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Nerd Alert: Do Most New Products Really Fail?
00:09:24
Welcome to Nerd Alert, a series of special episodes bridging the gap between marketing academia and practitioners. We’re breaking down highly involved, complex research into plain language and takeaways any marketer can use. In this episode, Elena...
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- [00:00]
A
Nerd Alert. Learning is important, right?
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B
Yes, exactly. But a bunch of nerds.
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A
Nerd alert. That's right.
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B
Marketing Architects. Hello and welcome to the Marketing Architects, a research first podcast dedicated to answering your toughest marketing questions. I'm Elena Jasper on the marketing team here at Marketing Architects, and I'm joined by my co host, Rob demars, the chief product architect of misfits and machines.
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A
Hello.
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B
Hello. We're back with your weekly Nerd Alert. Every week, I'll take a deep dive into academic marketing research and translate its complex ideas into simple, understandable language for Rob, and of course, for all of you. Are you ready to nerd out, Rob?
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A
Elena, I just got an email from the People's Republic of Nerdistan, and they said we're doing a great job. They even offered us dual citizenship.
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B
All right, let's get into it. As always, we'll link the research we cover in the episode Notes. This week, I read a study titled How Common is New product failure and when does it Vary? This is by Kristen Victory, Magda Nen Yishteel, John Dawes, Eri Tanu, Son Jaya and Armando Corsi. I stop laughing. I really worked hard on that one. That one was hard to.
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A
That was impressive.
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B
This was published in marketing letters in 2021. Before I get into things, Rob, let me ask you this. What percentage of new products have you heard fail?
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A
90%. That'd be my guess. 90%, maybe higher.
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B
That's the traditional. That's what I've heard, too. Most of them fail. That's often said. 80% of new products fail. Sometimes people even say it's 90 or 95%. So what this study did was the researchers wanted to find out whether this is actually true or is this one of those marketing myths like the CMO role is dying that gets scarier every time it's retold. What they did was they analyzed more than 83,000 new SKUs introduced across 31 categories in the US instead of asking managers to remember what worked or what didn't, they use sales data to see whether a new product actually survived. Their definition of failure was simple, permanent cessation of sales. So if nobody bought this product anymore, then they said, all right, that failed. Here's what they found. About one in four fail within the first year. After two years, that rises to about 40%. So that's still high, but it's nowhere near the 80 to 95% that we often hear. They looked at new product lines, so they looked at things like new sub brands or entirely New brands, not just new flavors or sizes. Those had a slightly lower failure rate. Around 18% failed in the first year and about a third by year two. So we've got our headline. Yes, a lot of new products fail, but the rates are about half as bad as the common myth suggests. But it gets even more interesting. The researchers didn't just stop at overall averages. They looked at when failure rates go up or down, depending on the type of category and the type of brand launching the product. Rob, what do you think makes new products more likely to fail?
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A
Wow, my head's already spinning on this one. I have a big question for you that I'll ask later, but I think right now, let's see, probably lack of understanding your customer in terms of just doing the homework upfront. Have you recognized and addressed a true need? Or. Or is it something that just got a bunch of people in the lab excited and thought, let's bring this to market without really doing the proper stage gating?
- [03:19]
B
I think you're probably correct on that. They didn't get quite there at this. They gave some other reasons. And the first was category size. So they found that new products were more likely to fail in big high revenue categories like cold cereal, salty snacks and carbonated beverages. That's because those categories, they're so big they attract tons of launches, but they also have this brutal competition. That was why by year two, about 45% of the new products in large categories had failed. And the second thing they looked at, so the category size first. Then they looked at category growth. So you and I might assume that new products do better in fast growing categories. They can hit that momentum. But the opposite was true. Products that launched into growing categories actually had higher failure rates. That's around 45%. After two years, stable or declining categories were closer to 40% failure. So it's close. But that, that shocked me. And third, brand size. This one probably won't surprise us. Small brands had much higher failure rates than large brands. After two years, nearly half of small brand launches had disappeared, compared with about 40% for medium or large brands. Big brands have more resources, better distribution, and that stronger parent brand recognition to give new launches a fighting chance. And Rob, that might be part of your reasoning too. Like these big brands, they probably do more research, they maybe understand the categories more than a small brand. And lastly, they looked at brand trajectory. So brands that were already growing in market share had the lowest failure rates for new launches, around 26%. After two years, stable brands were at 40% and declining brands were at 35%. So in other words, the momentum of how your current brand is doing matters. So, Rob, does that surprise you? The products in hot growing categories, those were more likely to fail than ones in boring, stable categories.
