Harvard Business Publishing

by John Senior

Creating new services that captivate consumers and generate profit is a tough job today. The abundance of offerings, vendors, and channels makes the competition for consumers' attention particularly keen.

Consider the options available for someone who wants to see a movie: besides going to a movie theater (a consumer behavior that seems almost quaint these days), she can rent a DVD through an online rental service such as Netflix, rent a video on demand from a cable TV provider, watch a TV movie recorded on TiVo, or download a movie from Apple iTunes, Amazon, or any number of other Web sites.

To stay ahead of the game, managers with responsibility for developing compelling new service products need to:

• Identify the next winning services with more certainty.
• Prioritize quickly and effectively among competing ideas and investments.
• Develop value propositions that customers find compelling.
• Implement the chosen strategy more quickly.

In our work with service companies around the world, we have identified four ways that managers can better develop and deploy winning service concepts.

1. Start withthe customer, not the technology
Engineers have a strong influence on new concept creation at most companies. But when you put technology first, you risk creating services that are too far ahead of customer priorities, too cumbersome for people to use, or too expensive to produce. A technology-first mindset led to the demise of such services as Creative Technology's Nomad, a portable device for playing MP3s that saw the Apple iPod capture and grow its market.

New concepts must be guided by customers' needs, both those they are aware of and those they aren't. Techniques to uncover customers' unmet and possibly unarticulated needs include interactive online forums with sophisticated users who can shine a light on what other, less sophisticated users will want to do in years to come; analysis of leading-edge consumer activities in advanced international markets; and analysis of product investments being made in related sectors. Combining insights from varied sources allows managers to construct a more accurate prediction of the value propositions and products that are likely to be successful.

We helped one digital communications and media business develop an online international services strategy. An analysis of consumer behavior online and offline revealed that the vast majority of emerging-market consumers were more intense users of digital media and communications services than most U.S. consumers. In one Asian country, community activities generated most of the online usage, but in another Asian country, education and information usage ranked first. These insights allowed the firm to tailor its international online services strategy to each new market.

2. Prioritize concepts through sharply defined business criteria, not intuition
Relying on crude prioritization methods to winnow new concepts at an early stage leads to unfocused development and delayed time to market. It is far more effective to base decisions on criteria that reflect both short- and long-term strategic and financial objectives. The metrics might include the impact on customer retention vs. acquisition, market share vs. average revenue per user, time to market, likelihood of success, and investment resource requirements.

Using defined business criteria makes decision making faster and more transparent to all the people involved, instills greater confidence in the outcome, and allows the organization to focus on a small set of high-potential services.

3. Design the business model, not just the service functionality and features
Most organizations invest a huge amount of time in developing functionality and features, with just a fraction of that time spent defining the business model surrounding the service. But a new service often requires a new business model to create ongoing customer value and realize profit.

U.K.-based BSkyB is one company that did this very successfully. When Sky launched, the firm adopted a subscription TV model. Targeting men in their twenties through forties, Sky gained exclusive rights to many prominent sporting events and was able to convince a sizable audience to pay a premium to see them.

Using defined business criteria makes decision making faster and more transparent to all the people involved.

Sky has continued to innovate on this original model. By offering exclusive access to popular TV series, such as Lost and 24, it extended the appeal of its TV service to a broader customer base and increased its stickiness. It gave subscribers greater choice through different packages and interactive services built around major sports. Then it offered broadband Internet and phone services to add new revenue streams.

Getting the service and business model right has allowed Sky to protect its premium price point, increase penetration of higher-value services, and protect its strategic position in the increasingly competitive U.K. pay-TV market.

4. Rapidly and rigorously test big bets or groundbreaking concepts with consumers
Sophisticated customer analytics tools are now available to test new concepts and support fact-based product design decisions prior to investing in prototypes. Videos or animations can demonstrate the key functionality and benefits of a new service concept, and a simulated competitive environment can determine which features actually influence demand and how competitor responses might affect the market.

One U.S. media firm we worked with used these advanced concept-testing and analytical techniques with three goals in mind:

1. Determine quickly which new services consumers would truly value.


2. Define product priorities.


3. Hone the offer strategy.

We built a simulated online environment in which consumers could see the competing concepts from multiple providers at different prices and make a choice. This approach clearly identified which new concepts should be developed to meet consumers' highest priorities: safety and security, photo-management capability, and music and enter-tainment offerings. Additionally, it revealed which providers they would be most likely to buy from, and--most critically--how much they would be willing to pay.

Based on this insight into likely purchase behavior, the media firm doubled down on its investment in security and photo services and deemphasized other new service development activities. The result was a faster time to market and a leading position in the online safety and security category.

An outside-in approach that rigorously mines consumer, com-petitor, and market data to create new concepts will dramatically raise the odds of identifying high-potential product concepts. Using predefined business criteria to quickly sift through many new ideas to identify the high-potential ones allows the organization to focus its resources. Finally, testing those high-potential concepts using advanced customer analytics helps managers make faster and smarter choices--all helping to speed time to market and boost the chances of a successful launch.

John Senior is a New York-based partner of Oliver Wyman. He can be reached at MUOpinion@harvardbusiness.org.

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