Product Failures And Their Strategies

PRODUCT FAILURES AND THEIR STRATEGIES

ABSTRACT: Since 80 – 95 % of all new products fail in the Global market. In an effort to discover why many great theories, inventions, and innovations fail to come to fruition, the following research will show some reasons for these failures. Are the theories, inventions, or innovations poorly calculated, or is there a psychological reason behind the collapse? Many substantial reasons can be cited for the failure of these projects. A few examples are: did the plan lack the necessary funding or financing to bring it to fulfillment; was the project dependent upon only one person; was there a breakdown in the resources needed to complete this project? Although substantial failures can be blamed for such failures, it is usually the individual involved that is to blame for the failed adventures of a particular development. Individuals have to overcome odds, some which may seem insurmountable, to implement a new or existing application. What makes one person fail, while another succeeds? Is there an inner hidden quality in the successful person that is lacking in the person who fails? These and several other questions will be answered in this article, through studying various reason product failures and research. Uncovering the true meaning of success and failure, as related to one’s own psychological awareness, will help to unearth the appropriate information.

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PRODUCT FAILURES AND THEIR STRATEGIES

INTRODUCTION:  New Product Failure is Rampant: •

95% of new U.S. consumer products

•

90% of new European consumer products

Reasons for failure include ignoring unfavorable market research, overestimating market size, marketing mix decision errors, and stronger than anticipated competitive actions. Extensive research has been carried out, both on a corporate and an academic level, in purpose of reducing new-product failure rates. Despite this fact the failure rates of new products in general have not decreased. DEFINING PRODUCT AND BRAND FAILURES: A product is a failure when its presence in the market leads to:  The withdrawal of the product from the market for any reason;  The inability of a product to realize the required market share to sustain its presence in the market;  The inability of a product to achieve the anticipated life cycle as defined by the organization due to any reason; or,  The ultimate failure of a product to achieve profitability. However, companies such as Procter & Gamble, IBM, and Hewlett Packard have improved their new-product failure rates through disciplined marketing processes, and succeeded over and over again. The common element among these companies is according to Berggren that they have a formal “stage-gate” process for new product development. The importance of new product development can be visualized in a very simple context and formula: Profits = Revenues – Costs. New product development is essential to companies while they make profits from 2 | Page

PRODUCT FAILURES AND THEIR STRATEGIES offering products or services to a price that exceeds the costs. The fact that products don’t sell forever also adds to the importance of developing new products. Each product has a limited life cycle involving five stages: product development, introduction, growth, maturity and decline. On a company level companies can create economic growth in internal or external ways. Anderton defines internal growth as higher output within a firm, and it could be achieved through increased investments or increased labour force. Merger, amalgamation and takeover are some of the external ways to realize higher growth rates. Corporate growth leads to economic growth and is therefore important in a macroeconomic point of view. The profits from durable economic growth for a nation are several, for instance economic growth increases government finances, and will give possibilities like better welfare, higher spending on health care and education, or improved infrastructure. In this context it is clear product development is an issue of significance even outside the micro-level. Failure is the lack of success. Is failure being down-and-out and broke? Just because you fail at something doesn’t mean you are impoverished, or does it? Psychologically speaking, what is failure? Studies indicate that failure is nothing more than a state of mind (Hirsch, 2002). Failure is the result of taking on a task without having the proper resources, at a specific time, to accomplish it. Failure can be someone else’s perspective or thought about how a specific task should be performed (Dyer, 1976). Individuals and businesses may fail several times before coming up with an end result that fills a specific need. Even psychologists and scientists have failed in their experiments while trying to find a solution to a particular case study (USA Today, 2004). Handling failure is the key to success and the proper way to handle failure is a learned skill. Learning these skills will prevent other psychological disorders, of which many have failure as the root cause. THE BENEFITS OF STUDYING FAILURES: Gaining a better understanding of product failures is important to 3 | Page

PRODUCT FAILURES AND THEIR STRATEGIES help prevent future failures. Studying the history of product failures may generate some insight into the reason for those failures and create a list of factors that may increase the opportunity for success, but there are no guarantees.

