Business-to-Business New Product Innovation by Dan Adams

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Linking Early-Stage Marketing and Late-Stage Marketing

Last week we defined Early Stage Marketing as figuring out what the customers’ needs are… and Late-Stage Marketing as satisfying those needs by promoting our new product to them. Many B2B companies (my area of expertise) do a simply awful job of Early-Stage Marketing and then express surprise when their new product fails. They may think the problem was with their promotional campaign, when in fact they had been trying to promote something they were excited about…not their customers.

Not only does great Early-Stage Marketing prevent you from putting lipstick on a pig, it actually informs and improves the way you promote your new product. When you do your up-front homework, you hear the customers’ “hot buttons” as they describe their needs. You learn what customers want in their language.

This is helpful for traditional Late-Stage Marketing, as you try to figure out what to say in brochures, trade-show displays, etc. But it’s critical for web-based Late-Stage Marketing! Recent research by MarketingSherpa indicates that—for large B2B purchases—the supplier found the customer only 20% of the time. In 80% of cases, the customer found the supplier… often via the web.

So SEO (search engine optimization) and keyword selection are more important than ever. And great Early-Stage Marketing—especially understanding customer hot buttons in their language—is the key to getting this right.

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Early-Stage Marketing vs. Late-Stage Marketing

In last week’s blog, I described how marketing could be explained in three parts: Design (What does the customer want?), Development (What product/service would meet this need?) and Delivery (How can we get this product/service in the customers’ hands?). When time is short, I’ll often abbreviate this to describe marketing in terms of Early-Stage Marketing (Design) and Late-Stage Marketing (Delivery).

I find that when most people think of marketing, they’re thinking of Late-Stage Marketing. This is the promotional work. It’s the trade-show booth, the glossy brochures, the web-site. It’s attention-getting and it’s fun. It’s also a very large waste of money if the Early-Stage Marketing has been done shabbily.

Now that last statement might not always be true of consumer-goods marketing. We can probably all think of worthless products that were masterfully foisted on consumers by Madison Avenue. But when it comes to B2B marketing—dealing with other businesses that are populated with insightful, rational decision-makers—your product really needs to meet some important, unmet needs.

So if you’re in B2B marketing, you may find it helpful to ask how much effort you’re putting into Early-Stage vs. Late-Stage. If you are all about the Late-Stage, you well may be conducting a livestock cosmetics clinic… putting lipstick on a pig. Next week, we’ll talk about how to link these two stages tightly together.

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So What Does Marketing Really Do?

For many years, I held various marketing positions in large B2B manufacturing firms and would be asked this question: “So what do you guys really do, anyway?” I found that mumbling or pulling out some helpful Dilbert cartoons really weren’t addressing this question well. So eventually I began describing marketing’s role in three parts: Design, Development and Delivery.

The Design phase is when you figure out what your customers really want. The Development phase occurs when you develop a new product or service to meet that need. And the Delivery phase is all about promoting that product/service in a manner that puts it into customers’ hands.

In many companies, the Marketing function only touches that middle phase (Development) lightly. Most of the fingerprints here belong to some scientists in the R&D department, for instance. But, in my experience, it’s always wise to have a multi-functional team engaged in all three phases. And the Marketing function usually has an important and perhaps even coordinating role here.

If you’re explaining this to someone during a very short elevator ride, you might even describe marketing’s role in a somewhat more abbreviated fashion: Early-Stage Marketing and Late-Stage Marketing. More on this in next week’s blog.

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Three Reasons for Competitive Side-by-Side Testing in New Product Design

In the last blog, we talked about a fairly rigorous way to understand competitive capabilities when designing a new product. The punch line was… you need to truly understand your customers’ needs before you can measure your competitors’ capabilities. When you do this well, three very good things happen.

First, you avoid being blind-sided. I’ll bet you’ve run across your fair share of new products that didn’t fare well against competitors when launched. If you could rewind the product development tape, you’d probably hear someone somewhere in a conference room say, “Oh, Competitive Product A is really lousy at _______”. Unless you perform solid competitive side-by-side testing, you can expect to continue hearing these assumptions and having these results.

Second, you learn where the competitors have weak spots… so you can attack these. Don’t just stumble on competitive advantages. Exploit them in your design and keep doing so in your new product literature!

Finally, two conditions must be present to make a lot of money with any new product. Condition 1: You deliver significant new value to your customer. Condition 2: The customer is not able to get this value anywhere else. It’s important to interview customers; but doing so just helps you learn about Condition 1. You need to perform side-by-side competitive testing to learn how to achieve Condition 2. This is what allows you to know how to price your product. Skip this step and you may deliver a lot of value… but leave a lot of money on the table in your pricing.

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So What Can Your Competitors Really Do?

When a team develops a new product, they often fall into the trap up making assumptions of two broad types: customer needs and competitive capabilities. And these are not independent. Here’s why:

It’s a pointless question to ask, “What can my competitor do?” unless we put the question in the context of what customers need. Too often, new product development teams spend little effort understanding competitive capabilities… and when they do, the analysis revolves around test procedures and measurements that compare these competitors to their own products.

