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NewNew--toto--Market ProductsMarket Products-- immr Perspectives on Estimating Demand, Sizing Marketsimmr Perspectives on Estimating Demand, Sizing Markets

February 2010

Dr. Phil HendrixDirector, immr

Contact:www.immr.org1 (770) 612-1488phil.hendrix@immr.org

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“Missing the Mark” in New Product Research Costly

ProjectedDemand

from Market

Research

Significant

Moderate

Limited

Few Buy

Slow to Adopt, Sales Costly

Sales “Take Off,” Viral Demand

What Customers Actually Do

Type 2 Error: Underestimate Demand –Client Sits “on Sideline”

Type 1 Error:Overly Optimistic Projections – Premature Investment

Failure, Disappointment

Missed Opportunity

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New-to-Market Product Research is Challenging

Challenge ExplanationResulting ErrorsType 1

(Overestimate)Type 2

(Underestimate)

AdequatelyDescribing Concepts

Ø Brief, partial description requires respondents to “fill-in-blanks” ü üØ Drawbacks not mentioned, shown, or made explicit ü üØ Text-only description fails to convey aesthetic, design features ü üØ Respondent unable to experience, assess user experience ü ü

Consumers’ Understanding

Ø Respondents pay less attention, devote less effort to tasks ü üØ Key FAQs unanswered (in both research and real world) ü ü

Measurement Ø Reliability of single measures weak ü üØ Expected time of purchase not explicitly measured ü ü

ScenariosTested

Ø Purchase probability (stated/actual) depends on scenarios (features, pricing, availability, and other key aspects) ü ü

Ø Scenarios tested fail to take into account competition, constraints ü üMotivation Ø Respondents not motivated to be thoughtful, “accurate” ü üHurdles Ø Impact of hurdles in Conversion Funnel not taken into account ü üMarket Conditions

Ø Actual product differs from product(s) tested ü üØ Actual competitive offers differ from the offers tested ü üØ Actual shopping, deciding requires more effort than in research ü üØ Projections fail to take into account network, viral effects ü ü

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Why It’s Difficult to Succeed with New-to-

Market Products

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Category Examples of New-to-Market Products

Health Insurance

HSAs - A tax-advantaged spending and savings account that can be used to pay qualified medical expenses.

Media Amazon Kindle -A new type of portable reader that can wirelessly download books, newspapers, magazines, and blogs.

Consumer Electronics

MIDs (Mobile Internet Devices) - A new class of lightweight (1-3 lbs), handheld PC’s with 5-9” displays, powerful enough to run many applications

Transportation Zipcar - Provides cars that members in urban locations can rent by the hour.

Entertainment IPTV - Delivers TV broadcasts and video over the Internet, using a broadband connection.

Medical Stresseraser - An FDA-regulated medical device that relaxes the body and calms the mind using clinically proven biofeedback training.

New-to-Market Products, Services are DifferentCharacteristics of

New-to-Market Products

1. Customers’ first reaction is often “what is it?”

2. Usually do not readily fit into existing product categories

3. Often deliver benefits that are new, different from existing

4. Frequently described by features that are new, unfamiliar

5. Awareness low, familiarity with features and benefits even lower

6. Prospects unsure of questions to ask, criteria, options to consider

7. Limited adoption reduces opportunity to learn from others

8. Effort required by prospects to learn about, evaluate, and decide

9. Standards, features expected to mature, and prices drop over time

10. To adopt, customers must often change, learn new behaviors

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New-to-Market Products Challenging for ProspectsProduct Newness: Incremental New-to-Market Newness

Score

Ease of Categorizing

Does NP fit into an existing category, a new category, or span multiple categories?

Fits into Existing Category

Spans Multiple

Categories

Fits into a Category all

its Own

1 2 3 4 5

Comparability Does the NP deliver benefits comparable to those of existing products, or new benefits?

Delivers Established

Benefits

Delivers New

Benefits

1 2 3 4 5

Understandable Are NP’s features familiar or unfamiliar to customers?

Familiar Features

UnfamiliarFeatures

1 2 3 4 5

MeasurableAttributes

Is the NP evaluated primarily on objective or subjective attributes?

ObjectiveAttributes

Combination SubjectiveAttributes

1 2 3 4 5

Compatibity Does the NP require customer to change behavior (e.g., to purchase, install, or use)?

NoChange in Behavior

ModerateChange

Significant Change in Behavior

1 2 3 4 5

Trialability Can the NP be experienced easily, or does it require significant effort, commitment?

