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In Product Development, Let Your Customers Define Perfection

https://hbr.org/2016/06/in-product-development-let-your-customers-define-perfection

In an era of high-stakes innovation, there is no clearer illustration of how to develop new products the right way (and the wrong way) than a tale of two car companies.

The first company is Porsche, which in the early 2000s launched the Cayenne sports utility vehicle — a vehicle very different from the high-performance sports cars for which it was famous. The second company is Fiat Chrysler, which introduced the Dodge Dart compact in 2012 with great fanfare, and even greater expectations. The company’s CEO, Sergio Marchionne, said at the time that “of all the cars I can get wrong, it ain’t this one.”

The Cayenne became a huge profit-maker for Porsche. The Dart never took off and was finally killed by Fiat Chrysler this year. Their divergent fortunes show what happens to companies that do and don’t develop products with a clear understanding of exactly what customers want and what they are willing to pay for it.

In the late 1990s, Porsche avoided bankruptcy by making its manufacturing more efficient and its sports cars more reliable. But by the turn of the millennium, the German automaker needed a new product for the mass market to jumpstart sales, and decided to make a vehicle for the burgeoning SUV segment. It was a significant risk for a company that knew fast cars, not family vehicles.

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Understanding it was in new territory, Porsche’s Cayenne product team conducted painstaking research to confirm that most customers would welcome an SUV from Porsche, and that they’d pay more for a Porsche SUV than they would for similar vehicles built by other companies.

That was heartening to the company’s executives and product designers. But it still wasn’t enough information to begin designing and configuring the vehicle. Porsche surveyed target customers on every single feature the car might possibly have, and gauged their willingness to pay for those features. It turned out that customers were willing to pay for sportiness (a missing dimension of competing SUVs). They wanted power and handling near to what they would get in a sports car.

But they were not interested in the six-speed manual transmission for which Porsche’s sports cars were famous. So the designers threw that out – not an easy sacrifice for the engineers at a performance-driven company like Porsche. And the Cayenne’s designers put in place foreign (to Porsche) features like big cup holders. The customer-listening process continued with every proposed feature. If customers valued and were willing to pay for them, they were in. If not, no amount of convincing from Porsche engineers could overrule the end user.

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When the Cayenne came to market in 2003, it was an instant hit. Ten years later, Porsche was selling about 100,000 Cayennes a year – nearly five times what it sold in its launch year. The Cayenne became the most profitable vehicle in the industry. By 2015, it generated about half of Porsche’s total profit.

In January when Fiat Chrysler announced it would pull the plug on the Dart, it was a symbolic as well as financial blow for the company. The new Dart was a re-launch of the much-loved Dodge Dart the company had discontinued in 1976, and it was meant to make Fiat Chrysler competitive in the important compact car segment, as well as introduce the company to a new generation of buyers.

In the U.S., compact cars account for one in every six vehicles purchased. The segment was so important that Fiat Chrysler CEO Marchionne said in a 2012 interview that companies that don’t succeed with compacts are “doomed.” Accordingly, the company said it would invest $700 million in a Belvidere, Illinois, plant to build a car that its CEO told the press would be “a huge step forward in terms of moving the brand into the American heartland.

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