Reducing Risks of New Product Development

In today’s market it is increasingly difficult to adjust your products to the quickly changing preferences of customers. One of the consequences is that forecasting the potential sales is getting more difficult. It is very bad for businesses to launch products which turn out to be a failure. Most of the time new products launches suffer from failure rates of 50% and higher. The reason for this is mostly due to the gap between customer needs and the actual product. It is not because the product is not working well or because of bad design. (Ogawa & Piller, 2006)

Traditional market research like focus groups or test marketing are not successful in discovering customer needs, estimates of sales, profitability and preferences. That is why more and more companies are experimenting with collective customer commitment. This is an alternative to traditional market research where customers get integrated into the innovation process and/or ask for commitments from customers before the manufacturing to ensure product success. (Ogawa & Piller, 2006)

This so-called collective customer commitment combines the ideas of postponement and mass customization with some other characteristics. An example of postponement is delaying final assembly until the initial sales statistics can significantly increase the forecasting accuracy. Mass customization reverses the process and let the customer co-design their products before they are build. (Ogawa & Piller, 2006). A very good example of a company doing this right now is Tesla Motors. In contrast with many of their competitors Tesla does not produce a car without a customer for that car. Each and every car that comes of the assembly line is configured and personalized by a buyer. By doing so, not a single car will be unsold and no unnecessary costly stocks are build up. (Science of Revenue, 2013)

Another option to reduce the risk as mentioned above is to make buyers commit to your product by a down-payment. This approach is not new and has been used for a long time in real estate. Once there is a plan for a new apartment building, the company will check if there is enough interest by getting a minimum number of buyers before they start with actually building the whole building. This method of minimizing risk is now going downward to fast-moving consumer goods. Companies are still looking for new and innovative ways to do this but as some companies already show there is value to be found in doing business following this path.

Looking at new product development, open innovation and co-creation with customers definitely has its benefits but needless to say there are downsides as well. It will be impossible to surprise your customers with an incredibly innovative product if the complete development process is out in the open. Companies also need to take various business elements into account that are none of the consumer’s business. It is up to the management to decide whether the new methods are there to supplement or replace the traditional product development process. The optimal choice is most likely to find a balance in doing both.

Science of Revenue, (2013). Tesla Model S: The Disruptive Marketing of an Electric Car. [online] Available at: [Accessed 26 Feb. 2016].

Ogawa, Susumu and Frank T. Piller (2006), ‘‘Reducing the Risks of New Product Development,’’ Sloan Management Review, 47 (Winter), 65-72.

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