Harbingers of Failure

Abstract

We show that some customers, whom we call 'Harbingers' of failure, systematically purchase new products that flop. Their early adoption of a new product is a strong signal that a product will fail -the more they buy, the less likely the product will succeed. Firms can identify these customers either through past purchases of new products that failed, or through past purchases of existing products that few other customers purchase. We discuss how these insights can be readily incorporated into the new product development process. Our findings challenge the conventional wisdom that positive customer feedback is always a signal of future success.

Customer Retention under Imperfect Information

“…When estimating the effect of public school quality on residential choices, [15] controls for neighborhood unobservables by using the residential choices of people without school-age children. [1] and [55] use purchases of a certain group of consumers as a predictor of new product failures in various categories.…”

“…I assume that consumers are myopic, i.e., they maximize the current-period predicted consumption utility. 1…”

“…Although a firm represents a large collection of diverse products in many cases, it is still commonly observed that more than 50% of consumers churn at the firm level after a single product experience in various markets. 1 Understanding the source of low retention rate after initial trials is critical for a firm to set optimal marketing policies. If the low retention rate is driven by preferences of fully-informed consumers who are well aware of the firm's entire product offerings, lowering price or changing product design would effectively increase retention.…”

“…The test I develop extracts a testable prediction from a class of consumer learning models 1. "Blue Apron: Inside the box," Data Points.…”

Why Great New Products Fail

“…A recent study of almost 9,000 new products that achieved broad distribution at a national retailer revealed that just 40% of them were still sold three years later. 1 Some of these products did not create value for customers and deserved to fail. However, some of them would have created value if customers had adopted them.…”