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Rewarding Failure in Pursuit of Successful New Products

Everyone in marketing knows that new product failure rates are high. Two researchers from Canada are espousing the theory that making customer knowledge available in an organizational learning center or knowledge base can reduce the causes of failure.

The theory is simple: Accurately predicting customer preferences, necessary for the success of a new product or service, starts with an understanding of all the failures the company (and the industry) has had previously. Most companies have a great deal of intelligence from all of their many interactions with customers, but few have institutionalized that knowledge in a way that generates insight.

Ashwin Joshi of York University and Sanjay Sharma of Wilfrid Laurier University focused their attention on ways to help customer knowledge (preferences, desires, etc.) scattered across the company come together in a customer knowledge base. They looked specifically at the outcomes of the projects in which customer intelligence aided the process or the learning center resolved conflicts among members on the NPD team. They surveyed 165 marketing managers on how customer knowledge development occurs during the creation of new products and whether the use of that intelligence pays off in making proposed new products successful in market.

During idea generation, concept refinement, product development, and product testing, customer preferences come to the attention of the NPD team. Customers offer their input to new product ideas, concepts, and prototypes. Learning about customer preferences, therefore, evolves through interactions with customers, and as such, it involves no small amount of trial-and-error on the part of the NPD team. They put something out to a group of customers and interpret their feedback, adjust the product, and give the customers another chance to comment. This cycle continues and the organization's customer knowledge base evolves accordingly.

To ensure that the learning center not only gets a foothold but keeps improving in its value to the organization as more customer information is garnered, the researchers recommend that marketers develop a little discipline. In other words, they can't solicit customer feedback just for the hell of it; they need to learn from and respond to customer input. The employees involved in new product development can't blow off their assimilation of information about customer preferences no matter how many new products fail. They have to keep listening to customers, interpreting the feedback, creating hypotheses to build on the knowledge, and testing those hypotheses by getting more feedback.

Joshi and Sharma even went as far as suggesting that organizations institute "intelligent-failure reward systems" that reward marketers based on their creativity and customer learning rather than solely on the new product's success.

To read the entire paper, visit www.marketingpower.com for a PDF of "Customer Knowledge Development: Antecedents and Impact on New Product Performance" by Ashwin W. Joshi and Sanjay Sharma in Journal of Marketing, October 2004, vol. 68, issue 4.