Low Cost/Effort

ModerateCost/Effort

High Cost/Effort

1 2 3 4 5

Total Newness Score ÜNewness Score

< 12 “Me Too” New Products13-18 Innovative New Products19-30 New-to-Market Products

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Prospects

Few Prospects for NTM Products Actually Buy

Need not compelling or

urgent

Significant,compelling

Need

Status Quo Acceptable

Dissatisfied with Status Quo

Might Recognize Need,

Solution

Aware of Need, Solution, Brand, and Messaging

Understands some Features, Unsure

about Benefits

Understands Key Features,

Benefits

Skeptical of Claims

Believes claims

Trial, Purchase Difficult

Trial, PurchaseEasy

Perceived Risks, Inertia, Competitors

Delay Purchase

Risks minimized;Incentives, Offers Trigger Purchase

Buyers

Holy Grail

TypicalScenario

Conversion Funnel

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Biggest Hurdle Ü Understanding Features, Benefits

Chasm For New-to-Market Products

Conversion Funnel narrows

sharply at...

... Understanding Key Features and Benefits

Conversion Funnel

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New-to-Market Chasm Slows Market Penetration...

Prospects

Buyers

... and dramatically drives up the cost of customer acquisition.

As the Buyer-to-Prospect

ratio shrinks...

...Time and Cost to Acquire Customers

Increase

Conversion Funnel

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NTM Chasm Dramatically Reduces Odds of Success

Source: immr analysis; Framework adapted from George Day, Is it Real? Can We Win? Is it Worth Doing? HBR, Dec. 2007

Likelihood of Success

New to Company

New Product’s

Relation to Company’s

Existing Products

Adjacent

OverlapsExisting

“Me too” Innovative New-to-MarketProduct Newness

60-75%

50-60%

40-55%

25-40%

5%

10%

Prospects slow to purchase, new-to-

market product stalls

NTM Chasm

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Insights about Doing Research on

New-to-Market Products

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Expectations, Hype Heighten the ChallengeFor Companies Introducing New-to-Market Products

Ü Expectations often unrealistically high within client team, among executives

Ü Considerable speculation, even hype, among industry analysts and observers

Ü Significant investments, big bets, and reputation often at stake

Ü Launch and results closely watched within the company and in the press

For Customers of New-to-Market Products

Ü For “really new” products, understanding, even classifying, difficult

Ü Information about NTM products often fragmented and conflicting

Ü Understanding features and benefits, comparing options onerous

Ü Initially, availability may be limited, requiring extra effort to purchase

Ü Being an “early adopter” can be risky

Ü Customers expect prices to drop over time Ü more costly to buy early

“Marketing often exaggerates the likely growth for a technology or service - adoption typically takes longer.” John Carey, CITI

"Unlocking [the potential] is proving more difficult than early entrants might have thought." Joe Laszlo, Jupiter Research

"Predictions are hard, especially when they are about the future." Yogi Berra

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Rigorous, Disciplined Approach Improves ValidityLearning Approach/Tool Description – Examples Available Upon Request

Present Concepts Clearly, Adequately

1 Concept Elaboration Adequately describe and explain concept, features so that respondents understand, can evaluate, and reliably decide (see p. 15)

2 Storyboards, Multimedia

Use storyboards and multimedia, as appropriate, to describe the concept, explain key features, and highlight benefits

3 Virtual Prototypes Especially when usability is “suspect,” develop virtual prototypes that allow consumers to interact with, “use,” experience product

4 faqfind™ Make additional information about concept readily accessible, track how consumers access and use as they “shop” and decide

5 Qualitative Pretest Verify “usability” of concept descriptions, materials, and research tasks

Obtain Valid, Robust Measures

6 Incentive Compatible Motivate respondents to be “truthful” in answering “will you buy?”

7 Visualization Prompt respondents to visualize whether, when, how they might use

8 Robust Choice Models Match choice methodology to objectives, task, competitive realities

9 User-friendly Choice Tasks

Create “highly usable” choice tasks using IA (Information Architecture) principles (navigation, iconography, format, colors, etc.)

10 Timing measures Measure when respondents are most likely to adopt

11 Adoption Barriers Uncover barriers to adoption (e.g., contract, switching costs, etc.)

CalibrateModels

12 Correct for bias Correct for bias in Choice, Diffusion modeling

13 Disaggregate models Estimate models at segment level (a priori and derived)

ValidateFindings

14 Post-hoc Qualitative Conduct post hoc qualitative research to answer “why?” more fully

15 Track Behavior, Measures

Track measures, update model as competitive conditions change

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Elaborating Concepts for Testing is CriticalGoals of Concept Elaboration

Ü Describe and explain concept concisely, in plain terms easily understood by the average provide consumer

Ü Provide enough information so that respondents can reliably evaluateÜ Guide development, selection of images and multimedia that can efficiently

communicate and reinforce the textual description

Concept Elaboration – Key Elements to Specify

Name* A descriptive name that captures/conveys the essence of the concept

Tagline A memorable phrase that captures/conveys the key benefit(s)

Target Description of who is likely to find it most useful? Why? "How would I know it's for me?"

Description* With as few words as possible, describe the concept. In as few sentences as possible, describe what "job" it does. In quantitative research, make a more complete description available to respondents throughout survey as pop-up (accessed by clicking ▲).

