Why do half of all product/service launches fail?
Any company looking to boost revenue growth needs to launch new products or services – in fact, more than 25% of total revenue and profits across industries comes from the launch of new products.
Recent McKinsey research has also shown that businesses that focus on creating new products and services while maintaining core competencies across functions grow faster than their peers.
Yet more than 50% of all product launches still fail to hit business targets.
Why is it so difficult to launch a product or service?
Technology has made good product launches more challenging. It has lowered the bar for product development, allowing companies and startups to roll out more launches more quickly and cheaply. On top of that, myriad digital platforms from email to Snapchat have led to a barrage of messaging and communications, making it harder for launches to stand out.
While analysing product and service launches across industries, it wasn’t immediately clear what else was behind the high launch failure rates. We noted plenty of variation in terms of frequency, average spend, and launch type - especially between completely new products, which dominate in pharma, as opposed to just upgrades or line extensions, as is often the case in consumer companies. But average failure rates are high across the board - over 40%.
Interestingly, this failure rate holds across different launch types. While one might expect the launch of completely new products to be less successful because of the complexities of changing consumer perceptions and habits, their failure rate is comparable to the launch of incremental changes in familiar products. Clearly, the complexity of the product doesn’t have much of an effect on the launch.
Neither does money, as it turns out. Our research showed no correlation between the amount invested in a launch and the rate of success.
Launch champions: What they do right
What turns out to really matter, according to our analysis, is having in place a specific set of core capabilities, the most important of which are: team collaboration; incorporation of market insights; rigorous planning of upcoming launches; and talent.
The single most important driving force behind successful commercial launches (averaged across sectors) was team collaboration, especially the ability to unite around one direction and to execute as a team. That level of collaboration is hard to achieve in most businesses, since different functions with different reporting structures and incentives are responsible for different elements of the product launch.
The best performers establish a cross-functional launch department to orchestrate and integrate activities across functions and geographies. This department operates like a centre of excellence (CoE) overseeing the full portfolio of launches and bringing the right people together - marketers, social-media experts, developers, customer-service people, designers, etc.
Most importantly, this CoE has a single “Mr. or Ms. Launch” who has overall responsibility and accountability for a successful launch. And by successful, we mean not just succeeding in delivering the launch on time and on budget but also making sure that it’s a commercial success.
A strategy should articulate exactly what the business wants to achieve with the product or service, including which customers to target, what key message to communicate, and which critical decisions will best drive those outcomes.
These strategic decisions have to be made early enough in the development process for the launch team to think through what they mean for the launch itself. When Fiat launched its Fiat 500, for example, it wanted to shift perceptions away from Fiat cars as merely functional and increase awareness of the car’s style. The product-launch team decided to ask customers for their opinions about how to design the interior.
A good launch plan provides transparency between headquarters and the responsible teams at the country level, who are responsible for both building on and implementing it.
The idea wasn’t so much to get input on design - there was limited flexibility in what could be done - but to get people talking about style and associating it with Fiat. To do this, the launch team needed to be involved early on in the car’s development process.
A firm strategy is the basis for a detailed launch plan, which identifies critical paths, resources, and decisions needed for success. In developing the launch plan, the best companies have a laser focus on launch ROI (gross margin/launch investment) to determine if launch activities actually deliver value. Launch ROI shifts the emphasis to metrics that track outcomes, such as preorders, over inputs, such as number of launch events or number of walk-ins.
A good launch plan also provides transparency between headquarters and the responsible teams at the country level, who are responsible for both building on and implementing it. The plan should also identify potential risk scenarios - what happens, for example, if a competitor launches a campaign for a competing product just before launch? - and develop risk-mitigation strategies that enable rapid course correction.
A differentiated launch strategy relies on a solid understanding of the market, consumer, and competitive situation. Without that, companies often revert to just pushing out generic slogans and media messages that do little to convert customers. Basic demographic and online analysis is a good start, but the best companies go beyond that to uncover insights into behaviors of (meaningfully) narrow segments of target customers.
One large auto manufacturer, for example, was preparing to launch a new car in China and wanted to reach young families. The original launch plan allocated the vast majority of advertising spend to TV and newspapers, with little focused on the web. However, analysis revealed that young families were going to a set of websites more often than watching TV.
The company then scaled back their TV and newspaper advertising and poured more spend into family-oriented websites. They also focused on tailoring in-person events to young families where their foot traffic was high. That meant, for example, putting child seats in cars they put on display in malls and developing programs to entertain kids while parents checked out the car.
Often hundreds of people are involved in delivering the commercial launch of a product. One mistake in the process can jeopardise the entire launch. Successful companies understand that to deliver on the strategy, they need to invest in training and developing their people. This starts with not just attracting good talent and but also making launch-team roles important and valued, not a career dead end.
CEOs can raise the prestige of the launch of a product or service by being actively involved, from announcing launches to reviewing launch plans with the board. They also have a pivotal role in celebrating launch success by communicating it to the business and championing winning launch teams.
A crucial starting point is a clear and unbiased understanding of current launch capabilities. This analysis not only helps leadership understand where to focus its energies but also provides a source of common knowledge to settle arguments at the leadership level based on different data sources (or, often, no data at all).
New products/services are a source of significant growth for businesses. But unless companies can master their launches, the full value of products will remain out of reach.
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Alexander Krieg is a Partner based in McKinsey's Stuttgart office and is a core member of the EMEA Advanced Industry sector, serving automotive and equipment manufacturers across Europe, Middle East, and Africa. Alexander has deep experience in strategy development and marketing and sales improvement programmes. He is leading McKinsey's Product...