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It's Easier to Assess Potential of New Product than a New Service

By: John Malmo

John Malmo began an advertising agency on a cardtable above a delicatessen in 1967 and built it into the largest in the mid-south. He also owned a travel agency, a clock shop, and a snack food manufacturing company. He is president of Koenig, Inc., Management Consulting, specializing in marketing, and he writes a weekly business commentary column for The Commercial Appeal. His 45 years of marketing experience encompass, virtually, every business category. Email him at: jmalmo@archermalmo.com

Itís never easy to predict the potential for new products or services, but itís a lot easier when they include genuine innovations, and in the case of knockoffs, itís easier predicting for products than for services.

Benefits of the first long-handled dust mop were obvious. For the first time, you could dust the floor standing up. Benefits of the first minor emergency medical clinic were apparent.

Both were genuine innovations. Judging the potential of each shouldnít have required a roomful of MBAs.

Assessing the potential of later dust mop designs was tougher, but easier than for entrepreneurs trying to measure the potential of improvements on the basic concept of minor emergency medical clinics.

New products can be compared directly with existing products in function, performance, and pricing. If a new dust mop is, indeed, better, itís fairly easy to demonstrate that superiority before potential buyers have to buy it.

Photography, illustrations, and demonstrations make it easy to compare new design, construction, or engineering with that of current dust mops.

Faster, more convenient, "better" service is merely a promise that often is not believable to potential buyers. They have to make a commitment and buy the service. Consumer skepticism works against the new service.

When S.C. Johnson and Procter & Gamble introduced dust mops with disposable inserts the benefit was apparent immediately to consumers, and the business potential was predictable.

Now, a doctor in Minneapolis has created QuickMedx, an improvement over minor emergency medical clinics and traditional doctorís office visits for some minor maladies.

QuickMedx is located in supermarkets, staffed by a nurse, and is cheaper. For $30 you can get diagnosis and prescription for treatment for strep throat, mononucleosis, flu, bladder infections in women, ear or sinus infections, and pregnancy.

The time-and-money-saving benefits of QuickMedx appear obvious, but trying to judge the business potential of QuickMedx is dicier than assessing the disposable dust mop potential. The questions to which any QuickMedx investor needs answers are more complex, because market size and consistent delivery of benefits are problematic.

Consumer utility, pricing, and an accurate, predictable business model are the three leading criteria for assessing the likelihood of success for any new venture, according to W. Chan Kim and Renee Mauborgne, two professors who studied 100 companies that consistently create successful new products and services.

The utility of the disposable dust pads is clear to all. The utility of QuickMedx may be clear to some, but how many? Price of the disposable mop pads is affordable to most homeowners. To what percentage of the market is the saving at QuickMedx enough to change consumer habits? Preparing a business model that can be executed predictably for the mop is easier than for QuickMedx.

Investors lose dough on new ventures because due diligence in these three critical areas is lacking. It is lacking most often in services, because itís tougher to perform.

© Copyright 2001, John Malmo

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