Undercover Economist

Meet the Flop Pickers

‘If savvy consumers can help predict a product’s success, might there not be consumers whose clammy embrace spells its death?’

Spare a thought for the poor darlings who run your typical transnational, fast-moving, consumer goods company. They invest millions launching an exciting new product (Colgate ready meals, say, or Cosmopolitan brand yoghurt. Or Crystal Pepsi: it sounded like a Class A drug, it looked like water and it tasted pretty much like any other kind of Pepsi. How could it fail?) They give the product to focus groups, who like it. They trial it in a few select stores, and it sells well. Their retail partners are convinced. Then the product is launched to global fanfare, and the ungrateful customers refuse to buy it.

It is no secret that many new products fail. Naturally, companies are on the lookout for ways to identify failures earlier in the process, before they have sunk too much time and money into a product that will eventually collapse. If you’re going to flop, it’s better if you can do it quietly in the changing rooms rather than from the highest diving board with camera bulbs flashing.

Back in the mid-1980s, Eric von Hippel, a management professor, suggested working with what he called “lead” customers — people with more advanced or specialised needs whose demands might predict where the market could be heading. Today’s military technology is tomorrow’s household appliance; today’s professional imaging software is tomorrow’s smartphone app. In the innovative industries that interested von Hippel, paying attention to lead customers would produce great ideas for the mass market.

In more everyday sectors, lead customers might instead be fashionistas whose choices were copied by others. Or lead customers might simply be cutting-edge consumers of music, or coffee, or gluten-free cakes, who are always one step ahead of where the herd is already going. In any case, the strategy for a business is clear: identify these lead customers if you can, and pay attention to what they do and say.

Von Hippel and co-authors wrote in the Harvard Business Review in 1999 that “all processes designed to generate ideas for products begin with information collected from users. What separates companies is the kind of information they collect and from whom they collect it”.

What they meant was that companies should consider the ideas of lead customers, rather than gathering a group of John and Jane Does and showing them a product prototype. But lead customers aren’t the only unusual people who might be worth paying attention to.

If savvy influential consumers can help predict a product’s success, might it not be that there are consumers whose clammy embrace spells death for a product? It’s a counter-intuitive idea at first but, on further reflection, there’s a touch of genius about it.

Let’s say that some chap — let’s call him “Herb Inger” — simply adored Clairol’s Touch of Yogurt shampoo. He couldn’t get enough of Frito-Lay’s lemonade (nothing says “thirst-quenching” like salty potato chips, after all). He snapped up Bic’s range of disposable underpants. Knowing this, you get hold of Herb and you let him try out your new product, a zesty Cayenne Pepper eyewash. He loves it. Now you know all you need to know. The product is doomed, and you can quietly kill it while it is still small enough to drown in your bathtub.

A cute idea in theory — does it work in practice? Apparently so. Management professors Eric Anderson, Song Lin, Duncan Simester and Catherine Tucker have studied people, such as Herb, whom they call “Harbingers of Failure”. (Their paper by that name is forthcoming in the Journal of Marketing Research.) They used a data set from a chain of more than 100 convenience stores. The data covered more than 100,000 customers with loyalty cards, more than 10 million transactions and nearly 10,000 new products. Forty per cent of those products were no longer stocked after three years, and were defined as “flops”.

. . .

The harbinger customers are those who buy lots of flops and, in particular, those who buy flops and then go back for more, repeatedly buying the same unpopular product. It turns out that having identified these flop-loving customers, you can get a good idea of future failures by watching whatever they buy next. This is interesting: in principle there’s no reason why a customer who loves an unpopular flavour of soft drink would be more likely to also love an unpopular brand of shampoo.

In practice, however, the data show a class of people with an eclectic taste in products that others dislike.

Anderson and his colleagues reckon that their results are robust within the particular context of the convenience store data. Whether the technique could also be used for films and books, or computers and tablets, remains to be seen. But it’s already a good example of the kind of patterns that emerge from much larger and more detailed data sets than ones traditionally available to social scientists.

A final question is whether you can spot Harbingers of Failure without access to their shopping habits, purely from demographic information. The answer seems to be no. Harbingers of Failure are much like the rest of us. The only difference is that they love the products that we hate.

Written for and first published at ft.com.