value; benefits customers can expect from a product. Products with little to no value to a customer will not be purchased, used, consumed and/or even noticed. Companies must create value for their customers to distinguish themselves from competitors for value is ultimately the reason why customers choose one firm over the other (Osterwalder & Pigneur, 2010: 22) . In chapter 1 we already mentioned that value can be offered along three dimensions (Lodish e.a., 2016: 14; Treacy & Wiersema, 1993):
- Performance value – a business offers a product that has a superior functionality.
- Price value – a business offers a product at a low cost, either acquisition costs or costs of usage.
- Relational value – a business adds a personal element for the customers to the product.
The business model canvas, a method that has become quite popular as a way to describe how new ventures (start-ups) will offer value to customers and also other stakeholders in a firm, list eleven elements that create value: the newness of an offering, the performance of an offering, the customization of an offering, the design of an offering, the brand and/or status of an offering, the price of an offering, the cost reduction due to an offering, the risk reduction because of using an offering, the accessibility of an offering, and the convenience and/or usability of an offering. Osterwalder & Pigneur state that the list is non-exhaustive and that firms should recognize that creating value is essential for a profitable business model (Osterwalder & Pigneur: 23-24).
One way to find the fit between a customer and the company’s product offering is to use the value proposition canvas. This canvas (or model) elaborates on two of the business model’s value drivers: the customer segments and the value proposition. A customer segment is described using three variables: the customer jobs, the customer gains and the customer pains. These variables tell us something about what customers are “trying to get done in their work and their lives” (customer jobs), the outcomes or benefits the customer is looking for (customer gains) and the “bad outcomes, risks, and obstacles related to customer jobs”. The value proposition is broken into three parts (too): the products and services the company offers to offer value, the gain creators and the pain relievers. The gain creators describe in what ways the company’s offerings help create the customer gains whilst the pain relievers show how these offerings help to lessen the customer’s pain when doing a specific customer job (Osterwalder et al., 2014).
A product often stems from recognizing problems customers have when they buy, use, consume, and/or observe other products. Three idea generating methods are to evaluate the actual chain of consumption, the ideal chain of consumption and the troubles in the chain of consumption. Based on these insights an entrepreneur can develop new products or services. Before relaunching the myth that entrepreneurs are creative geniuses who come up with brilliant new products nobody else ever thought of before, be aware that “most entrepreneurs start their business by copying or slightly modifying someone else’s idea” (Bhidé, 1999: 17).
Figure 4.3 shows the list of activities that need to be undertaken when developing a new product. It is clear that the development is not only a technical undertaking but also accounting and marketing skills are necessary to launch a new product. Next, criteria to find out when to pursue and develop a new idea have to be set up in order to know when to stop the (expensive) process of product development.
Figure 4.3 – activities in the new product development process (Huang et al., 2002: 33)
When introducing a new product, Huang et al. found successful firms are better than other firms in the following four phases: preliminary market analysis, market study, product development and commercialization (Hoang et al.: 37). It seems the marketing side to new product development is crucial to new product success.
There are several ways to test if a product will fulfil its commercial potential. Some firms employ market researchers to find out of the product will fit the needs of the targeted customers. Other firms simply create the final product and bring in to market. Both methods have their merits but are both expensive in their own ways. Market research can be done in an early stage of the development process and consists of surveys, interviews, experiments and observations. Next to the fact that doing research is more costly than doing no research at all, known problems of market research are unwilling respondents, respondents filling out pleasing (and wrong) answers, uncertainty of representativeness of the respondents, amongst others.
Several entrepreneurs, like Steve Jobs and Henry Ford, are known to have denounced market research because of the newness of their products and the fact that customers have no idea how to value their innovativeness. In a book about Steve Jobs’ life the biographer Isaacson quotes the founder and CEO of Apple:
“Some people say, ‘Give the customers what they want.’ But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘if I’d asked customers what they wanted, they would have told me, ‘A faster horse!’’ People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page” (Isaacson, 2011: 567).
Mr. Stewart Butterfield, the founder of Slack, a software-as-a-service startup, described the difficulty for his company as follows:
“We had to create a market where, despite a handful of competitors, one really didn’t exist before. (…) When we asked the other 70 to 80% (of the potential customers, PM) what they were using for internal communication, they said, ‘Nothing.’ But obviously they were using something. They just weren’t thinking of this as a category of software.” (Brown, 2015)
Visionary companies might need to focus on their own gut feeling because customers do not always value a product whose time needs to come. How many people really understood the value of mobile phones in the 1990s, tablet computers in the 2010s and virtual reality goggles in 2016…
Doing no research, due to a lack of resources or skills, might seem less costly yet the costs are at the end of the new product development process when the product fails in the market. All costs during the development phase are now made but there are no revenues to offset them. Is there another way?
A method business owners can use is concept testing, also used in the lean start-up method. With this method a firm is challenged to share its ideas (or concepts) with customers as soon as possible. With a concept test the firm tries to find out if customers actually want the product by offering a product that is almost similar to the final product, but not finished yet. By closely and realistically mimicking how customers will be exposed to the product and its attributes, the channels where they can buy it and possibly also a price for the product, the firm can find out if customers understand the idea behind the product and if they would actually buy it. If enough customers say yes to the concept, the firm can continue investing in the development.
Box 4.2 The concept test illustrated
An example of a company that used concept testing when starting is Dropbox, the online folder for electronic documents. The founder of the company is said to have lost his memory-stick once too often and he came up with the idea to create an online folder to save his documents. He was looking for a user-friendlier way than similar other services he was familiar with and he wrote a short summary of the product as he saw it. He posted the idea online and within a couple of hours he already had a lot of people asking where they could download the product. He knew now there would be a market for his idea.
