Using Market Research For Product Development

Businesses compete to create products and services that are "New." Market research finds insights into the needs of customers and can improve or disprove a hunch. Specific questions must be addressed during the process to refine the "new" idea, examined by B2B International in this white paper.

Introduction: The Importance of "New"
"New” is one of the strongest words in marketing. “New” invokes the belief that something is moving forward, that it is different, modern or improved. People are attracted to new products like a magnet. Introducing new products on a constant basis is the best way to get attention and is invaluable publicity for a business. “New” positions a company as being dynamic and forward looking. Companies such as 3M and Sony have held this slot for periods of time but it is difficult to stay there. Innovation is hard work and the road is paved with failures. This white paper shows how market research, when used correctly, will minimize the risk of failure. It also explains that market research does not always give a clear-cut answer – considerable insights and experience are required by the market research analyst to interpret the data and visualize the opportunity.

The word “new” is sometimes over-played in marketing because it is so frequently used for everything from conceptually new products through to old wine in new bottles. The main types of product development are as follows:

1. New concepts - completely new products that have arisen as a result of innovation and which can sometimes create new markets.
2. Additions to existing product lines - new products that supplement established product lines. For example, a supplier of industrial gases may introduce a new, smaller cylinder to include in an existing product line, aimed at serving customers who require smaller amounts of gas.
3. Modifications of existing products - existing products that are modified in order to better meet customer needs, such as improved performance.

90% of new product research is focused on product ‘additions’ and ‘modifications’ rather than on the concepts. There is nothing wrong with this. Product improvements are obvious developments and are much more easily accepted than conceptually new products.

In fact, the more conceptually new the product, the riskier it can be. FedEx lost $340 million on its new Zap mail and DuPont lost an estimated $100 million on a new synthetic leather product called Corfam. With this in mind, many companies turn to disciplined market research as a form of insurance, i.e. as a means of reducing business risk. The next section looks at how market research is used in product development – not only as insurance, but also as a tool to establish needs and to obtain intelligence on market potential.

Using Market Research In Product Development
Market research can be used at all stages in the product life cycle, as illustrated in Figure 1 and explained in the following sections on applications for market research.

Pre-Birth - Establishing Needs
Many companies recognize the importance of “new” and for this reason they allocate substantial sums to research and development. Electronics companies may have an R&D budget equal to 15% of their sales, but this is required in order to cope with the rapid pace of change in their sector. For most companies, the expenditure on R&D is somewhere between 2% and 5% of sales – still huge sums for the likes of Boeing, Honda or Siemens.

Over 90% of all innovations that are successful start in the wrong direction , and are not the outcome of good market research. In fact, many new and successful products arise by accident and not as a result of hours and hours of focused R&D or significant financial investment. Indeed the telephone, X-rays, bubble gum, Velcro, Viagra and Post-it notes – to name but a few examples – were all invented by accident. In the case of Post-it notes, for instance, a researcher at 3M was eager to create the world’s best glue, but actually ended up creating one of the worst glues ever – one that didn’t stick – which nevertheless ended up as one of 3M’s most successful products: that of the ubiquitous Post-it notes.

Not all new products arise by accident, however, and market research can play a role in determining the need for most new products. Drucker (1993) tells the story of William Conner, a medical salesman, who decided he wanted to set up his own company. Conner sought new product opportunities by visiting surgeons and asking them about the challenges they faced in their work. In these interviews, Conner learned that the process for cataract surgery involved a difficult task for physicians, in that they had to cut a ligament which was an unpleasant and risky move. Conner then discovered an enzyme which could dissolve this ligament (thus eliminating the requirement to cut the ligament), as well as a means through which the enzyme could be preserved until it was required in surgery. The innovation was a success, which led to Conner patenting his compound and meeting an unmet need in the industry – all thanks to market research which played an instrumental role in discovering and unleashing the market opportunity.

In the case of the cataract surgery, market research provided invaluable insights into unmet needs and a thorough understanding of the environment in which the new product would be sold. However, caution should be taken in terms of the expectations of market research, for it cannot be assumed that conducting research with the market will uncover sizeable opportunities and lead to the conception and launch of new products. It is the role and responsibility of the researcher to use the understanding of the needs of the market to find applications for new products that will satisfy these needs. The market cannot be expected to announce what the new product should be, and market research respondents cannot play the role of R&D Director!

Furthermore, it cannot be assumed that market research is an exact science, as it would be unrealistic and unreasonable to expect market researchers to predict the precise demand for a new concept, given that there are numerous variables that can impact demand outside of the market researchers’ remit. It takes years to get a product to the commercialization stage, let alone to get it well established in a marketplace.

Market research should be regarded as an experiment which may fail if it is not conducted in the right conditions. For example, Xerox commissioned three independent consultants to explore the opportunity for a copier. Two consultants advised against the launch and the third consultant forecast sales of 8,000 units over 6 years. Xerox chose to ignore the recommendations of the consultants, launched the copier and installed 80,000 machines within just 3 years. The market research had underestimated demand as respondents were unable to provide their views on a new product that they had never experienced.

Indeed, innovations that require potential users to try something new (which is likely to involve a change in mental attitudes) are difficult to research, given that potential buyers or users – when asked in an interview or focus group – cannot be expected to imagine using a product and to then state how likely they would be to buy it, or to state how much they would pay for it, without sufficient time to fully consider the product, or possibly trial it in the environment in which the product would be used. Imagine asking people prior to the launch of the Sony Walkman what they thought of the concept of a transportable music player that they could listen to on the move. Since people would have difficulty conceiving the notion, it could have received the thumbs down.

Nevertheless, market research can explore the underlying needs of the market and make a judgement as to how well a new product meets these needs. Hence it is the researcher, and not necessarily the potential buyer or user, who makes the connection between the unmet needs and the new product development opportunities.

To read the rest of this article on the B2B International website, click here.

Julia Cupman works at B2B International.