Executive marketing education on what else?

Q: In last Friday’s Marketing Rx (Sept. 6), you responded to this request: “When talking about continuing executive marketing education, please tell us and explain to us in what current marketing issues is there the most need for training and mentoring.” But your response was about only one current marketing issue. That’s about marketing’s financial accountability.

We agree that it’s probably in financial accountability where marketing and marketers have the most need for training. But there has to be a second one and really a close second. If it’s appalling to see that Direct Marketing has accepted as a norm, their campaigns’ 1 percent to 2 percent sales response rate, shouldn’t we be just as upset at the 80 percent to 90 percent new consumer packaged product failure rate? We understand this high failure rate has not been brought down since the 60s or over 50 years ago? Isn’t it here where marketing and marketers have their second most need for training?

A: You couldn’t have chosen a more controversial issue than new consumer packaged product failure rate. We’re certain that the 80 percent to 90 percent new product failure rate is not for new products in the Philippines although it’s a ratio we’ve heard from new product speakers.  Our country doesn’t have professional associations and journals or government agencies monitoring those important statistics. The US has several like the Product Development & Management Association, Product Development Institute, The Journal of Product Innovation Management, or the Department of Commerce.

At the outset, let’s be clear that the 80 percent to 90 percent new product failure rate is no longer true. Those four sources just cited above had reported that that rate has dropped to half its range since 1977. That year then, the average new product failure rate ranges over 40 percent to 45 percent. In December 2010, or 35 years later, the study of the Pennsylvania State University’s Institute for the Study of Business Markets placed the new product failure rate to average from 38 percent to 55 percent. It wasn’t that much different from the 1977 ratio. It seemed to have stabilized at that level.

This raises two critical questions. The first asks: “Why have many and even first-rate marketing authorities and some primary professional journals persisted in citing the 80 percent new product failure rate?”  The September 2013 issue of the Journal of Product Innovation Management featured an article answering this question.

The author, Professor Stephen Markham, is the president of PDMA (Product Development & Management Association). In the article, he says that the 80 percent rate was “a myth.” Its popularity has been fueled by an unquestioned popular belief (“argumentum ad populum”), and by “self-interest” among speakers and writers who kept citing the rate “for effect more than for information.”  So you need to consider this basic correction in your own belief that it’s in new product development where marketers have their second most need for executive training.

If the true and real new product failure rate is from 38 percent to 55 percent, and this ratio has stayed at that range over the past 35 years, this says something very bad indeed about the state of product innovation and development, and its lack of technological advancement. But in 1992, the then Harvard Business School associate dean, Professor Steven Wheelwright, came out with a best-selling book, extolling the “revolutionized” height that new product technology has reached. The book documented Professor Wheetwright’s extensive research in leading global companies and their “revolutionizing of product development” yielding “quantum leaps in speed, efficiency and quality.” The final result was a predicted “drastic and dramatic new product failure rate.” But no such drastic and dramatic rate came about.

Most subsequent studies sought to explain why the predicted reduction in new product failure rate did not happen. Professor Inez Blackburn of the University of Toronto shifted her study to explaining new product successes instead of failures. In her study, Professor Blackburn first differentiated between new “breakthrough” products and new “redeveloped” or “next generation” products often introduced into the market as “brand extension.” One of Professor Blackburn’s more interesting findings showed that “9 out of 10 new product successes were extensions to existing brands.”

Naturally and expectedly, this added to the already elevated central importance of brand equity. But it also impacts company policy on the allocation of new product budgeting. Most companies who were in a hurry for developing new products decided to concentrate their new product resource allocation in favor of brand extensions, next generation or improved products. Breakthrough and authentic new products were left to companies who wanted the reputation for basic research pioneers like Pfizer or Glaxo, for example, in pharmaceuticals.

What about your questions relating to the training implications? The reality here is that it is R&D and product development executives who are responsible in the organization for product innovating and new product development. In almost all cases, these people are part of the production division in manufacturing companies or report to the operations management division in large services companies. They do not report to marketing at all although some connecting have been noted in companies who have made their R&D and new product development customer-centric. If your company is set-up with product innovating being in your production division or in service operations, here’s the more practical and reality-based reason why this is not a training issue for your marketing and marketers.

Keep your questions coming. Send them to us at [email protected] or [email protected]. God bless!