Creating A Killer Product

Business - Forbes.com

Fri Oct 3, 2003 4:26 PM ET

By Clayton M. Christensen Michael E. Raynor

How do you create products that customers want to buy--ones that become so successful they "disrupt" the market? It's not easy. Three in five new-product-development efforts are scuttled before they ever reach the market. Of the ones that do see the light of day, 40% never become profitable and simply disappear.

Most of these failures are predictable--and avoidable. Why? Because most managers trying to come up with new products don't properly consider the circumstances in which customers find themselves when making purchasing decisions. Or as marketing expert Theodore Levitt once told his M.B.A. students at Harvard: "People don't want to buy a quarter-inch drill. They want a quarter-inch hole."

Much of the art of marketing focuses on identifying groups or segments of customers that are similar enough that the same product or service will appeal to all of them. Managers need to segment their markets to mirror the way their customers experience life--and not base decisions on irrelevant data that focus on customer attributes. Managers need to realize that customers, in effect, "hire" products to do specific "jobs." That's one reason why retail formats like Home Depot and Lowe's have become so successful: Their stores are literally organized around jobs to be done.

Consider the recent efforts of a fast-food chain that wanted to improve milk shake sales and profits. The chain first took the usual "focus group" route, assembling panels of customers to ask if making the shakes thicker, more chocolaty, cheaper or chunkier would satisfy them more. The chain got clear inputs on what the customers wanted. But after the changes were made, nothing much happened to sales or profits.

So a new set of researchers came in. Their task was to understand what customers were trying to get done for themselves when they hired a milk shake. This approach helped the chain's managers see things that traditional market research had missed.

The researchers spent an 18-hour day in a restaurant. What they found was surprising: Nearly half of all milk shakes were bought in the early morning. Most often, the shake was the only item purchased, and it was rarely consumed in the restaurant. What was going on here?

Turns out most of the customers had hired a shake for very similar reasons: They faced a long, boring commute and needed something to make the trip more interesting. They weren't really hungry but knew that if they didn't eat something soon, they certainly would be hungry by 10 a.m. They also faced constraints: They were in a hurry, often wearing their work clothes, and had only one free hand.

To get this job done, some customers hired bagels. But bagels got crumbs all over their clothes and the car. If the bagels were topped with cream cheese or jam, their fingers and the steering wheel got sticky. Sometimes they hired a banana. But it got eaten too fast and didn't really solve the boring-commute problem. The breakfast sandwiches the restaurant served (sausage or ham with egg) made their hands and the steering wheel greasy. If customers tried to drag out the time they took to eat the sandwich, it got cold. Doughnuts didn't last through the 10 a.m. hunger attack.

The milk shake did the job better than almost any available alternative. It could take as long as 20 minutes to slurp one through the thin straw. That staved off boredom on the commute. It could be consumed cleanly with one hand, with little risk of spillage. The customers felt less hungry after consuming the shake than after using most of the alternatives. And never mind that it wasn't the healthiest thing to consume. Making you healthy wasn't the job the milk shake was hired for.

The fast-food chain's traditional marketing research focused on its milk shake sales against those of the competing chains. The predictable script: Gain by cutting into the business of others. But that's not really the point here. In the customer's mind the morning milk shake really competed against boredom, bagels, bananas, doughnuts, instant breakfast drinks and, possibly, coffee.

So what should the chain do? What would enhance the value of that morning milk shake for the bored commuter? Why not put in tiny chunks of real fruit to add a dimension of unpredictability and anticipation--attacking the boredom factor. A thicker shake would last longer. A self-service shake machine that could be operated with a prepaid card would get customers in and out fast.

Improvements like this would succeed in building sales--but not by capturing milk shake sales from competing quick-service chains or by cannibalizing other products on its menu. Rather, the growth would come by taking business from products in other categories that customers sometimes employed, with limited satisfaction, to get their particular jobs done. And perhaps more important, the products would find new growth among "nonconsumers." Competing with nonconsumption often offers the biggest source of growth in a world of one-size-fits-all products.

Sony's founder, Akio Morita, was a master at watching what consumers were trying to get done and at marrying those insights with solutions that helped them do it better. Between 1950 and 1982 Sony successfully built 12 different new-market, disruptive-growth businesses. These included the original battery-powered pocket transistor radio, launched in 1955, and the first portable solid-state black-and-white television, in 1960. Plus: videocassette players, portable video recorders, the now-ubiquitous Walkman and 3.5-inch floppy disk drives, launched in 1980.

How did Sony find these foothold applications? Morita and a trusted group of about five associates observed and questioned what people really were trying to get done. They looked for ways that miniaturized, solid-state electronics might help a population of less skilled and less affluent people to accomplish, more conveniently and at less expense, the jobs they were already trying to get done through awkward, unsatisfactory means. Morita and his helpers had an extraordinary success rate in finding these footholds for disruption.

But Sony's disruptive odyssey ended in the early 1980s. For nearly the next two decades Sony's innovations were merely sustaining in nature--that is, they were simply improved products targeted at existing markets. PlayStation, for example, has been very successful, but it was a late entrant into a well-established market.