Big mistake! To properly understand competitive questions, a team needs to first ask these fundamental questions: 1) Of all the possible outcomes we could deliver to a customer, which are the most important and least satisfied (and therefore most eagerly sought), 2) How does the customer measure whether or not these outcomes are being delivered, and 3) How good is “good enough” and how bad is “barely acceptable” for the customer?

Example: Suppose you produced resins that your customers use in paint formulations. And it turns out that “scrub resistance” is one of the most important, least satisfied outcomes. Then, suppose you learned that they use the Acme Scrub-O-Meter to measure scrub resistance. Finally, you learn from customers that 100 scrub cycles (before wear-through) would be barely acceptable, but that they would have no use for anything above 300 scrub cycles.

Now—and only now—are you prepared to truly measure competitive capabilities in a meaningful way. But note that it takes some effort on your part to gather this information. There’s a good chance your competitors are not doing this, providing you with a competitive edge. In the next blog, we’ll look at three really good things that happen when you do this.

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What Will Your Company Learn During the Downturn?

I just got off the phone with a magazine editor and she asked several insightful questions during the interview. One of them was, “What should companies be spending their money on during a recession?” My answer was learning.

We’ve all heard the stories of how some companies take advantage of a recession to sprint ahead of their competitors. While those competitors “hunker down” and conserve their capital, these forward-thinking firms plan and install new capacity during the ugliest of times. Then, just as favorable economic winds begin to blow, their capacity is coming on line. Surprise! Their competitors are caught flat-footed and the companies that had their high-beams on gain significant market share.

There are strong parallels to organizational learning during an economic downturn. Let’s take the example that I specialize in…understanding in-depth B2B customer needs before beginning to develop a new product. What would happen if a supplier invested in a) training to learn new advanced methods, and b) some travel costs to conduct these respectful, peer-to-peer customer interviews? Three things really…

First, the supplier would know precisely what customers in the target market segment wanted in the next new product. So, instead of wasting over half the supplier’s R&D working on dumb projects (as is now done, on average), this supplier would be prepared to launch very exciting new products just as the economy ticks upward.

Second, the supplier would now have a “favored position” with the customers they interviewed. These interviews are designed to “wow” the customer because it is clear the supplier is actually listening to his customer. We find this is much more of a rare occurrence than you might think. This favored position can lead to immediate ancillary new business, as our supplier takes a larger share of wallet at the expense of suppliers using the same old sales tactics.

Third, the supplier will have built a 2-3 year head start in the critical competency of understanding customer needs. This is akin to a significant head start in implementing Six Sigma or other new practice over competitors. They often never catch up and have to struggle mightily if they do.

Learning is a funny thing. It might seem expensive… but is almost always less expensive than not learning.

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#3 Economic Survival Tip: Engage Your Customers More Closely

This week, we finish our three-part series on surviving and thriving in a miserable economy. This tip can best be practiced by companies providing products or services to other companies (not end-consumers). Outstanding research done by Huthwaite International shows the best way to sell a product is to simply ask customers what they want. (For more on this, read S.P.I.N. by Neil Rackham.)

So if that’s true, why wait until the product is already developed? Why not ask customers before the product or service is developed so we can 1) develop a better product and 2) engage them to prime them to buy our new product? This doesn’t work so well if you have millions of toothpaste customers, but does if you’re a B2B provider and would like to get much closer to your ten largest customers. We now have a host of tools used to interview B2B customers in a very respectful, peer-to-peer fashion that leaves customers very engaged in your new product development. (See www.newproductblueprinting.com for more on these tools.)

Of course, new products can take a long time to develop… so how will this help you now… in the middle of an economic downturn? That’s actually the fun part… and one of the unforeseen, unintended consequences of advanced B2B product development. When we first introduced New Product Blueprinting, we were focused exclusively on long-term product development. But then our clients started telling us their newly-learned interview methods so impressed prospective customers, that it cast them in a new light. Imagine you’re the customer: The last ten suppliers called on you trying to sell you something they already had. Now, here comes a supplier that listens closely to you to understand your needs. Who would you rather work with?

Here’s one example: A marketing professional in Europe had been trying to start a single new-product project with a major customer in the United Kingdom for several years. At the end of his initial New Product Blueprinting interview, he left the customer with six projects to work on. Customers just want to work with suppliers who are competent and care… about them.

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#2 Economic Survival Tip: Learn New Best Practices

Last week, we began a three-part series on surviving—and even thriving—in a miserable economy. This week, consider if there are new practices your company could adopt to rapidly boost your effectiveness in critical customer-facing activities… such as sales management, pricing or marketing communications.