LIST OF EXAMPLES OF FAILURE PRODUCTS: 1. PEPSI BLUE 2. AMWAY (CHAINESE MARKET) 3. HAIER REFRIGIRATORS 4. DISPOSABLE PAPER CLOTHING 5. FORD EDSEL 6. CHEVROLET CORVAIR 7. GOODYEAR TIRES USED ON THE FORD EXPLORER 8. APPLE’S NEWTON (COMPUTER) 9. CHELSEA—“BABY BEER” 10.TIMEX’S SINCLAIR Common reasons for product failures: In addition to a faulty concept or product design, some of the most common reasons for product failures typically fall into one or more of these categories: 

High level executive push of an idea that does not fit the targeted market.



Overestimated market size.



Incorrectly positioned product.



Ineffective promotion, including packaging message, which may have used misleading or confusing marketing message about the product, its features, or its use.



Not understanding the target market segment and the branding process that would provide the most value for that segment.



Incorrectly priced—too high and too low.



Excessive research and/or product development costs.

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PRODUCT FAILURES AND THEIR STRATEGIES 

Underestimating or not correctly understanding competitive activity or retaliatory response.



Poor timing of distribution.



Misleading market research that did not accurately reflect the actual consumer’s behavior for the targeted segment.



Conducted marketing research and ignored those findings.



Key channel partners were not involved, informed, or both.



Lower than anticipated margins.

PURPOSE: The introduction leads us to the following question: What product development processes should a company consider when developing new products to reduce the risk of failure? We want to compare product development methods and theories with the practices in companies, and investigate whether formal product development processes and failure rates are connected.

METHODOLOGY: This chapter aim to describe our methodological choices during the writing process of our research paper. In the end of this chapter we will discuss validity, reliability, and the ability to generalize our conclusions. The work has been developed through the following process. CONSUMER ADAPTATION PROCESS: FIVE PRODUCT CHARACTERISTICS INFLUENCE THE RATE OF ADOPTION

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PRODUCT FAILURES AND THEIR STRATEGIES ADOPTER CATEGORIZATION ON THE BASIS OF RELATIVE TIME OF ADOPTION OF INNOVATION

AMWAY CORPORATION

Amway Corporation was first given its shape in 1959 by two persons in Michigan ada usa. It recorded for more than half a million dollars sales in just few years from the commencement of business. They had a typical approach for the business making it a complete new concept of man to man marketing and sales which was applauded by every one who were involved in it. Amway is now a leader in its own way continuing its winning spree in which ever nation it enters globally.

Amway is now spread across 80 different countries where in more than three million people are involved in the business playing a role of distributers of the products of Amway. The stretch of countries include the giants like America, Europe, Korea, Australia, and many more. As far as 6 | Page

PRODUCT FAILURES AND THEIR STRATEGIES the product length is concerned it stretches from home use products like soaps to luxury products.. Market entry is the critical factor that influences the growth, sustainability of the organization. There are many parameters that are needed to be considered while entry into any market is being made. Amway though making good profits in many countries like United States of America and countries in the west, it could not sustain the same level of growth in china. There are several factors behind its downfall in china but the most important consideration left behind was the slept factors of china. For any organization while expanding globally, it faces many new factors right from political scenario to the climatic conditions. So each and every factor has an importance of its own and so has to be clearly defined in a right way so that no factor is left behind. Amway Corporation in west adapts mostly e-selling, direct selling, personal selling processes without much of promotional activities like advertising on large scale through media, print media etc. But in china the same strategies do not work as the scenario is not the same as it is in the west where it succeeded first. The slept factors needed to be looked upon by any organization to sustain in china: ECONOMIC FACTORS: China’s economy is beginning to dominate the Asian economic conditions due to foreign direct investments. The Chinese market has attracted foreign investors because it has got a huge size and market potential within itself. The GDP growth has been very positive in the last five years compared to other Asian economies. China’s economy is growing at a rate of about 8 percent and is considered to be the fastest in Asia. China though an emerging economy, it is dual an economy too, where it is filled with a wealthy urban professionals and a poor country people. The gap that exists between rich and poor is growing almost as fast as overall income, depicting that inequality is increasing nearly with the country’s development. Huge income discrepancies emerging within social groups and between regions can be seen clearly. POLITICAL FACTORS: 7 | Page