What happened? In the early 1980s Morita began to withdraw from active management in order to become involved in politics. To take his place Sony hired marketers with M.B.A.s to help identify new-growth opportunities. The M.B.A.s brought with them sophisticated, quantitative, attribute-based techniques for segmenting markets and assessing market potential. The clipboards and the spreadsheets were no match for Morita's intuition at finding new markets.

For today's new-technology industries, the challenge is to enable new customers to do things they've always been trying to do, but to do them more conveniently and predictably. Take the BlackBerry, the handheld wireless ( news -web sites ) e-mailer made by the Canadian company Research in Motion. RIM got its disruptive foothold competing with nonconsumption by bringing the ability to receive and send e-mail to new contexts such as waiting lines, public transit and conference rooms. But what's next?

One option would be for RIM to believe its market is structured by product categories, as in: "We compete in handheld wireless devices." If so, they'd see the BlackBerry competing with the Palm handheld, Sony's Clié, mobile-telephone handsets made by Nokia ( news -web sites ), Motorola and Samsung, and Microsoft Pocket-PC-based devices such as Hewlett-Packard's iPAQ.

In order to get ahead of these competitors RIM would need to develop better products faster than the competition. Sony's Clié, for example, has a digital camera. Nokia's phones offer short text messaging. If it defines these as the competition, RIM would need to build some of these features into its next-generation BlackBerry device. RIM's competitors, of course, would be thinking just the same thing. Which would create a headlong, arms-race-like rush toward undifferentiated, one-size-fits-all products that perform poorly any specific jobs that customers might hire them to do. Such products are likely to end up more like the Swiss Army knife: a pretty good knife, terrible scissors, a marginal bottle opener and a crummy screwdriver.

But what if RIM structured the segments of this market according to the jobs that people are trying to get done? Just from watching people who pull out their BlackBerrys, it seems to us that most of them are hiring it to help them be productive in small snippets of time that otherwise would be wasted, like reading e-mails while waiting in line at airports.

What's the BlackBerry competing with? When not using a BlackBerry, people often pick up a wireless phone. Sometimes they pick up the Wall Street Journal. Sometimes they make notes to themselves. Sometimes they stare mindlessly at the CNN Airport Network or sit with glazed eyes in a boring meeting. From the customer's point of view, these are the BlackBerry's most direct competitors.

So in addition to adding wireless telephony, BlackBerry could add financial news headlines and stock quotes to help compete more effectively with the Wall Street Journal. And mindless, single-player games or automatically downloaded Letterman-like top-ten lists might help the BlackBerry gain share against boredom. Features that do not help customers do the job that they hire the BlackBerry for wouldn't be viewed as improvements at all.

Brands are, at the beginning, hollow words into which marketers stuff meaning. If a brand's meaning is positioned on a job to be done, then when the job arises in a customer's life, he or she will remember the brand and hire the product. Customers pay significant premiums for brands that do a job well.

But some executives worry that a low-end disruptive product might harm their established brand. Case in point: When Kodak wanted to bring out a "single use" disposable camera, people within the company's film division vigorously opposed the move because the inexpensive plastic lenses used meant that the quality of the photographs wouldn't be as good as those taken by 35mm cameras.

It didn't matter. The Kodak Funsaver was a product that customers bought for a specific job: They wanted a camera on vacation but either didn't own one or had forgotten to bring one along. The Funsaver competed with nonconsumption: Customers whose alternative was to have no photos of their two weeks at the lake were perfectly happy with the quality. The disposable-camera market is now $2 billion annually.

At a fundamental level the things that people want to accomplish in their lives don't change quickly. New products will succeed to the extent they help customers accomplish more effectively and conveniently what they're already trying to do.

Consider the hundreds of millions that have been spent to apply new technologies--the Internet and e-book displays, specifically--to reshape the college textbook industry. Innovators have attempted to develop and sell tablets that can display downloaded e-books. And with many textbooks you can click on a Web address to obtain far more information about the topic than could possibly be included within the limits of a book. Would we expect these investments to generate significant growth? Our guess is that they will not. Although we would like to believe that all undergraduate students are rigorous seekers of knowledge, the job that many college students are really trying to get done, from our observation, is to pass their courses without having to read the textbook at all.

These companies have spent a lot of money helping students to do more easily something that they have been trying to not do. It would probably take far less money to create from the same technology a service called "Easycram.com"--a utility that would make it easier and cheaper for students to cram more effectively for their exams. This would likely work because cramming is something that students already are trying to do, but with marginal efficacy. There are a lot of textbook-avoiders on campuses--a huge market of nonconsumption.

After a subscriber logs on, Easycram.com would ask what course he needs to cram for--say, College Algebra. Then it would ask which of the listed textbooks the professor expects him to have read by now. It would ask him to click on the type of problem that he is having trouble with, and it would walk him through a tutorial. The next year, Easycram.com would need to offer a new and improved service, one that makes it even easier and faster to cram better--inching up from the least-conscientious to the sporadically diligent tiers of the student population. After a few years two students might be overheard in the college bookstore anguishing over the exorbitant price of a textbook: "You know, my brother took that course last year. He's a good student, but he never even bought the book. He just used Easycram.com, and he did great." Bingo: a new-market disruption to help customers achieve what they already had been trying to do.

Adapted from The Innovator's Solution: Creating and Sustaining Successful Growth,by Clayton M. Christensen and Michael E. Raynor (Harvard Business School Press, 2003).

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