Greg Kitzmiller05.01.03
Product Failure Or Failure Of Strategy?
Product failure may have everything to do with how it was brought to market.
By Greg Kitzmiller
Too often we hear, “that product failed” when it might be more appropriate to say “that strategy failed.” For example, is it possible that some firm could make a great success of selling a margarine that lowers cholesterol? Yes, I think it is possible that a food firm in the U.S. could have made a cholesterol-lowering margarine successful. And it is likely that it would have had to cut costs to get the product price at a slight premium above other margarine products and the firm likely would have had a high risk-taking posture. That said, it is valuable to consider where strategy failed instead of assuming a product would never have been successful.
Case Study Methodology
The case study method of teaching is frequently used to assess what was done correctly and what could have been changed. It is impressive how quickly MBAs see a point during a case discussion that seems to have been missed by the management team of a firm during the process of managing a product. Often the mistake in judgment seems really easy to understand after it is pointed out.
Case in point. A lot of firms feel that with approximately 1.3 billion people in China that they only need a small market share to be successful. That would be true if marketing the first rice product to the country. However, the consumer products market in China is far smaller than a 1.3 billion target market. Some product marketers estimate that for a given consumer product there may only be 200 million in a target market for certain consumer goods. Five percent of 200 million is a large number but nothing compared to the 65 million who would have represented five percent of the entire population. Since the “real” target market for consumer products in China mostly live in cities that are well developed, sometimes those product markets are already far more saturated than foreign (e.g. American) management estimates. In this case, being blinded by the overestimation of market size creates false expectations, overspending and overproduction.
Similarly, when dietary supplement sales really heated up in the U.S. in the 1990s it seems many thought the “sky was the limit” and all American consumers were going to turn to nutraceutical products, so that by 2000 the market would be 20 times greater. There has been substantial consumer acceptance of supplements and nutraceuticals. However, the original market assumptions of some firms has not equaled the real market.
Making Bad Comparisons
Another error that blinds businesses is the extension of one set of facts to another experience. For example, although countries of the world speak the same language, they do not operate their businesses the way Americans do. This situation is referred to as distance bias. The distance works two ways. If firms are not close to a particular market, they will make assumptions based on the belief that there is a similarity (or lack of distance) between cultures. The same misunderstanding can happen between industries.
While some executives have successfully transferred from one industry to another using basic guiding principles, others have not. Those that make an industry switch successfully most likely are the ones building on overall models or assumptions about the basics of business, not the specifics of an industry. Many who switch may try to run, for example, a food division the way a pharmaceutical division is run. Eventually, they will find that in terms of the actual market assumptions or operating principles, there are real differences. Whether we are transferring products between nations or transferring people between industries the “that was successful over here” approach of trying to extend one set of facts to another setting can be a strategic problem.
Think it Through
Finally, lack of thoroughness can also hinder strategic plans. It is easy to be blinded by one aspect of strategy and not see the importance of another. Take for example a vice president of marketing, who is looking for a great commercial execution to turn around a mature brand. He barely agrees to investigate product or pricing changes because he is convinced new advertising will make all the difference. A change in advertising may help, short term. However, ultimately the entire brand will have to be reevaluated and several strategic changes will be necessary to reduce the decline.
Similarly, take the case study of the extension of Disneyland into Tokyo and Paris. Just because the exact Disney formula (executed by locals) worked well in Tokyo, did not mean all factors would be the same in Paris. Tokyo, Japan is one of the most visited theme parks in the world and generates profits. And while Euro-Disney has attracted many visitors and seems to be rather successful after more than 10 years, it clearly did not meet original objectives, as it lost a lot of money in the beginning.
Conclusion
Each product, each target market and each competitive situation may require a totally different evaluation. Thinking through each area of strategy is what is focused on with case studies. Clearly a business is more important than a case study and should require even more careful attention. However, keep in mind that a product itself may be viable, it just needs to be part of a successful strategy.NW