This content relates to : NEW PRODUCT & SERVICE DEVELOPMENT
We have never looked at resistance, which is a market perspective. We overemphasized, academic research as well as practice, the role of opinion leaders. We thought the only way markets can be made is we need somebody like an opinion leader in a community or in expertise like medical doctors from well-known universities or hospitals to endorse the product, to promote the product, et cetera, as we are doing with vaccine hesitancy right now. That’s a managerial view. We may do research, market research to understand what motivates the consumers, but that’s not enough.
So, we have to really put ourselves the other way around to say, let’s take a market perspective. Which is the opposite view to say “why do people resist change?” There must be some reason, rational reason in their mind. If you can unlock that reason maybe we can do a better job to overcome why they resist change in general, which is what innovation is all about. So taking that mass market perspective really tells you that maybe there are two underlying reasons why mass markets resist change. And it’s very powerful theory. I began to evolve that in the late seventies and I have a paper in 1981. And had two doctoral dissertations almost in a laboratory setting to test the theory. The first major reason comes about is current habit, if you’re happy with what you’re doing, there’s a market inertia. And people don’t want to change. Which surprisingly is very rational thinking because change requires additional effort. Market transaction costs. Transaction cost economics is not designed or Williamson’s theory, not just for the enterprises, but to consumers. Consumers are very conscious. It’s not the price you pay in the market, but the effort you have to go through to get the product or the service. And they bundle the two in their mind and they say, Why change? Because it requires me to bring about more effort, change, etc. Not just the price.
So, we have to understand how habits are formed, and why habits are so entrenched. And therefore, if we wanted to bring about a change, one needs to somehow transition from one habit to the other, which we have done a great job by the way. In technology it’s called migration. IBM was brilliant. The computer they designed let’s say the early 7070s, 7090s, then the 360 series, had a life of maybe 15 years but every four or five years, they improved the capacity, the capability and the lowered the cost per transaction. And therefore, they motivated the business customer to actually trade in the older computer and buy the new one. It’s called a migration strategy. We do that with automobiles. We have a trade in. And therefore we are able to say, I can break the habit by a trade in. There’s an asset value of your automobile. Buy a new automobile with new features, functions, as Tesla is doing it right now, I guess electric cars, etcetera, and one can make the transition. So we have to migrate as a path to accommodate the habit. If the habit cannot be migrated for whatever reason, economic reasons, infrastructure reasons, etcetera then you have to mandate it. Government will have to say it, you just can’t do it. Cigarette smoking is one of those. That habit is very biological in many ways. Very hard to break. You begin to mandate or you contain the habit. So, at the workplace, you are not allowed to smoke anymore. There is a small smoke-free zone, you can go to. Airports, you’re not allowed to smoke anymore. Airplanes you can’t smoke. So by constraining the places that you can consume the product, you can begin to reduce the habit. That’s a possibility.
So, either one has to migrate properly, or one has to use public policy measures like mandatory seat belts for example. So, now I don’t even think about it as soon as I sit in the car, first thing I do is put a seat belt or start the ignition. I mean you can think about my previous habit versus the new habit essentially. So, that’s the second major area.
A third one more recently, to break the habit, you now come to the risk side, which is the second dimension. The habit is, surprisingly it is working, which I did not think so, which is basically bundling. In other words, you like my product. Now I offer you an unrelated product and say, I can offer you a bundle as the cable guys are doing it, telephone companies are doing it, video streaming people are doing it. You know, bundling. Bundling is another way of introducing new innovation, which is nested into, not in terms of consumption, but in terms of procurement, one bill, etcetera, etcetera, you can do it. So, I think those are the ways you have to make sure that habit is understood properly at a mass market level. And how do you make sure that one can mitigate the impact of habit or inertia. And therefore, people are becoming more receptive to the innovation, rather than resistant to the innovation.
Second aspect for resistance is the risk involved with a new innovation. Consumers worry about taking risks. There’s an old theory of perceived risk by Professor Raymond Bauer at Harvard, very famous. In my younger days we used his theory quite a lot, in our building our own theory of buying behaviour. And it’s very interesting that there are three kinds of main risks people have about any new product they could come about. One is a performance risk – will it work or won’t it work. Despite all the assurances, we might give, from a product safety viewpoint, regulatory agencies like FDA or USDA, you know, whatever they are, saying it meets the requirements of the quality standard, people still have a worry whether they will work or not. In many, many product categories it’s a performance risk which is almost threatening your life in many ways, they’re dangerous or side effects. So performance risk, how do we minimize that?
Second one is economic risk. If I buy the product and if it does not work in my ecosystem, I lose a lot of money. Now in packaged goods industry, consumables, it’s not a big deal, it’s okay. But when we buy semi durable goods like furniture or garments, etc, which is a resale value you worry about losing lot of economic value. And of course, in automobile as you know in America, when you buy the car as soon as you sign and transfer the ownership, the value drops by 30 percent if you wanted to say, I don’t want to buy now. So people worry about economic risk is the second one.
The third one, which is more interesting to study just as consumer behaviour expert, is social risk. If I take this new innovation, what will my friends think about me? Will they laugh at me? Will they exclude me from the, you know, friend ecosystem, friendship ecosystem. So you have to learn how to mitigate those three risks. We often give you guarantees. We give you warranties, return the product no questions asked for example. We do free trials. Just goes on.
So, there are many, many mechanisms to reduce the perceived risk about the innovation. And there are several mechanisms to break the habit or to nest the new product into an existing habit.
Charles H. