Sure, we all know that innovation holds the key to success. If done well, it drives profit, growth and shareholder value. Things all companies love, but it comes at a price; innovations reap these rewards because they are risky. The failure rate of new products is estimated to be between 35 and 50%. Disruptive innovation is hard. You need to provide true value for a customer and they need to know your solution exists. Two things that don’t come easily.
Customers typically resist new ideas and products. Even if the benefits are crystal clear, they need to weigh up against the perceived losses.
In 2002, psychologist Daniel Kahneman won the Nobel Prize in economics with his work that explains why people don’t exhibit rational economic behaviour. Together with psychologist Amos Tversky, he discovered how individuals value choices in the marketplace. Kahneman and Tversky showed that we, human beings, respond according to four distinct characteristics;
- We don’t evaluate the attractiveness of an alternative on its objective value but on its subjective or perceived value.
- As prospects, we evaluate new products relative to a reference point, usually something we already own or know.
- Improvements are considered relative to this reference point as gains and we treat all shortcomings as losses.
- Losses are deemed much more important than similarly sized gains,
“Loss Aversion” is what Kahneman and Tversky called this phenomenon. A great example is sliced bread. Its invention gave rise to the popular phrase “the greatest thing since sliced bread”. But nevertheless, since its birth in 1912, it took over 70 years to become mainstream in Europe. Sliced bread goes stale quicker, and this loss was perceived more important than the comfort gain of no longer having to cut your own bread.
Another important factor that determines the success of your innovation, is described in a 1988 paper by the economists William Samuelson and Richard Zeckhauser. They wrote an influential piece called the “status quo bias in decision making”. In this document, they demonstrated clearly that people commonly prefer status quo over change.
The impact of these insights on how to predict the success of your innovation is considerable. Simply put, the more behavioural change you expect from your customers, the slower adoption will be. As the American writer Mark Twain said, “the only person in the world who likes change, is a baby with a wet diaper”.
The QR codes most of you remember, are a relevant example. Pushed by various companies as an alternative to typing in a web address in your browser, it never gained traction. To reap the benefits you first had to buy a smartphone, find and install an app that could read the codes and finally take a picture of it to get the web address. A lot of behavioural change that just didn’t cut it. Too steep a learning curve and just too much hassle.
Now let’s assume we taken the first hurdle. We created a great new product where the gains clearly outweigh the losses. Our customers can savour all our benefits without changing a thing in their behaviour.
We’re in the money, no? Well, there is another catch. Here comes the second hurdle.
“Many innovative new products don’t succeed in the marketplace simply because companies don’t focus enough on understanding how customers evaluate products and make purchase decisions.” This statement is made by Duncan Simester, the NTU Professor of Management Science and head of the marketing group at the MIT Sloan School of Management in Cambridge, Massachusetts
In a world where there is simply too much information flying around, we all struggle to get share of mind with our prospects. To be successful, we need to thoroughly understand how customer search for information when they are confronted with a problem. Make no mistake, when a customer is not experiencing an issue for which your product is a potential solution, he’s not open for any communication on the subject.
To let our customers know our innovation exists, we need to ask ourselves three questions that will determine how we will build an ‘awareness’ program.
The first question to pose is if our customers are motivated to search. Do they recognize that there could be a better solution than what they currently know? And are they willing to invest effort to find that solution?
There is plenty of evidence showing that in domains where little innovation was seen during many years, customer have little motivation to search.
The researchers Sridhar Moorthy, Brian Ratchford, and Debabrata Talukdar taught us that experts have the tendency to search less than others. Simply because they believe they know everything there is to know. The example given is one of a pharmaceutical company that was surprised when doctors did not prescribe its new drug. The drug was a fantastic innovation that treated the disease more effectively and had fewer side effects than any existing treatments. However, it was the first innovation in this therapeutic area for many years. Doctors believed that they already knew all there was to be known and so their minds were not open to innovative treatments.
The second question we need to ask is, are customers able to search effectively? Is the information on how the new solution better solves their needs, readily available? Are there favourable customer reviews? And if the benefits are too complex to explain in a single line, are we working with the expert advisers in our industry to convince them to recommend us?
And finally, concerning information that cannot be researched like quality and trustworthiness, we need to understand what cues customers will use to infer the absent information. People will look for a proxy to fill in that information gap. This can be things like the reputation of our brand or customer references we have. A famous company like McDonalds for example, learned that their customers infer restaurant cleanliness from the state of the parking lots. In other words, dirty parking lot was unconsciously translated to dirty kitchen and costed them sales.
Based on the outcome of these questions, you can start crafting an awareness campaign that will fit your new solution.
So, if you don’t want to end up in the museum of failed innovations, take heed and combine excellent innovation with innovative marketing. Make sure your gains outweigh the losses, be careful in imposing behavioural change and understand how customers will learn of your great new solution. If you mix this all well, you will be in for a treat.
Want to learn more? Please don’t hesitate to contact me on www.widepeak.com. When you are climbing a peak, make sure it’s wide enough to carry your team.
If you enjoyed this article, please take 5 seconds to share it on your social network. Thanks!
About the author: Romeo Baertsoen is the principal at WidePeak business consulting. WidePeak is a boutique consultancy firm aimed at supporting companies in bringing successful products to market. This through looking at the challenge from all angles, coaching teams to implement relevant processes and translating scientific insights into business frameworks that everyone can understand.
Romeo has 20 years of experience as a corporate specialist focused on bringing products to market. He held various leadership positions both on a European and global level. He holds three master degrees and has certificates from various institutes like Stanford University and Vlerick Business School.