The advantages of concept testing are that it is relatively quick and cheap and it can give you information about how to change your idea to make it more profitable. It also helps select ideas to focus on and can give an indication of effective sales prices and sales volumes. Especially with the use of Internet, a concept test can reach a larger amount of potential customers and each can be shown a different price and/or offer. Based on the results of the split tests optimal prices and volumes can be calculated. A downside to concept testing is the fact that it only can measure trial or first-time purchase behaviour. If the product does not fulfil the customer’s need, he/she will not use or buy the product again. Also, concept tests give competitors an insight to what you are doing.
As mentioned in paragraph 4.3, developing a product consists of several phases some of which are more technical by nature, others more business oriented. Product launch proficiency is a combination of being good at market testing, launch budgeting, launch strategy, and launch tactics when introducing a new product (Ledwith & O’Dwyer, 2008: 106); these are comparable to the testing and pre-commercialization and commercialization phases mentioned earlier.
Market testing was discussed in the previous paragraph, launch budgeting, strategy and tactics have not. When budgeting for a new product launch the firm has to take the following costs into account: costs for public relations (press releases), online marketing (Facebook and Google Adword campaigns), traditional advertising (commercials), events (launch and trade shows), direct marketing campaigns (mailings), and (distribution) channel marketing programs (training resellers).
Launch strategies are decisions and activities concerning the launching of a new product. The main questions business owners need to answer are “what to launch, where to launch, when to launch, and why to launch” in order to begin generating income from sales of the new product. Launch strategies are firm, market, and product (innovation) related. Launch tactics are more focused on the marketing of a new product and are related to the branding of the product, the product assortment, distribution channels and intensity, pricing policy, and the tasks of the sales force (Hultink et al., 1997: 245).
Lodish et al. (2016) describe a checklist to take into account when launching a new product. Five things a firm has to consider are:
- Confirm and monitor product development timelines: the business owner has to make sure that the different (project) timelines are “in sync”. If the product arrives on the market in August it might be not be wise to announce that it will be for sale in May…
- Secure initial reference customers: often buyers are more interested in knowing who else have accepted, used, bought, or consummated the product. Sometimes it makes sense to ask these initial customers to act as references, either in advertisements, business case studies or as references who may be called by potential customers.
- Secure external support for your product: independent external parties might be able to prove the uniqueness or quality of the product. Using this proof can make a product more acceptable for potential customers.
- Define partnering opportunities: cooperating with others will make a company or product look more reliable or a valuable part of the market.
- Include the channel/ distributors in the product launch: especially in the case of products that are not sold directly to the end-user, other channel members might need to be trained to demonstrate and sell the product. Also, the other channel members might need time to organize for the selling of the product.
The previous paragraphs already mention the fact that firms fail in successfully launching a new product when they mainly focus on the technical side of the new product. Taking the marketing side into account increases the change of a successful product introduction. In addition to this Millward & Lewis mention three potential pitfalls namely the influence of a dominant owner/ manager, a focus on time and cost ahead of other key factors, and the failure to understand the importance of product design (Millward & Lewis, 2005: 388).
Because the development of a new product is a multidisciplinary project, different disciplines should be involved in the process. Business owners and managers find it difficult to delegate responsibilities in general and therefore also responsibilities in the design, engineering and manufacturing activities in the case of new product development. This (negative) influence of business leaders increases the chance of failure.
Next, developing a new product takes time and also resources. As mentioned before, SMEs have relatively little resources and therefore the focus of the business owners and management will be on achieving as much results with as little resources as possible. The emphasis will be on cutting corners and reducing costs. This hinders product development due to (Millward: 390):
- hindering product development from the outset by unrealistic expectations;
- suboptimal decisions due to short-term considerations;
- shortcuts in product development because iteration or evaluation of alternatives are seen as unnecessary;
- lower quality than could otherwise have been possible; and
- the omission of key development stages, such as market research.
The third barrier to developing new products is the failure to understand the importance of product design. SMEs often focus on product design from a manufacturing perspective instead of looking at it from a customer perspective. Underestimating the importance of the customer manifests itself in customers rejecting the product due to a mismatch of product characteristics and (the buying) company’s product standards and requirements or customer preferences. This then leads to less sales or having to rework the product and thus making the product development lengthier and more expensive… pound wise, penny foolish.
Box 4.3 A dozen presumptions guaranteed to help you flop!
Marketing consultant Robert MacMath has collected product introductions for decades and founded a private museum he called “New Products Showcase and Learning Center”. The exhibits range for shampoos to candy bars, cool (and hot) drinks to video phones, and anything else companies thought people might buy… but never did.
In a book he wrote on the lessons business’ can learn from the products that flopped he describes twelve dominant ways of thinking that will make a product launch be unsuccessful for sure (MacMath & Forbes, 1998: 55). The twelve presumptions guaranteed to help you flop are:
- Customers will buy this new product because the business (owner) thinks it is a good product.
- Customers will buy this new product because the product is technologically superior.
- Customers will immediately perceive the new product to be different from all other products on the market.
- Customers will not feel at risk when buying the new product and changing supplier.
- The new product will sell itself.
- Distributors will be desperate to stock the new product.
- The new product rollout will be on the precise date projected, and at the exact budget forecasted.
- The business will have no problems finding new talented staff that will be as committed to the new product as the business owner is.
- The business does not have to worry about competitors in the market.
- Competitors will react to the new product introduction in a predictable manner, and they will react with dignity and restraint.
- The business will be able to keep the profit margins high and will also rapidly gain market share.
- Everybody in the business will back the new product 100% and they will gladly assist the product launch in any way they can.
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 Slack started as a communications tool for private use by a company called Tiny Speck. It then became the main product and the company was rebranded Slack in 2013. In 2021 Salesforcce.com bought the company for $27.7 billion.