Have you ever joined a new company and found that your old company was doing some things much better than your new employer? And vice versa? Many companies improve areas of weakness when employees behave as honeybees, cross-pollinating practices from one firm or industry to another. But this is a slow process and you don’t have the time to wait when a downturn is upon you. You need to find and drive these best practices into your business quickly.

If that sounds overwhelming, consider two acronyms: APQC and ISBM. The American Productivity and Quality Center is one of the world’s top benchmarking firms. Based in Houston, Texas, APQC has likely already benchmarked any practice you can imagine. So instead of forming a benchmark team within your company that will take months just to set up their work, check out this non-profit organization at www.apqc.org.

But if—like many people—you prefer to learn from people over reports, find an association to tap into. If you are a B2B supplier (not consumer goods), you can’t do better than the Institute for the Study of Business Markets. Based at Penn State, the ISBM has over 100 leading researchers and 70 advanced B2B member firms. These companies know that firms that just “hoard their secrets” fall behind those that share and adapt. As Ralph Oliva, Executive Director of ISBM puts it, “It’s really about how you implement new tools. Tiger Woods wouldn’t be worried if I used the same golf clubs as he did.” To access a wealth of reports, workshops, consortia, and other learning opportunities, visit www.isbm.org.

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#1 Economic Survival Tip: Cut the Right Waste

Warren Buffet said it well: “Only when the tide goes out do you discover who’s been swimming naked.” But even well-managed companies may feel a little “exposed” in this economic downturn. What are your choices? For too many, short-term interests will be pitted against longer-term interests… and we all know which will win, right?

In this and the next couple of blogs, let’s explore some actions companies can take to survive during a miserable economy—that will actually improve their long-term prospects. The first tip is to cut waste. I’m not talking about reusing paper clips. I’m talking about reinventing the one function in most companies that is more wasteful than any other function: new product development.

In the average company, about half of R&D and related resources are wasted on developing new products that are destined to flop. Can you think of any other function with this level of waste? Accounting? Human Resources? Manufacturing? And yet many large companies waste tens or even hundreds of millions of dollars here. They just try harder next time when they really need to reinvent their approach.

None of these companies has “extra” R&D people standing around. There are always more projects than people to work on them. What if these companies could hire scores or hundreds of new workers who understood the company’s technology, processes, culture and customers… and could start working tomorrow? Well, they can. They just have to kill the dumb projects they are now working on that are destined to be duds.

But, you say, we don’t know which projects to kill. Exactly! You don’t know… but your customers do. You just have to figure out how to ask them. Without going into all the detail here (visit www.newproductblueprinting.com for more), you need to uncover all the most important outcomes that the customer would like. Then ask them two questions about these outcomes: 1) How important is this outcome on a scale of 1-10, and 2) How satisfied are you with what you’re getting in this outcome today on a scale of 1-10?

When you multiply the importance times the dissatisfaction (or 10 minus satisfaction), you get the Market Satisfaction Gap. A high Gap (over 30%) indicates the customer really wants you to work on delivering this outcome with your new product.

Now here’s the scary part: We’ve worked with clients in hundreds of markets and they are usually surprised by what customers tell them with this approach. Put another way, they had been planning on developing a new product that wouldn’t do what customers really cared about. Put yet another way, they had been planning on wasting their R&D resources.

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So THAT’S What the Customer Wants!

Yesterday, I had more fun than a trainer/consultant has the right to have. Each of my client’s teams was presenting its Business Case—the justification for proceeding into the development stage for a new product. In product development parlance, these teams had just passed through the “fuzzy front end” and were about to start spending the big bucks in their labs and engineering offices to develop prototypes of their new products.

So what made this a fun meeting? Each team knew precisely what the customers in their target market segment wanted. Now that may not sound like a big deal to you, but in my experience the vast majority of B2B product development (my area of concern) involves educated guesswork regarding customers unmet needs. At best, most suppliers gain a qualitative sense of what their customers want by interviewing them. At worst, they make it up by talking to themselves and convincing each other that they know what the customer wants without rigorously probing the matter.

What was unusual about today’s meeting was that each team had quantitatively measured how eagerly customers wanted their most important needs met. Here’s how they did it: For several customer needs, they had asked customers a) “How important is it for you to have this outcome?” and b) “How satisfied are you with your ability to deliver this outcome today?” If the new product they were designing was a new pump, these outcomes might be reduced footprint, increased flow rate, reduced noise, etc.

These teams had learned to use interviews and surveys to measure Importance and Satisfaction on a 1-10 scale… and then to calculate a “Market Satisfaction Gap.” Without going into the math on this, a high Market Satisfaction Gap (MSG) means the outcome is very important and the customer is not satisfied today. Our firm has learned that a MSG of 30% or higher indicates customers are eager for the supplier to improve the outcome. (More on this at www.newproductblueprinting.com)

So some of the teams yesterday had one or two outcomes worth working on. Others had ten! But here’s the key: All of them knew what to work on… and what NOT to work on! That’s how a product development team radically improves its success rate… and puts some serious daylight between themselves and their nearest competitor.