NEN Advanced Courses Getting to Market: Commercializing your Idea Understanding Customers

Why Consumers Don’t Buy? Why are consumers reluctant to buy seemingly attractive goods and services? Why developers fail to anticipate this reluctance to adopt? What could be strategies to increase the likelihood of new product adoption?

Why Consumers Don’t Buy? Customers often reject new products which offer significant improvements over existing products Fundamental consumer bias arises due to irrational overvalue attached to existing alternative Innovative new products change the way customers do things Net benefit and psychological switching costs of innovative products play a role in decisions Relative advantage is a key driver in new product adoption

The Costs and Benefits of New Products Scenario 1 Scenario 2Scenario 3 Costs Benefits Costs No Change

Nature of Innovations If the biased weighting of losses and gains wasn’t enough, the nature of innovations often exacerbates the tradeoffs consumers are asked to make. Rarely is a potential buyer faced with costs and benefits that are comparable in their timing, their certainty, or their ability to be quantified.

Valuing an Innovative Feature Typical Consumer Typical Innovator Low High Importance of the Feature

The Psychology of the Innovator Self – selection A clash in perspectives The 9X problem – Compounding of biases The curse of knowledge

Inside Vs Outside View of New Products Insider’s (Innovator’s) View Outsider (Customer’s ) View 5/10/20 yrs of experience with product or technology Selling product for first time Benefits /needs are obviousBenefits /needs are not obvious Fully trusts products Skeptical of claims A self selected believerMiddling valuation of promised benefits Status Quo includes new features Status Quo includes existing features

The Bottom Line – How much change are you asking of Customers? Strike out Long Haul TinkeringHome Run Low High Low Behavioral Change Required (Value Capture) Product Change Involved (Value Creation)

What is a firm to do? Taking Action Accept Resistance Strategy #1 : Brace for the Long Haul Strategy #2: The 10X Improvement Minimize Resistance Strategy #3: Make it Behaviourally Compatible Strategy #4: Seek Out the Unendowed Strategy #5: Find Believers Strategy #6: Eliminate the Old

To Remember Over two-thirds of new products fail in the marketplace, with innovative new products failing even more often than that Many are offered by firms that lack the expertise, resources, or commitment to see the product through to success. Other products may lack an objective net benefit, offering too few benefits for too great a cost. But, even when supported by well-intentioned firms and even when offering objective improvements over existing alternatives, the success of an innovative new product is far from certain. Much of this uncertainty arises from the psychology of gains and losses. It is important to understand consumer biases.

Source : “Why Consumers Don't Buy: The Psychology of New Product Adoption” by John.T.Gourville, HBS