Customer Development Process Flashcards
Product Development Model
New Product Development
- Tens of thousands of new products are launched every year
- Depending on the product category on average 40-60% of them fail
- No special formula to guarantee success
Why do New Products Fail?
Flaw 1: The company cannot support fast growth
Lesson
Have plan to ramp up quickly if the product takes off
Tools
* Diffusion Models
* Marketing Mix Models
Flaw 2: The product falls short of claims and gets bashed
Lesson
Delay your launch until product is really ready
Flaw 3: The new item exists in “product limbo”
Lesson
Test the product to make sure its differences will really sway buyers
Tools
* CPD
* Observational Learning
* Conjoint
Flaw 4: The product defines a new category and requires substantial consumer education
Lesson If consumers can’t quickly grasp how to use your product ,it’stoast
Tools
* Observational Learning
* Product Testing
Flaw 5: Product is revolutionary, but there is no market
Lesson
Do NOT gloss over the basic questions “Who will buy it?” & “At what price?”
Tools
* Observational Learning
* Product Testing
Problems, where early market does not get a proper start (I)
- Lack of product-to-market expertise
- Selling the vision before having the final product
- Marketing falls pray to the crack between technology enthusiast
and visionary
Problems, where early market does not get a proper start (II)
Lack of product-to-market expertise:
* Raising insufficient amount of capital
* Hiring inexperienced sales and marketing people
* Selling products through an inappropriate channel of distribution
* Promoting in the wrong place and ways
➡️ Solution: Winning at marketing means finding a target market segment that fits a companies size in the short term and than expand in the long run!
Problems, where early market does not get a proper start (III)
Selling the vision before having the final product:
* Preannouncing and premarketing of a product that still has
significant development hurdles to overcome
* Visionary‘s position in the organization weakens
* Support for the project is withdrawn
* No usable customer reference is gained
➡️ Solution: Shutting down marketing efforts, admitting mistakes, and focusing on turning the pilot project into something useful (deliverable to customer and marketable product)
Problems, where early market does not get a proper start (IV)
Marketing falls pray to the crack between technology enthusiast and visionary:
* Failing to discover/articulate the compelling application that provides to orderof-magnitude leap in benefits.
* A number of companies buy the product to test it out but never incorporate it
into major system rollout, because potential rewards never measure up to
risks.
* Lack of revenue
➡️ Solution: First, reevaluating product. If it‘s not a breakthrough, then it is
never going to create an early market! Perhaps supplementary product for
existing mainstream market?
Product Development Model (I)
- Concept/
Seed
Turn vision into key ideas, into business plan
* What’s the product? Is it possible to build?
* Use market research to determine customers. What channel, what
price?
* Develop business plan further
* Create spreadsheet and financial model. Determine how much
money you need
- Product
Development
Engineering:
* develops the product
* specifies first release date
* hires staff to create it
Marketing:
* refines market size based
on engineering
* starts targeting
- Alpha/Beta
Test
- Work with outside users & test different versions of the products
- Complete marketing: sales and communications plan is developed
- More people hired. Ready for the big unveil
- Launch/
1st Ship
The big launch!
* Get product to as wide a market as possible. Introduce across all
channels
* Try and grab as many customers as soon as possible! Marketing and
Sales are working on all gears – waiting for the custom
Product Development Model – is NOT… * a marketing model
* a sales hiring model
* a customer acquisition model
* even a financing model
10 Major Flaws of the NPD Model (I)
- Where are the customers?
- Focus on first customer ship date
- Emphasis on execution – not learning & discovery
- No meaningful milestones for sales, marketing & bus development
- Use of NPD to measure sales
- Use of NPD to measure marketing
- Premature scaling
- Death spiral – getting product launch wrong
- Not all startups are alike
- Unrealistic expectations
Product Development Model (VI)
This is a top-down approach:
* Not wrong, but incomplete and probably backwards
* Often results in a death spiral for the product due to premature
scaling, especially in a startup.
* Large Fortune 500 companies can absorb 40% of their new products failing (sometimes, e.g., Dell? Blackberry? ). This model was developed for large firms.
* Smaller companies and startups have few to no other options
* Need to combine it with a bottom-up approach!
Customer Development Model Customer Discovery
S38 F06
Customer Development Model: Customer Discovery (I)
- Your understanding of the customers’ problems or needs
- Don’t just look for data – Look for insights! What does that mean?
* Visit customers – get out of the building
* Talk to them. Who are they?
* What’s their problem?
* How would they use your solution? - Develop and Test your hypothesis – Ideation
* What’s your value proposition?
* How do you solve their problem?
* Go back and talk to the customers
* Are there customers for your vision? - Did the results match?
* Yes: next step
* No: Pivot, hypothesis don’t meet reality - Determine the “Minimum Viable Product”
* Ask “how much will you be willing to pay?”
* Don’t look for actual price, try and also understand the benefits
in terms of time savings etc. - Disclosures
(NDAs – can be bad – need to weight it on a case-by-case basis)
* You are trying to learn about them, as much as they want to
learn about you!
* SPEED is your friend!
Customer Development Model: Customer Validation
- Assume that you have a minimum viable product
* Build iteratively if required - Develop a conversion funnel
* How will a lead turn into a customer? - Develop positioning – Talking to customers
- Sell – To evangelists or lead customers
- Verify, Refine & Repeat – The Iteration Step (Pivot)
* If validation shows that there aren’t enough paying customers,
then return to discovery and restart
Customer Development Model: Customer Validation (II)
Note: This is a cost-saving phase!
* Saves you from scaling up and selling the wrong product
* Build a sales team around the wrong product
* Having a wrong positioning strategy
* Charging the wrong price
* And in the end, selling the wrong product!
In the next step you can spend more confidently on customer creation
Customer Development Model: Customer Discovery & Validation
S44 F06
Customer Development Model: Customer Creation
- How big is the Total Market?
- How big is the Available Market?
- Who are the potential Target Users?
- And finally… how big is Your Share?
Customer Segments: Heterogeneity in Markets
- Variation in customer needs is the primary
motive for market segmentation. - Most companies will identify and target the
most attractive market segments that they can
effectively serve.
Customer Segments: Criteria for Customer Segments
- Psychographic
(Status, Lifestyle, Beliefs, Attitudes, Social Groups, …) - Behavioral
(Solution Needs, Pricing, Media usage, Buying Channel
usage, etc.) - Geographic (Location)
- Demographics (Gender, Age, etc.) – increasingly irrelevant
Customer Segments: Properties of Good Segment Definitions
- Identifiable: clearly defined and distinguishable – to find
- Sizable: large enough to serve economically
- Accessible can be reached through media/buying channel
- Stable over time (important in developing econ)
- Responsive responds to marketing actions
- Actionable resources to target effectively
How do Consumers Move along the Sales Funnel?
S49 F06
Why Business Plans Fail
Why Startups Succeed: Lean Method
- Do not survive first contacts with customers
- Only venture capitalists & soviet union require 5-year-plans to
forecast unknowns - Success means going quickly from failure to failure
Why Startups Succeed: Lean Method
- Summarize hypotheses in business model canvas
- Get out of the building!
- Agile Development
Quick, Responsive Development Cycles
S52 F06