PRODUCT FAILURES AND THEIR STRATEGIES The Communist Party that prevails in China has transformed itself by declaration that it now represents capitalists as much as workers and peasants. China has just begun its transition to become a democratic country. New leadership has come to power in china facing enormous economic, environmental, and political and social challenges at home in all directions, and yet is being successful in tackling those challenges. SOCIAL FACTORS: The Chinese population marks up to around 1.2 billion. There is a gradual growth seen in china in the span of ten years which clearly shows the market potential in china. TECHNOLOGICAL FACTORS: In the medium and high tech industries the country’s progress in inevitable. It has become a great competitor in those fields to the developed countries as well. The market prices are being revolutionized due to the advances made in technology like internet facilities and so on. This advancement and exposure has left an impact on almost all businesses. But there are people in the country where there is no such facility due to lack of computer, internet facility and even electricity supply for few. CULTURAL FACTORS: The process of buying is more or less the same in almost all cultures. As far as the Chinese people are concerned it is surveyed that they have got very little involvement when it comes to purchasing criteria in private affairs but have a very high involvement when it is a question of their status and social symbol. They are very social beings and have very good relations with family and others and thus whenever the products sold have a great social significance in it, they get sold very fast. This is because, products of that kind express their gratitude and status. THE RISK LEVELS OF CONSUMERS: It associates with a purchase that varies enormously across cultures and as such it is an important variable in consumer behavior. This area will determine whether or not the consumer tries new products and services very often or remains consuming the older ones which he feels, he is comfortable with. As mentioned earlier that Chinese are very gratified for social relations, they are very much sensitive towards social 8 | Page

PRODUCT FAILURES AND THEIR STRATEGIES risk and fear for loss of the status in society if at all wrong purchase decision is made. Generally the relation between perception of risk and loyalty to the brand are closely related. And so lots of variations can be seen as far as loyalty to the brand in various countries are concerned. China being a large country with respect to area, it has got two definite different shades of people. One belonging to urban and other to the rural in which the preferences of the two differ vividly. Consumers in china are loyal but the thing that has to be barred in mind is that they are not brand conscious and more over comparisons between foreign and national brands brand is a bit less. But too much of an extent, consumers in china would rather be ready to buy the domestic products that the foreign made ones. Very less people in china can be categorized under early adapters as very less people try out new ones quickly. There is a huge cultural gap existing between the USA and China. Moreover the cultural values of china are largely based upon the social relations, harmony, heritage value and interpersonal orientations only. LEGAL FACTORS: Government policies have always been a means of barriers in international markets. In china, lot of inconsistency prevails with respect to policies and regulations. This is mainly due to regional differences across the country. There is lack of understanding about the policies of china amongst the foreign nationals and even amongst Chinese officials themselves to some extent. Foreign direct investment policy and foreign exchange control policies are the key policies which form the basis for the barriers of entry. As far as the foreign exchange control policies, it is the state that is responsible for formulating and promulgating the principles, degrees and regulations for control on foreign exchange. This makes China’s distribution system make this system unstable. So when all these factors are considered necessary steps are to be taken by the company for better growth and sustaining. Amway corporation followed its own strategy which it followed in the west without considering these factors proving them to be costly..  The main challenge was to interpret the very different cultural and political implications of their presence in a changing communist country.  Their product range was not at all found to be appropriate to China. 9 | Page

PRODUCT FAILURES AND THEIR STRATEGIES  Even if Amway had considerable experience in the Far East, the

Chinese market is not a same as those countries and thus it would definitely need separate approach in a different way.  Then, door-to-door selling and “party programs” are not part of the Chinese culture so they would not work out well in china.  As far as the personal sales are concerned, customers would receive discounts by paying a small annual fee, similar to buying a membership in a wholesale club and so their strategy would go in vein.  Sales

could

be

looked

after

by

good

and

efficient

“sales

representatives” as they would certainly make the difference.  The strategy of e-business would not work efficiently as the country

is a mixture of both high and low class people and so the reach would definitely not be to all the costumers which become a great flaw in the strategy design.

