Failure Does Not Stop Innovation

By Turner Stephens
October 20, 2020

Globe of the World

Consumer economies create vast opportunities for new product creation. However, many products are doomed to failure, even if they appear to have success written all over them.

Market-based economies are huge engines of innovation. They create many opportunities for collaboration, and to test if new products are popular with consumers. Globally, consumers spend trillions of dollars on millions of different products and services. With so much money being spent, there is plenty of profit to be made with the right product. However, just like toddlers that fall and get up many times before they learn how to walk and run, so goes the success rate for new products. Failures often lead to more ideas and better products. Sometimes safety failures create outrage and cause the creation of more effective regulations and enforcement for consumer protection. Top experts, like Professor Clayton Christensen of Harvard Business school, and Inez Blackburn, Director of Research at The Institute for Retail Innovation and Nielsen Global Connect, disagree on the product failure rate for the roughly 30,000 new grocery items introduced each year. The failure rate for new products ranges from 70% to as high as 95%. Why there is disagreement here is unclear, but it may be because products that sell poorly from little known brands never make it into major distribution channels. Large distributors regularly report the sales of their products, while various small distributors do not.

However, many product failures make a big enough impression upon the world that they are documented in the news. Companies either learn from their mistakes or go out of business.

The pharmaceutical industry introduces only 40 to 50 new drugs per year. This is because of the high R&D and FDA regulatory requirements which add to the retail cost of the drug. JAMA Network recently published a report stating that the cost of bringing a new drug to market ranges from $314 million to $2.8 billion.

Turning a new electronic product from a concept to a manufactured item has a much lower cost than a drug. John Teel of Predictable Designs wrote in Entrepreneur Magazine that for exceptionally complex products, the cost to market can be in the millions of dollars, but most products are simple and can be done for around $100,000. Cloud computing and open-source software have decreased the cost and time of development for many consumer electronics.

The cost to introduce a new food item to the grocery industry is lower still, although the failure rate, as stated in the first paragraph, is far higher than new drugs or electronics. Rachel Zemser, Food Science Industry Consultant at A La Carte Connections, states that the average production startup cost for a food item ranges from $10,000 to $150,000 just to bring a first production run to the market. This does not include the cost of food brokers, food demonstrators, marketing, etc.

There are hundreds of well-documented product failures and various reasons why they failed. Here are a few notable ones.

In 1997 Clearly Canadian Beverage Company started selling Orbitz in stores. Maybe the product was named because the makers thought the colored candy balls floating in the drink looked like planets suspended in space, although the beverage reminded many customers of lava lamps. Marketed as an alternative drink with texture, adult customers thought it was disgusting, though children liked the taste of the candy balls. Initial Orbitz sales plummeted like a comet and the product died within a year.

The refrigerated bottled beverages in many grocery stores generate the most sales per square foot even though most of these drinks are shelf-stable and do not require refrigeration. Even without refrigeration, the bottled beverages are a huge seller, particularly bottled water. So, with the chance to introduce a new bottled drink and interest in multicultural cuisines growing quickly, what might a new beverage taste like? How about a vitamin and mineral-infused drink that tastes like beef or like fish? And who is the target market for these types of products? Dogs and cats! Marc Duke of the Original Pet Drink Company was sure he had a winner when he launched Thirsty Cat! and Thirsty Dog! drinks in 1994 because he thought pet owners would find these to be a much easier way to deliver nutrients to help their furry friends have healthier skin and hair. Also, a small national poll showed 40% of pet owners were concerned about giving their pets tap water. At $1.79 a bottle, this product just sat on store shelves. Grocery and pet stores realized it was a bomb and did not place reorders.

There is a lot of press worldwide about plastic contamination of our oceans and the massive problem of non-recyclable packaging shipped daily to landfills. PepsiCo thought they had a great idea. In 2008, after 4 years of research, the company created a biodegradable package made from vegetable matter that would break down in about 14 weeks in a hot, active compost pile. Sun Chips, their popular snack chip, was chosen to fill these eco-bags. A high demand snack item in a package that helps protect the environment should have had no downside. However, Sun Chips sales dropped 11% within a few months of being sold in the new compostable bag. It was not the looks of the bag; it was the irritating sound the bag made when handled by consumers that turned people off. The high decibel ratings the bag made while consumers were snacking on the chips were louder than voices during normal conversation and kept people from hearing the words spoken by their friends or on television and radio shows. PepsiCo responded to consumer complaints by creating a quieter Sun Chips eco-bag in 2011. However, it has not created other compostable bags since then for any of its other snack products.

More than one million new cases of sexually transmitted diseases (STDs) occur globally every day between people of the ages 15 to 49 years old according to the World Health Organization. Jan Vinzenz Krause, a German entrepreneur, realized this was a big problem and he wanted to help. Condoms had been proven to prevent various STDs and unwanted pregnancies, so he built a website called the Online Condom Advisor where 100 condom brands were listed. This led to many men complaining that there were only three basic condom sizes and that they did not fit. Krause was sure he could solve this problem and, through the German Institute for Condom Consultancy, announced that men would soon have the custom-size condoms that they wanted. The answer was called the Spray-on Condom. The concept was that a male customer would insert his reproductive organ into a device that sprayed on latex like a vehicle driving into a car wash. Great idea? Problem solved? The European Union stated the device did not meet its product standards. Krause said that he tested the device on 30 men and they all gave positive reviews, but there were reports that men were too frightened to insert their organ into the device, which also gave off a loud hissing sound while it was spraying on the cold latex. Drying time for the latex took 2 to 3 minutes which also proved to be impractical. Krause found there was no way to market the device and so he gave up after 2008. That same year, he launched My Size, and the company is now selling condoms in seven distinct sizes. Krause is currently Chief Executive Officer of My Size, which generated $224 million in sales in 2019.

Building a brand name is exceedingly valuable, as strong brands can charge higher retail prices and generate more sales than their competitors because of consumer trust and knowledge of their brand. Consumer loyalty protects brands from competition, but this loyalty does not extend to a brand when the company wanders into strange territory. When Colgate’s frozen Kitchen Entrees were launched in 1982, customers could not bring themselves to buy the products. These products might have tasted good, but consumers associated Colgate with the flavor of toothpaste and never gave these entrees a chance.

Keurig is a world leader in sales of coffee brewing machines and in the co-branded sales of famous name-brand coffees like Peet’s and Starbucks which are packaged in K-Cups for single cup servings. In the fall of 2015, Keurig decided to get creative. It convinced retailers to carry its seltzer-making machine (with Christmas just around the corner) to compete with Soda Stream’s popular make-your-own-soda machine. Coffee lovers showed no interest in the machine, and soda lovers did not understand how Keurig could know anything about carbonation or good soda. The product was discontinued in 2016.

Companies often contract with other businesses to manufacture items that the company will sell under their own brand, but to be successful, customers must like the product for it to be profitable. This is called private labeling. In 1990 Harley-Davidson launched a new cologne, co-developed by L’Oreal. “The scent of freedom” slogan of the cologne did not appeal to anyone, bikers and non-bikers alike. The cologne, made with bergamot, mint, patchouli, and sandalwood, had few buyers and was discontinued.

New products are introduced every year as consumer needs or desires change and as circumstances evolve in the world. Inventors’ curiosity on how to improve things, an entrepreneur’s excitement that their product will make it big in the marketplace, and the intensity of competition between businesses are drivers for new product launches. Yet, inevitably, there are new product casualties all the time. No one really knows for sure which products will be successful, yet that does not keep the massive experiment of new product launches from continuing.

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