Wednesday, May 07, 2014

The Customers You Do Not Want

New product launches often do not succeed.   That's the unfortunate reality facing many business leaders.  Strong early sales presumably are a leading indicator of a profitable success story to unfold in the near future.  However, some new research suggests that not all early sales, and all early customers in particular, are a positive thing.  Scholars Eric Anderson, Song Lin, Duncan Simester, and Catherine Tucker have conducted a new study examining new product launches.  They have identified a set of customers that they call "harbingers of failure."   If these customers are buying your new product, you might not want to celebrate... you may want to become concerned, quite concerned.   Here's an excerpt from Kellogg Insights: 

The researchers found that just 40 percent of new products are still in stores three years later, a number in line with previous estimates. But critically, a product’s chances of succeeding depend not only on how much is sold but also on who is buying.  The surprising finding is that when sales increase to a segment of consumers whom the authors label “harbingers of failure,” then the new product is more likely to fail.  This finding contradicts nearly every metric of new-product success: How can more sales signal that your product is about to fail?  

Who are these harbingers of failure?  Apparently, there are a set of consumers who consistently demonstrate unique niche tastes.   Their preferences clearly fall outside the mainstream.   According to Kellogg Insights, "Harbingers with a history of making four or more repeat purchases of a failed product are nearly twice as likely as other customers to buy another product that fails."  If these harbingers are involved in your early market research, they may convince you to launch a product that is ultimately going to fail.  So, you have to be on the lookout for harbingers long before launch.   The scholars suggest talking to consumers about the OTHER PRODUCTS that they like, not just the product that you are launching.  If they like mainstream popular products, you are probably on solid ground.  If they cite other niche products that have not become hits, you should be cautious.  They might be harbingers of failure. 

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