7 Reasons Why Products Fail
What is Product Failure?
Product Failure means falling short of the strategic Objectives & Key Results (OKRs) metrics set for the product. Objectives can be multidimensional and go beyond financial goals for revenue and profit, such as establishing a new competitive advantage or providing a new upsell opportunity for another product.
What is product failure, anyway? Not all failures are catastrophic where the product is pulled from the market and the company goes out of business. Most are partial or soft failures.
Failure is falling short of the strategic Objectives & Key Results (OKRs) metrics set for the product. Objectives can be multidimensional and go beyond financial goals for revenue and profit, such as establishing a new competitive advantage or providing a new upsell opportunity for another product.
A key component on why products fail is that management does not specifically define objectives and quantify what success looks like. If you do not define success, you are less likely to achieve it and you may not even be aware of how the product is failing.
Strategic objectives to consider:
- Financial: Top line revenue, profit, gross margin %, cost of goods sold, cost of sales
- Development: Cost, time to market, reduce technical debt, increase stability, reduce bugs
- Buyer adoption: Units sold, repeat customers, adoption within target market segments
- User adoption: Usage of features, reduction in support calls, ease of use, satisfaction metrics
- Competition: Closing of feature gaps, increased market share, creating differentiation
Now, let’s discuss the seven reasons that contribute to why products fail.
Reasons Products Fail
- Product Doesn’t Solve the Right Problems
- Picked the Wrong Market
- Product is Too Expensive or Provides Poor Value to Customer
- Business Case is Flawed
- Product is Not Good Enough/Poor Execution
- Delayed Market Entry
- Poor Marketing Plan
#1: Product Doesn’t Solve the Right Problems
Lack of customer research
Product Management is frequently described as Inbound Marketing. This includes the understanding of the “needs” of the candidate customers (buyers and users) you are targeting within a given market segment. A customer “need” could either be an existing problem or some new thing they aspire to do. The right product solves the most important problems and enables the most desired aspirations.
Market understanding starts with the identification of these needs, but that is only the start. Each need should be quantified in some way. Examples could include: Cost, Time, Errors, Emotions. In addition, the needs must be prioritized by the customers demand and urgency to address the issue.
Beware of taking the “Voice of the Customer” phrase too literally. Customers may or may not be able to describe these needs and can also suggest poor solutions. You need to dig deeper.
Prevent this pitfall: Use Market Research
Product Managers can avoid this pitfall by using market research techniques including observation and empathy interviews with active listening to uncover details you don’t know.
If your product is built based on a hunch of a potential benefit, it could just be a solution looking for a problem. A classic example of this was Google Glass. While the idea was novel, the product served no clear purpose – it wasn’t clear what customer needs it was fulfilling. You can learn more about the Google Glasses failure here: 5 Reasons Why Google Glass was a Miserable Failure – Business 2 Community.
#2: Picked the Wrong Market
Another common reason for product failure is trying to pursue the wrong market, or more accurately, the wrong market segment. Your market should be divided into segments using criteria such as region, customer characteristics, or vertical business areas. Once the market segment is defined, including the personas for the buyer and users, then it must be assessed for business potential. Areas to consider include:
- Market size
- Ability for your company to serve it
- Competitive viability
- Demand for your product solution
Product Managers can start to assess the business potential of candidate markets by using Secondary Quantitative research sources such as Industry reports from Gartner Research. After that, if the market still looks interesting, follow up with Primary Qualitative research to discover the needs, the applicability of your product offering, and customers’ willingness to pay for your solution.
Prevent this pitfall: Satisfy Customer Needs
To avoid picking the wrong market, make sure you can satisfy the customer’s needs, and identify that there are enough customers who are willing to pay for your solution to make your product profitable. Your market research here will help support your go-to-market strategy.
#3: Product is Too Expensive or Provides Poor Value to Customer
Price can certainly contribute to a product failure. A primary consideration is the value proposition to the customer. Value is defined as the ratio of benefits divided by the price. A high-priced and high-quality product can be considered to have a similar value proposition as a low-priced and low-quality product. But is it competitive? Competitive price pressure can pull down your price, even if your value proposition is strong. Also, if there are competitive options available that address part of the solution at a fraction of your price, that can slow adoption of your product.
Will the market bear the cost at all? In some cases, independent of the value proposition, customers can be constrained by budget.
Prevent this pitfall: Develop Comprehensive Pricing Strategies
Product Management can work to avoid these problems by developing comprehensive pricing strategies. Additional elements in these strategies would include predefined price adjustments that sales channels can make in the field to stimulate demand or to close big deals. Examples include volume discounts, seasonal discounts, or adjustments against specific competitors.
#4: Business Case is Flawed
If the customer has a need and you have a product solution, great! But if the business model does not work, your product will fail.
