Shortage of important ideas in certain areas: There may be few ways left to improve some basic products (such as steel or detergents).
Fragmented markets: Companies have to aim their new products at smaller market segments, and this can mean lower sales and profits for each product.
Social and governmental constraints: New product has to satisfy consumer safety and environmental concerns.
Cost of development: A company typically has to generate many ideas to find just one worthy of development, and often faces high R&D, manufacturing and marketing costs.
Capital shortages: Some companies with good ideas cannot raise the funds needed to research and launch them.
Faster required development time: Companies must learn how to compress development time by using new techniques, strategic partners, early concepts tests, and advanced marketing planning.
Shorter product life cycles: When a new product is successful, rivals are quick to copy it. Sony used to enjoy a three year lead on its new products. Now Matsushita will copy the product within six months, leaving hardly enough time for Sony to recoup its investment.
What can a company do to develop successful new products? Cooper and Kleinschmidt found that the number one success factor is a unique, superior product. Such products succeed 98% of the time, compared to products with a moderate advantage (58%success) or minimal advantage (18% success). Another key factor is a well defined product concept. The company carefully defines and assesses the target market, product requirements, and benefits before proceeding. Other success factors are technological and marketing synergy, quality of execution in all stages and market attractiveness.
In the late 1990s, Motorola and several partners launched Iridium, a $5 billion global satellite based wireless telephone system. Motorolaâ€™s engineers envisioned 66 telecommunication satellites that would circle the earth and make it possible for consumers to place and receive calls with one phone anywhere in the world. Motorolaâ€™s aim was to establish a universal standard for wireless telephony.
Yet in August 1999, Iridium had to file for bankruptcy because it was unable to meet a $ 90 million bond payment and in March 2000, a judge ordered that the bankrupt system be shut down. Motorola was forced to pull the plug on the project. Now, itâ€™s clear that the projectâ€™s sponsors did a poor job of thinking the marketing issues.
1. The Iridium handset weighed about one pound, most cell phones weigh a couple of ounces. The user had to carry a bag of attachments to achieve full functionality. Transmission problems included frequent incomplete calls and lost calls, and the voice quality was poorer than callers were used to on their cellular phones.
2. Iridium was originally launched at $3,000 and eventually came down to $1,500. Worse, airtime charges ranged from $4 to $9 a minute, whether the caller was phoning in his own city or calling from Borneo jungle.
3. Although the phone was touted to be workable anywhere, it could no be used inside buildings or in moving cars. Users had to have a clear path between the handset and the orbiting satellites. Furthermore, large areas in Europe Asia, and Africa lacked services.
4. Iridium budgeted $180 million for promotion. Its advertising campaign showed a man in a heavy parka pulling a sled in a desolate, show bound place. His phone suddenly rings: He has contact with the outside world. This ad campaign was supplemented with a direct mail campaign and a strong public relation program, but all this promotion needed to be followed up by competent personal selling. This was the hardest challenge because prospects would raise questions about price, service breakdowns, and the bulky handset, and often conclude that the benefits were not worth the price.
5. Motorola chose selling partners in other parts of the world who often lacked marketing skills. Although the promotion campaign generated about 1.5 million inquiries, most were not answered or not answered quickly enough
Senior management set a drop dead launch date of September 23, 1998 but had to delay this until November 1. Even then, the company still had problems with the product, service distribution, support and finances. With all these complications, no wonder the project has ever attracted more than 50,000 buyers. The lesson: No amount of promotion can make a success out of a poorly designed product plagued with poor quality and poor service.