Some other reasons for the failure of the product could be:  They were not able to find the right market niches suited to the business.  Resistance for adaption and updating the products to local needs. Amway produces standard products to meet consumer needs in Japan, Philippines, Taiwan, and Singapore... but their product range may not be appropriate for China.  There was no added value to their products by the consumers as the segmentation of the products in the mindset of the people was not as efficient as the products they used in daily means which made the difference.  Amway had not considered the environmental influences on international marketing that could represent barriers to their entry in China.

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PRODUCT FAILURES AND THEIR STRATEGIES  The major mistake was assigning the wrong people at work. Picking the wrong people or the wrong top team in an affiliate was done.  Picking the wrong partners was also a major cause of the failure.  Inability to manage local stakeholders could be one more reason. Amway had not developed a partnership/relationship with the Chinese government which it ought to do before it started of with the business.  Developing

mutual

distrust

and

lack

of

respect

between

headquarters and the affiliates at different levels of management was the major concern for the human resource team as such.  Amway tried to use American sales tactics in China, but cultural gaps are too important to notice. Thus due to all these mentioned factors the product was a complete failure in china.

PEPSI BLUE 11 | P a g e

PRODUCT FAILURES AND THEIR STRATEGIES

IDEA BEHIND LAUNCHING PEPSI BLUE: Over the years Pepsi is trying to compete with the brand coca-cola. Pepsi blue was primarily designed to compete the coca-cola’s vanilla coke. APPEARANCE AND TASTE: Pepsi blue was designed after Crystal Pepsi. A blue colored cola that tasted like blueberries. The sweet content was more than the regular Pepsi. The coloring agent is somewhat not welcomed in many countries. COLOR: Color plays an important role in food, either in the way that it appeals to the eyes or creates an appetite. Generally the color blue is an appetite suppressant. Also there are many people who won’t simply eat anything that is blue in color. This color generally reduces the people’s metabolism and makes them less hungry. Pepsi blue is not an easy color to ingest. Also some people consider this color so unnaturally related to food. And this could be probably due to the subconscious reaction of one’s feelings towards a blue colored food. It all depends on how one labels the color of the food to be natural or unnatural. This is true because normally the color blue does not fall naturally in food sources consumed by human beings. There are exceptions like blueberry, eggplant etc. Hence the presence of a blue tone in a food might suppress a person’s hunger and less attractive to enjoy it completely. This is the 12 | P a g e

PRODUCT FAILURES AND THEIR STRATEGIES reason why many restaurants have realized this truth and accordingly design their rooms in the shades of red, yellow, green etc that would stimulate the customers easily. COLOR STRATEGY: It is observed that people tend to relate the typical cola to the color red. And as such it took years for Pepsi to position itself in the market with the brand color blue and red. Where the color red symbolizes cola and blue to make itself stand out from coca-cola. However in the recent years one can visualize coca-cola to color red and Pepsi to color Blue. DISTRIBUTION STRATEGIES: Pepsi blue was launched in several countries like north America, Mexico, panama , Colombia , US , Hong Kong, Australia, Poland, Turkey , Indonesia etc. This product failed commercially in many regions due to several reasons.

During the world cup 2003, Pepsi Blue was launched in the Indian markets, although there were only limited editions initially. Basically the color was marked to match the Indian cricket team’s sports shirt. COUNTRY

RESPONSE

Mexico

Limited edition during 2003 and 2004

Panama Colombia

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PRODUCT FAILURES AND THEIR STRATEGIES Costa Rica US

Launched during mid-2002 and withdrawn from the market during 2004

Canada Hong Kong

Reintroduced

Australia

Short lived

Federation of Bosnia

Commercial failure

Herzegovina

Commercial failure

Philippines

Introduced during 2002 and it was taken back during 2004

Turkey

Introduced during 2005

Indonesia

BRAND NAME: Also one can notice that the product was named as “Pepsi –Blue” which further creates an image that it should taste like the regular Pepsi, but it actually did not. TARGETING: Pepsi Blue was developed to target the teens. It is primarily because the teens are able to take up fashion more readily than any other age groups and hence are better able to understand the blend of blue cola. They seek change in their life, music, food, clothing etc. In fact many teens were ready to welcome Pepsi Blue.

