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Be More Successful in Testing Value-Enhancing Business Model Innovations

Jun 7, 2008
Here's a list of ways to diagnose how you can improve on developing new business models that deliver more value at the same price while increasing your profits.

What went wrong with the last 25 volume-building tests your company ran that did not work as well as you expected?

Organizations are like individuals, and often show consistent good and bad habits. Start by understanding what your road blocks have been, and you are likely to begin noticing patterns. If you don't have documents that capture this information, simply spend some time talking with those who were involved or were affected by the tests. Be sure to include at least the company's employees, customers, and suppliers who were involved.

What are the patterns, if any, of problems that were encountered in implementing the tests?

Botched implementation is usually present in volume building tests. One of my favorite examples is a consumer product called Wine 'n Dine which debuted in test market during the 1970s. The product's concept was to create a more upscale and tastier version of Hamburger Helper, at a slightly higher price.

You would buy a box that contains some cooking wine, some noodles, and a powdered sauce. Add fresh ingredients like a little meat or vegetables and water or milk, and heat up. Voila! You have a treat for the adults in the family at a value price.

From the time the product was conceived and tested, it was clear that only a small price premium could be charged. In the meantime, the costs of noodles, packaging, and wine soared during the high inflation following the oil price shock of the early 1970s.

In development, the quality kept being cut . . . while the price was increased. By the time the product was ready for test, it was very expensive and produced a very low quality entree. Hamburger Helper tasted a lot better and was much cheaper.

The group of people who ran this test had had other failures where the test failed to be consistent with the concept that had been researched with consumers. Their approach of changing the test mid-process in ways that were inconsistent with the opportunity was a pattern that needed to be remedied.

How can you overcome the habits that probably caused the unsuccessful patterns?

In the example of the new product being adulterated away from the opportunity, clearly the company lacked a development process that would prevent that. Any change in pricing or formulation needed to be constrained within certain guidelines. If the individuals running the test could not do that for themselves, a formal review process involving those they reported to was needed that would add that discipline for them.

Where could each test go wrong?

In deciding which tests to pursue, you will notice that some tests have dozens of items that could trip up the test results. Others, meanwhile, will have few. Be cautious about taking on the more delicate tests. Chances are that you will not be able to implement them well enough to learn what needs to be done to expand volume.

What has been your success rate of implementing the key changes involved?

Here is where a lot of people fool themselves. Let's say that you have 15 things to do where you are successful around 90 percent of the time. Does that mean that your chances of success are 90 percent? Actually, no. Each element probably affects the success of each other element. If that's the case, your likelihood of success is less than 20 percent (0.9 to the 15th power).

Let's take another case, where you are 90 percent likely to succeed in two key tasks, and 20 percent likely to succeed at the third. If all three are needed, your likelihood of success is not 67 percent (the average of the three) but less than 20 percent again (0.9 X 0.9 X 0.2).

If you have a low likelihood of success with a test because of one or two implementation vulnerabilities, what can you do to improve the odds?

Sometimes, the solution is as simple as getting some outside help in these areas. Realizing that your overall opportunity to make millions is at risk, it will become apparent that it may be worth spending extra tens of thousands on the test to give it a decent chance to succeed. Otherwise, you may well be better off not doing this test. You will probably will learn little, the time and money will be gone, and you will have missed some other opportunity that you could have grasped.

Most companies will find that they only need to successfully implement one out of 50 or 100 tests for the whole program to pay for itself within two years of starting. Tests that fail to succeed because of implementation problems just slow you down.

Have you eliminated conflicts of interest in the tests you are considering?

Tests are delicate things, and often involve a lot of work for little recognition or reward. For example, in a tough year, salespeople may be at risk not only for bonuses . . . but also for their very jobs. If you load too many tests on them, you have to assume that the effort will go towards the quotas they must meet in what they normally do before much attention will go into the test.

If you want them to spend 50 percent of their efforts on the test, though, you have better adjust the compensation and evaluation process that year to reward them accordingly. If you cannot eliminate these conflicts, you will have to assess the individual commitment levels that the individuals feel above their own self interests.

Have you reduced the conflict with "standard operating procedures" for the test?

Tests usually require fast response, agility, and good communications. Most companies have just the opposite, wanting to make it hard to make an inappropriate change. Unless you loosen up the normal rules for the test operators, they will be stymied and stifled by the usual rules. If you cannot handle this in any other way, a potential solution is to set up a temporary stand-alone organization to run the test that is exempt for the usual rules.
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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