Consider these 3 areas:
- What does the product cost to build? Cost of Goods Sold (COGS) is the basis for cost-plus pricing for many physical products. The COGS can vary over the life of a product depending on manufacturing volumes and component parts costs. And while we prefer that you used value-based pricing, you must always ensure that your COGS are below your price!Gross margin (GM) % is the second element of cost-plus pricing. Most companies’ corporate strategies demand minimums for GM %. GM % is the ratio of (Price – COGS) / Price.If your COGS is too high, or your GM % is too high, your product price may not be competitive.
- If your non-recurring product development costs are too high when those costs are spread over the number of units sold, the breakeven point for your company’s investment may not be reached and the return on investment will be poor.
- If your recurring costs for marketing and sales are too high to sell into a market segment, your overall profit to the company can be below expectations.
Prevent this pitfall: Collaborate with Financial Specialists
Product Managers should collaborate with financial specialists, such as controllers, that have business model worksheets and historical data to ensure that the business model looks viable before you invest in developing the product. Working with a controller will also help you build forecasts with the right assumptions, looking at both top-down forecasts based on market data and bottoms-up forecasts based on your company’s channel and sales constraints.
#5: Product is Not Good Enough/Poor Execution
Product adoption can suffer
Building a poor product is similar to (but different than) building the wrong product. If your product has limited functionality, competitive gaps, performance issues, or technical issues like stability the product adoption rates will suffer. Some customers will initially buy but repeat sales and broader adoption will be limited.
Prevent this pitfall: Understand Different Customer Expectations
Understand that customer expectations are different based on the stage of the Product Lifecycle (PLC). Early-adopter customers in the Introduction Stage are more tolerant to product shortcomings. Pragmatist and Conservative customers in the Growth and Maturity stages of the PLC expect more. They will consider Augmented product features such as warranties, training services, and customer care as well.
#6: Delayed Market Entry
Getting the right product to the right market at the right time can be everything. If your product is serving a seasonal market such as Christmas holidays, or tax preparation, timing can make or break your product’s success.
Having the right time to market ahead of the competition can drive higher adoption rates and profitability. If you are first to market with an in-demand product, you get to choose whether to set a low price point to drive faster adoption and gobble up market share, or to set a higher price to skim more profits.
That said, rushing a product to market that is not ready can be disastrous. Some companies overlook the Beta Phase of the Optimal Product Process™—the time to assess whole product readiness as well as testing the product under actual customer conditions. If the product is launched into the market before it’s ready, this can erode customer confidence and limit sales momentum.
Prevent this pitfall: Utilize Beta Program
Product Management can avoid this issue by planning a thorough Beta Program. This must include a full readiness assessment with product features, Marketing materials, and operational readiness of Sales and Support groups. If the product does not pass the assessment, don’t ship it until it does.
#7: Poor Marketing Plan
Move candidates through the funnel
Outbound marketing is key to communicate to candidate buyers, users, and influencers. Proper positioning and messaging are a must to provide understanding of product benefits and competitive differentiation.
If the marketing plan is not effective at moving candidate customers through the different stages of the buying cycle, products can fail. The Product Marketing Manager sets goals for each stage and implements the best methods to drive awareness, interest, evaluation, and commitment to buy. But if the Marketing Plan is poor, the marketing budget is too small, or the marketing program execution is flawed, products can fail.
Prevent this pitfall: Monitor Conversion Rates
Product Marketing Managers must understand and monitor the cause-and-effect relationship of marketing initiative conversion rates. Each activity, from paid-for-search to webinars, has a goal and call to action to move the customer along the sales funnel. Marketing program execution involves constant experimentation and adjustments to the Marketing Mix.
For additional information, see the Marketing Plan template in 280 Group Product Lifecycle Toolkit.
Start with the End
How do Product Managers and Product Marketing Managers avoid product failure? Start with the end in mind. Define what success looks like and get the organization behind those goals.
Secondly, avoid the seven reasons above by applying industry best practices in your product process spanning from strategy development, to market research, to marketing program execution.
If you need to find out more about these best practices or develop skills in these areas, consider the Optimal Product Management training course.
[su_glide_button text=”VIEW COURSE” link=”https://280group.com/products/online-courses/essential-product-management/” style=”default”]
About the Author
Principal Consultant and Trainer of 280 Group
Rick Bess is a Principal Consultant and Trainer with 280 Group. Rick has over 30 years of business experience in technology research, product development, product management, and outbound marketing. In addition, his deep skills & experience with enterprise and start-up innovation practices complement client engagements. Rick has worked for large companies including The Boeing Company, Loral, and Adobe Systems as well as medium size companies such as BBN, MultiGen, Quantum3D, and Brightidea. He is a veteran of multiple venture-backed high-growth technology start-up companies.
280 Group is the world’s leading Product Management training and consulting firm. We empower Product Professionals with the knowledge and tools to create products that matter.