DISCUSSION: The problem is not that Pepsi was not innovative enough to design new ranges of cola’s. The problem can be even stated that Pepsi was trying to please the customers so much that it forgot to view the impact that the blue drink would have on customer’s minds. Also it is imperative to say that Pepsi has failed to communicate the product well to its target customers. It adopted creative promotion technique that could be seen from the advertisement. 14 | P a g e

PRODUCT FAILURES AND THEIR STRATEGIES The different stages in the product design process could be analyzed well to exactly spot where the problem exists. All these steps should be carefully examined in order to develop the innovation and then market it, and in the case of Pepsi, the product is first developed and only then the consideration of marketing is brought in. There should be someone in the business to analyze the product in the customer’s perspective. Perhaps the market researcher would be able to analyze new product. Sometimes even moderate product design could be supplemented by effective communication. Most of the products fail in this regard. Business should always realize that good communication is important to market a product well. Pepsi blue failed to effectively communicate the innovation of the blue drink. The more innovative the product is the more critical it would be to communicate the product. Over communicating the product is also another reason for failure in the market. That is emphasizing the product better than actually it is. This creates a false notion in the minds of the customers and disappoints them when they actually buy the product. Pepsi blue was overwhelmingly attractive during the advertisement stage but failed to satisfy majority of the customers in the taste perspective. SUGGESTIONS:  Pepsi blue is termed to be highly innovative product that was designed on some specific purpose as mentioned above. Hence it is too complex and critical to effectively communicate the value of the product to the market.  Over promising or over communicating the product than what it actually is should be avoided so as to prevent the customers from having incorrect image about the product.  A good team consisting

of

sufficient

market

researchers, market

communication managers, customer service should continuously work for the success of the product.  When the communication of the product fails it can be brought back to the design development stage and retested to meet the expectations of the target customers. And sometimes the innovative idea could be simply dropped if it does not possess sufficient caliber.

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PRODUCT FAILURES AND THEIR STRATEGIES  Product target: It’s impossible to target a product to everybody. And also there are less chances that a product will succeed without efficient targeting. Pepsi blue was primarily targeted to the early adopters. Even though the target was clear, the Pepsi blue failed to satisfy those target customers.  It’s not a thumb rule that a business should always necessarily follow the customer preferences. There are certain fundamental human preferences that a business should not ignore. As discussed earlier, blue color is generally perceived as an unnatural color by most of them. Also human beings generally have an aversion towards food that is blue in color, which also reduces the appetite.

CONCLUSION: The barriers to market entry make China a challenging market for foreign enterprises. The possible modes of entry into the Chinese market include equity joint ventures, contractual joint ventures, joint exploration projects and wholly foreign owned enterprises. But, Amway must consider the environmental influences on international marketing, which are the SLEPT factors, especially cultural, political and legal factors. It means that Amway must follow the culture rather than imposing itself, as its rival direct marketer Avon did. So it has to start practically from scratch in marketing the business in China, otherwise, the probable bans of the Chinese government could be dangerous for its activity. It should begin with new distribution methods in order to work with China’s regulations and adapting the products to local needs. They were mainly focused on promotional strategies rather than hygienic characteristics in the product like PEPSI BLUE. In 1992 Pepsi spotted what it considered to be a gap in the market, but they didn’t get the clear idea, with this they came out with CRYSTAL PEPSI that was the big failure for the Pepsi, again they came by the similar product like code – name: “PEPSI BLUE”.

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PRODUCT FAILURES AND THEIR STRATEGIES Using these potential causes of a product or brand failure may help to avoid committing those same errors. Learning from these “lessons” can be beneficial to avoid some of these pitfalls and increase the chance for success when you launch that next product or brand.

Marketers, beware! The consumers are smart now. The only thing you can do is out-smart ‘em.

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in

Strategic