Why new product launches fail & how to avoid it

Entrepreneurial legend has it that the new product failure rate is somewhere between 80 and 95%.

This statistic is enough to make any startup or product development team quake in their shiny work shoes. (Or slippers, if you’re part of a hybrid office.) Is it even worth adding an innovative new product to your business if it’s practically destined to fail?

We’ve got some good news. First, that astonishing failure rate isn’t the full picture. The new product failure rate is actually closer to 25% after the first year and 40% by the end of the second year after launch, according to a study published in a 2021 issue of Marketing Letters.

For the study, researchers analyzed 83,719 SKUs in 31 consumer packaged goods (CPG) categories. Each SKU was introduced during a span of eight years (2002-2009) in the United States. At the end of the first year, 25% of these SKUs were no longer selling. And after a second year, the number increased to 40%.

This means it absolutely is worth it to invest in creating a useful or attractive new product.

But how can you avoid landing in that 25 to 40% statistic?

Failure means lessons learned, sure. It’s normal to have an embarrassing idea or flopped product hidden somewhere in your business’s history. But product failure means a ton of time, money, and resources spent with little return.

In this guide, we’ll figure out why new products fail and what you can do to change the narrative for your business.

What is new product failure?

New product failure is when a fledgling product or service stops selling within the first two years of launch.

Some marketers count products that fail to meet sales expectations within the first couple of years as failures, too.

We suspect that’s where the whole 80-95% new product failure rate comes from.

No matter how you slice it, watching a new product flounder is no fun at all.

What is the main cause for the failure of a new product?

There’s no single main cause for why a product fails to find its footing in the market, but we've identified three top reasons for new product failure.

They all circle back to inadequate market research. The top three reasons are:

• Misjudging your target audience's needs

• Not differentiating your product from the competition

• Failing to act on customer feedback

Let's take a closer look at each of these causes of new product failure.

Misjudging your target audience's needs

It seems like something every entrepreneur would know by now: you've got to do some serious market research before you build and launch a new product.

"You have to speak to your clients, you have to always keep your ears and eyes open," says Lisa Richards, CEO and creator of the popular health and nutrition site, The Candida Diet. "We go through surveys, interactions on social media, we do focus groups, and we just ask our clients what their needs are."

It's really that simple.

But the excitement of a new idea can make even the most careful business owner rush important decisions. And market research goes beyond idea validation, or the process of collecting qualitative and quantitative data on whether customers would actually buy your product.

Like many new product failure examples, this blunder showcases what Rex Liu, Chief Revenue Officer of GoSite, calls "a misalignment between the product and customer needs."

Liu draws on a decade's worth of experience developing marketing strategies for various software companies. These include Booker, a spa and salon management solution by Mindbody; InEight, a construction project management software; and Kiddom, a platform that helps schools and districts implement learning programs.

"At Booker by Mindbody, we initially misjudged our audience's preference for mobile-friendly solutions," says Liu. 

Even though there was a market for the product, customers couldn’t access it in the way they wanted. The result? Low engagement. 

When the company made mobile optimization a priority, engagement picked up.

This highlights an important point: market research shouldn't stop once the product leaves the proverbial nest. 

"There is no such thing as a static market, and you shouldn't have a static product development strategy," says Richards. "[At The Candida Diet], we constantly iterate over our product offerings—striving to improve formulations, introduce new recipes, or add features to our online platforms."

It's how her team keeps The Candida Diet's offerings relevant to their customer base.

It's how you can do the same exact thing.

Not differentiating your product from the competition

It's not enough to dream up an amazing product idea and figure out how to launch it in just the way your target audience wants it.

You also have to make sure you're giving them something no one else does. This doesn't mean you need to scrap your whole product idea if there's already something similar on the market. It just means you need to dig in and figure out how your product is different from the competition.

Richard Liu can attest to the importance of product differentiation. "When I was at InEight," he told us, "our project management tool initially struggled because it didn’t stand out against established competitors."

The company shifted its focus to unique features that specifically catered to the pain points of contractors in the construction industry.

It worked.

Carving out that distinct niche vastly improved adoption rates, says Liu. 

Richards had a similar experience. “We initially tried to stand out by selling a generic anti-candida supplement,” she says. While the product was effective, “There was no reason for the customer to buy from us as opposed to any other company, and it had tepid sales before we eventually discontinued it.”

