Uncovering the Value of New Products – Part 1

A hipster Caucasian businessman exchanging idea for money.

As a management summary for the following series of posts watch the following video:

https://youtu.be/nbAL_-gkc1c

Companies launch too many new products. Many of the new products do NOT generate more throughput even when their sales are good.  The clients simply buy the new products instead of the old ones, but the total sales do not go up.

Many startups strive to make a real difference in the world. The vast majority of them fail even before they launch anything to the market.  Only small number of startups truly succeed to prosper.  However, the magic of new technology puts a spell on consumers as well as on organizations. There is ongoing pressure to embrace new technologies, like the Internet of Things (IoT). Sometime the new technology initiative works beautifully and sales go sharply up.  Many times huge investments are lost, creating confusion in the market and high financial loss.

The objective of launching new products and services is to add value to clients and by that creating value to the company!  So, there has to be a clear cause and effect relationships between new products, which use the most updated technology, and additional value to the user.  This is also true for new products and services that have nothing to do with new technology.

I have defined three categories of value (see my previous post on it) to better understand what brings value to clients and users:

  1. Practical need.
  2. Status.
  3. Pleasure.

The value of ‘Pleasure’ is especially high for end consumers and covers the majority of the consumer goods. My claim is that to yield additional pleasure a certain added element has to be present, but not every new element is sufficient to attract demand.  Small variations often confuse and degrade the value rather than please.

Organizations buy mainly for practical needs! There are also consumer goods that are mainly for practical needs, like refrigerators, but they carry also an element of ‘pleasure’. A new design of a practical need product might create curiosity, but the decision to buy lies mainly on the added practical value.

All fashion products use the value of status as a key value, but certainly the pleasure element exists as well.

Can we learn to identify a-priori what is required for a new product or service to be successful?

I’m aware I don’t know the full answer. However, knowing “something” could already yield huge benefits.  The following partial guidelines, based on Goldratt’s work on that area, fit mainly the value of practical needs, but are also, to a lesser degree, enhance products for status and pleasure.

Goldratt developed the six questions to assess the value of new technology.  It should be widely used to check projects for joining the Internet of Things movement. I think that the power of the six questions is much wider than just for new technologies.  Actually the inherent potential of the six questions can be compared to the impact of the five focusing steps in the early days of TOC.  I use the verbalization of Goldratt, but do my best to explain the wider ramifications.

Question 1. What is the power of the new technology (or new products)?

The answers should outline what the new technology/product/service can do, and what it cannot do.  It should include the basic capabilities and limitations and also some idea about the cost.  The whole answer draws the boundaries of the use of the new product, or service.

Question 2. What current limitation or barrier does the new technology eliminate or vastly reduce?

The limitation is from the perspective of the potential client or end consumer. When the reduced limitation is only for the company, like reducing costs, assessing the value is trivial.

Goldratt’s verbalization addresses products for practical needs. The claim is that when the new product does not reduce any current limitation then there is no added value.

Goldratt intentionally asks for one limitation only.  For each client there has to be one truly significant source of value that makes a difference.  It is right that a new technology might remove or reduce more than one current limitation, but then we should define the different market-segments for which a specific limitation removed is the main source of value.

Examples for new product overcoming a limitation:

Example 1: Wine for use at home sold in boxes that preserve the vacuum.

The description for answering the first question is: boxes containing 1-3 liter of wine and once the seal is open it preserves the taste of the wine for 3-4 weeks. The packaging materials are cheaper than bottles.

Answering the second question – what is the limitation?

The effective limitation removed is not the cost of the materials.  It is the ability to pour a glass of wine without exposing all the wine to oxidation that, after a while, spoils the taste of the wine.  We’ll see later how the next questions clarify the value of overcoming the specific limitation.

Wine is a typical product for ‘Pleasure’. However, the idea behind the new package touches upon the practicality of the use of the product and thus I consider the unique value of the product as for practical need.

Example 2: A pharmacy chain offers to receive emails from clients containing the prescription and whenever the client appears she gets the package without waiting in the queue.

The limitation removed is the perception of time “wasted” by the client in the queue. I use the term ‘perception’ because waiting in a queue always seems longer than it really is.

Answering the second question forces the organization to think about the gain of the client in a focused way, specifying the most important new element.  The need for a new element exists also for products for pleasure, even though it is not truly a limitation, so the focus is still on creating a new pleasure through a certain new element currently missing.

So far, we are just in the beginning of the journey to be continued.

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Eli Schragenheim

My love for challenges makes my life interesting. I'm concerned when I see organizations ignore uncertainty and I cannot understand people blindly following their leader.

3 thoughts on “Uncovering the Value of New Products – Part 1”

  1. Eli, you ask, “Can we learn to identify a-priori what is required for a new product or service to be successful?” Over 50 years ago, Drs. Yoji Akao and Shigeru Mizuno asked the same question, and spent their lives developing a system to do that — Quality Function Deployment (QFD). It is now a mainstream method in the product development community, and there is even an ISO Standard for it.

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  2. Is QFD is any clash with the six questions? Like TOC in general the six questions take us to what counts most. QFD, as I remember it from 20, or co, years ago, is a detailed matrix method that raises conflicts of what features should do. Is it ready mainstream now? Anyway, there is no direct clash like there is between Throughput Economics and calculating cost-per-unit.

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