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A
Gosh. I think your point that you made earlier, if you're in a category and probably have a parent brand supporting you that adds some level of trust and resources behind it, that's versus something that's still a category trying to figure itself out, then you're battling both the category and your entry into that category. So I guess that could. Yeah, I guess that makes sense.
- [05:28]
B
Yeah, I think too, some categories are waiting to be disrupted. Think about the hurricane, like the cane category. I guess you could say maybe it was growing just with like more of an elderly population, but it wasn't really a hot category. But then we came in, we're able to disrupt it. Maybe that's part of it too.
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A
What I'm trying to still figure out, and maybe this is too much of a bunny hole, but this study was focused on retail products, is that correct?
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B
It sounds like it.
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A
Does the channel make a difference as well? And the reason I'm saying that is 40%. Would you say a 40% success or failure rate versus what we were thinking, 80 to 90%. But is that also determined by. I mean, if you're already in retail, have you passed some pretty significant hurdles just to get onto Target's shelf? That shows that you have probably a better than average chance of surviving versus all of the products that are launched in the universe through all the different particular channels.
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B
Yeah, this is CPG brands just confirming that. So, okay, you're right. Like, this is. That's a good point. This isn't looking at like tech or SAS or B2B, like so many different.
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A
Categories and so many different channels. But CPG brands, I mean, I probably still would have set a higher percentage, but they've got a lot of due diligence they have to go through just to get on Walmart's shelf. So that's there. There's a lot of stage gates there.
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B
That's true. Yeah. Harder. So you're saying it's almost harder to launch a brand going into retail. So you're probably going to be more conservative about how you go about it.
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A
Yeah. Or you're going to have a lot of people even on their side who are going to vet you because they. There's just a lot of. Yeah, there's just a lot of brain power going against those launches that might have some responsible due diligence. That you're not always going to see with entrepreneurial product launches.
- [07:21]
B
Yeah, that's a good point. All right, so what should we take from this study? First, new product failure is common, but it's not as catastrophic as the myths suggest. About 40% fail in two years, not 80 to 95%. Second, the context matters. Launching in a huge growing category, it might sound exciting, but the risk is higher. And third, resources matter. Bigger and healthier brands give their new products a better chance to survive. Small and struggling brands face much steeper odds. And finally, success doesn't just come from the product itself. It comes from ensuring it's easy to find and backed with enough marketing and distribution muscle to build both mental and physical availability. Time for a robgpt. New products are like new species entering an ecosystem in dense, competitive jungles. The big categories, only the toughest adaptations survive in smaller habitats. There's less fighting for resources, so survival rates climb. And if you're already dominating the food chain, your offspring inherit the advantages that keep them thriving. Rob, what did you think?
- [08:19]
A
Such a tricky formula, right? If it was easy, everyone would launch new products every day. But it's. It's always a gamble, and you try to put the odds in your favor. That was. That was really interesting.
- [08:30]
B
It reminds me of sometimes. You see, it makes sense that if a brand is growing, it's going to have an easier time. Like, I think about those drinks, like poppy, and how, like, as they're succeeding, like, they're introducing more flavors and people are already excited about it. You're more likely to try a new flavor. I can see why. Trajectory would matter a lot if you're introducing it in that way, like as skus of your original, original product.
- [08:52]
A
Well, thank you to all our listeners in Nerdistan.
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B
If only that was a real place.
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A
You'd be the president.
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B
I'd be the president. That's not good news for Nerdistan. That's it for this episode of the Marketing Architects. We'd like to thank Taylor De los Reyes for producing the show. You can connect with us on LinkedIn. And if you like the podcast, please leave us a review. Now go forth and build great marketing Marketing Architects.