Explanation In as few words as possible, explain how the concept works. Answer the question, “Why should I believe the claim(s)?”

Benefits* What are the key benefits? What problem(s) does the concept solve?

Reference How is it similar to/different from what I'm familiar with, accustomed to, currently using, etc.?

Requirements What do I have to do to purchase, install, or use the service? (e.g., equipment required; where the service can be used; any drawbacks or limitations that need to be considered?)

* Required; other elements optional, but likely to be useful in developing other materials (especially illustrations, faqfind)

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Quantifying Demand for NTM Products – Toolkit

Adoption Model for “Very New Products”

Develop questions, hypotheses using theory of characteristics that influence adoption:• Need(s), priorities• Awareness, familiarity• Curiosity, skepticism• Ability/willingness to pay

Better Measures, Understanding

Storyboards and Virtual Prototypes

Use storyboards, virtual prototypes so that respondents can:

• “Experience” product/service• Understand its benefits• Assess usability/user experience• Envision usage scenarios

Realistic Interaction, Responses

Adaptive CBC(Choice-based Conjoint)

Develop, present sets of offers to respondents by varying product and service features (including price) Use adaptive approach to distinguish “must haves” from features willing to “trade-off”

Accurate “What if” Predictions

faqfindTM

Develop, present user-friendly set of FAQs to respondents

As respondents access FAQs, track information accessed, viewed by each respondent

Summarize, relate FAQs to choices, adoption, WTP

Reveals “Need to Knows”

Demand Model

Estimate model to predict:• Market Potential• Time to adopt• Demand under various

assumptions, scenarios• Price elasticity, impact of

other key drivers

Business Case Projections

ProspectSegmentation

Identify segments using LC/ummixing. Profile in terms of:• Size, potential• Purchase probability• Adoption triggers• Demographics• Optimal Positioning

Pinpoint Real Opportunities

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About the Author

Dr. Phil HendrixDirector, immrwww.immr.org+1 (770) 612-1488phil.hendrix@immr.org

Dr. Phil Hendrix is the founder and director of immr, a research and consulting firm focused on “very new” product and market opportunities. He specializes in helping organizations identify, verify, and capitalize on opportunities for products that are new-to-customers and very often new-to-market. Dr. Hendrix has developed perspectives and research-based tools to uncover customers’ unmet needs, reveal hurdles slowing adoption, trigger interest and accelerate purchase, and determine features and pricing to maximize market penetration. He has extensive experience adapting and applying research approaches, both qualitative and quantitative, to amplify weak market signals and help clients innovate successfully.

Phil has led significant engagements with numerous startups (such as Company.com) and multiple business units of Fortune 100 clients in telecommunications (AT&T, Verizon, Sprint, Sony Ericsson, and others), financial services (American Express), transportation (UPS), insurance (Allstate, United Healthcare), healthcare (US Oncology), and others. He has worked closely with senior management and client project teams on issues ranging from “traditional marketing” (segmentation, positioning, branding) to innovation, user experience, and customer retention. Over the course of his career, Phil has helped clients conceive and successfully launch dozens of new products, businesses, and brands. He has extensive experience in B2C and B2B (SMB) markets. He is also a frequent speaker at industry and academic conferences.

Phil brings a unique combination of academic rigor, strategic perspective, and hands-on experience to his work. Before founding immr, Phil was a partner with DiamondCluster (strategy and technology consultancy), founder and head of IMS (Integrated Measurement Systems), and a principal with Mercer Management Consulting. He has held faculty and research positions at Emory University and the University of Michigan, where he taught courses in research design and analysis, buyer behavior, and marketing strategy, and the Survey Research Center at U. of Michigan. After receiving his PhD in marketing from the University of Michigan, Dr. Hendrix completed post-doctoral studies in applied statistics and mathematical psychology.

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immr’s Focus – Research on New-to-Market Products• Inspiration (principals/inventors)• R&D/Technology enablers• Customers

- Unmet needs- Feature fatigue- Lead users

• Ideation/brainstorming- Worst customers- Worst competitor

• Lead markets• Open Innovation/

Global sourcing

• Opportunity to leapfrog• Market (size, growth, potential,

addressable market)• Competitive advantage(s)

(significance, duration) • Access to technology/IP• Scenario analysis• Risk profile

• Build or buy• Perpetual beta• Market experiments

(learn and scale fast)• Real options• Doubling down• Leveraging network effects• Unlocking demand• Triggering viral effects• Avoiding the new-to-market chasm

• Features (must haves, tipping points) and WTP†

• Platform implications• UI/UE (user experience)• Time-to-market• Alliance and channel partners• Business model innovation• Positioning

SourceIdeas

CraftWinning Value

Proposition

What new markets can we pursue, exploit?

How do we win the prize?

Whichopportunitiescan we own?

What must we do to win?

VetOpportunities

UnlockDemand

Research that

Answers

†Willingness-to-pay

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