It was only when Richards and her team niched down that they found success. 

“We shifted from a supplement-centered focus to a full anti-candida program,” she explains. This includes a service with targeted recipes, custom diet plans, and ongoing customer support—all focused on helping people overcome candida overproduction and the health problems that come with it. 

After they did this, says Richards, “Sales started to really skyrocket—and customer retention soared.”

The Candida Diet had found its unique selling point (USP).

How to find your unique selling point

If you’re still in the product ideation stage, do some competitor research before you get too far into the mockup/prototype stage. 

“See what other players in the marketplace are offering,” suggests Lisa Richards. “When you have a thorough understanding of your competitors' offerings, weaknesses, and strengths, you can identify gaps to stand apart from the competition.”

To identify your product’s USP, ask yourself these three questions in order:

1. "What are my product or service's unique strengths?"

2. "Do my competitors offer these same strengths?"

3. "Are these strengths something my customers need?"

If the answer to Question #1 is no, rethink your product or service. If you've got some strengths to work with, move on to Question #2.

If the answer to Question #2 is yes, go back to Question #1 and find something else to focus on—or rethink your product based on what you’ve learned. If the answer to Question #2 is no, that's your green light to proceed to Question #3.

Use focus groups, surveys, or interviews to find out the answer to Question #3. If the answer is yes, find a way to emphasize your product's strengths as you prepare for launch. Make sure it’s crystal clear to the customer what your product can do for them that nothing else can. 

If the answer is no, go back to Question #1, rinse and repeat, until you find or create a USP.

Failing to act on customer feedback

Your product is out on the market—a nervewracking experience if there ever was one. Reviews begin rolling in, some good, some not-so-great. 

You worked so hard to bring the product to market. The good reviews make you feel like you’re flying. The bad ones get your hackles up. You want to defend your product, your team, yourself. 

Don’t do it. 

Step away from your laptop or phone or tablet. Let yourself feel all the feelings somewhere far, far away from Yelp, G2, your email inbox, or wherever your target audience is weighing the pros and cons of your precious brainchild.

Come back to the review when—and only when—you feel calm and objective. Read the review again with a clear and grateful mind, because guess what? 

A bad review is a gift. 

Your customer has just given you valuable feedback. Taking it seriously is an excellent way to build trust with your customer base.

Here’s what to do instead of going on the defensive: 

• Do some digging. Find out why the customer had a negative interaction with your product—was it low quality? Late arrival? General displeasure because of a feature the customer wishes your product had? Whatever the reasons, take notes.

• Brainstorm remedies with your team. This might include digging into manufacturing and production, if you sell a physical product. If you sell a software service, it might mean analyzing the source code to identify and fix a glitch. If several reviewers point out a missing feature they’d love to see, take it as a sign that you should develop and implement that feature. 

• Thank your customer for their feedback. And then tell them that you’ve looked into the problem and have figured out how to fix it so it doesn’t happen again. If the review is about a missing feature, tell them you’re looking into developing said feature. (But only if you actually are.)

• Apologize and offer further ways to reach you. If the negative feedback came because of a mistake your team made, apologize for the mistake. Then provide your business’s contact information and invite the reviewer to reach out. Make sure the phone number or email you list actually ends up at a point person who can help the customer—whether that’s you or someone else on your team. 

• Sign off with your name (or initials) and title. No one wants to be on the other end of an automated, copy/paste robo-message. Personalize the response, and your customers will feel heard. 

Who knows? If you make positive changes, your negative reviews could turn into positive ones. Showing people you care about their experience might even turn them into loyal customers who refer you to family and friends.

“Never underestimate the importance of listening to your users and making iterative improvements based on their input,” says Rex Liu.

We couldn’t agree more.  

Key takeaways

Now that you know what factors cause new product failure, you can work to avoid landing in the dreaded new product failure rate of 20 to 40%—or higher, if you count a big slowdown of sales. 

Here’s a recap of our tips: 

• Why products fail: The top three reasons for new product failure fall into three categories:

• Misjudging your target audience's needs

• Not differentiating your product from the competition

• Failing to act on customer feedback

• How to avoid product failure: 

• Perform market research before, during, and after launch

• Research your competitors’ offerings to find out how to differentiate yourself

• Pay attention to user reviews

With continuous market research, competitor research, and self-evaluation, you and your new product can go far. 

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