■ R. J. Reynolds By the late 1980s, R. J. Reynolds Tobacco Company (RJR) had
already spent more than $300 million on the reduced-smoke Premier ciga-
rette. Five months after its introduction in 1988, Premier disappeared from
the test markets because smokers “didn’t like the taste.” It was also difficult
to light. “Premier gave you a hernia trying to get the smoke through,” said
one tobacco industry analyst. Undeterred by the costly failure of Premier, RJR
went on to spend an additional $125 million on another attempt. In 1997
RJR tested its smokeless Eclipse cigarette in Chattanooga, Tennessee. But smok-
ers say they’re not switching. Eclipse seemed like a good alternative; the cig-
arette heats the tobacco instead of burning it, resulting in only 10 percent of
the smoke of conventional cigarettes. Only problem is smokers like smoke.
Research shows that smokers enjoy the “security blanket” of being wreathed
in smoke, regardless of how much nonsmokers dislike it. So far, nonsmokers
are the only ones who like Eclipse.^3
New products continue to fail at a disturbing rate. In 1997,a record 25,261 new
packaged-goods products were launched, and that doesn’t even include products
you won’t find at your local supermarket, like techno-gizmos and software programs.
But equally stunning is the number that fail: Tom Vierhile, general manager of Mar-
ket Intelligence Service Ltd., a new-product reporting and retrieval firm, estimates
that 80 percent of recently launched products aren’t around today.^4 When you con-
sider that it costs $20 million to $50 million to launch a new product, you wonder
why people continue to innovate at all. Yet product failures can serve one useful
purpose: Inventors, entrepreneurs, and new-product team leaders can learn valuable
lessons about what notto do. With this credo in mind, marketing consultant Robert
McMath has collected about 80,000 consumer products, most of them abject flops,
in his New Product Showcase and Learning Center in the rolling hills of Ithaca, New
York. See the Marketing Insight box, “Mr. Failure’s Lessons for Sweet Success: Robert
McMath’s New Product Showcase and Learning Center,” for some insights on prod-
uct failure.
Why do new products fail?
■ A high-level executive pushes a favorite idea through in spite of negative market
research findings.
■ The idea is good, but the market size is overestimated.
■ The product is not well designed.
■ The product is incorrectly positioned in the market, not advertised effectively, or
overpriced.
■ Development costs are higher than expected.
■ Competitors fight back harder than expected.
Several other factors hinder new-product development:
■ Shortage of important ideas in certain areas:There may be few ways left to improve
some basic products (such as steel, detergents).
■ Fragmented markets:Keen competition is leading to market fragmentation. Com-
panies 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 products have to satisfy consumer safety
and environmental concerns. Government requirements slow down innovation
in drugs, toys, and some other industries.
■ Costliness of the development process:A company typically has to generate many
ideas to find just one worthy of development. Furthermore, the company 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.
chapter 11
Developing
New Market
Offerings^329