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A Simple Primer on Product Failures

Introduction

Research in the USA and UK from the 1950s to date has shown that, on average, 75% of new product development programs fail commercially.

Commercial Failure means that the company acknowledges two years after launch that there is no chance to recoup the investment made in the product (including the product development costs). Product termination usually follows.

About 95% of new USA consumer products fail. The failure rate in Europe for newly introduced consumer products is about 90%.

In high-tech, the product failure rate range from 60% to 90% — depending on sector and country. Over time, the average product failure rates are consistent at about 75%.

Anecdotally, during the late 1990s and early 2000s, the failure rate in high-tech was over 90% due to the dot.com collapse.

Products fail for various reasons, and understanding why products fail is key to preventing products from failing in the early stages of development.

 

Why Products Fail

Products fail commercially for several main reasons:

  • Price — A product could fail if its price is too high (unaffordable) or too low (perceived to be of lesser quality).
  • Quality — High quality, when the product benefits and features exceed customers’ expectations, is rarely an issue. Low quality, when the product benefits and features do not meet customers’ expectations, can be a serious contributing factor to product failure.
  • No-Value — No or low-value means an unsatisfactory poor ratio between the product’s price and its feature set. Low-value products do not last long on the market.
  • Over-engineering — Over-engineered products provide more features or exhibit performance levels beyond what is necessary for the product’s intended use. Over-engineering, a common source of product failure, may cause negative implications, including complex products, high development costs, excessive support requirements, etc.
  • Wrong Product Positioning — Introducing the product to the wrong market, with the wrong messaging, or against the wrong competition will cause product failure.
  • No/Small Market — Market capacity is insufficient to reach or maintain the necessary revenue break-even point.
  • Strong Competition — The competing products or companies are better by some measure (feature set, product characteristics, technology, marketing, distribution, support channel, brand, etc.)

Additional product failure contributors include ignoring unfavorable market research, overestimating market size, marketing mix decision errors, and stronger than anticipated competitive actions.

 

Faulty Product Management

Bad product management practices can lead to failed products.

The Blackblot PMTK Methodology™ describes three types of product management failures that lead to failed products:

  1. PMTK Market-level Failure
  2. PMTK Customer-level Failure
  3. PMTK Product-level Failure

 

PMTK Market-level Failure

Not Understanding the Market Opportunity

  • Is there market potential (over-optimism)?
  • Is there a legitimate market problem?

This means not realizing if there is a legitimate market problem and not validating the existence of a true market opportunity.

Simply put, this means not knowing if money or other types of value can be made from solving the market problem.

 

PMTK Customer-level Failure

Not Understanding the Customer

  • Did we build the correct product with the correct functionality for the user?
  • Did we provide the buyer with the required information to make a buying decision?

This means not understanding the User and the Buyer and consequently not catering to their respective needs.

This failure type implies not building the correct product with the correct functionality for the User (a failure in product planning) and not providing the Buyer with the required information for a buying decision (a failure in product marketing).

 

PMTK Product-level Failure

Not Supporting the Product

  • Lack of product improvement (versions)?
  • Lack of proper marketing efforts?

This means a lack of consistent improvement and adjustments in product functionality to better support the User’s needs (lack of product versioning, roadmap error in product planning) and not engaging in retaining Buyers post-sales (lack of sustaining marketing efforts to foster repeat buying by product marketing).

 

Summary

Companies can be denied advancement and revenue because of the time, money, and effort that go to produce “loser” products (unneeded products, typically of low value).

Understanding potential product failure contributors is part of delivering products.

Product managers are responsible for understanding, avoiding, or correcting potential product failure contributors because they will surely impact the product.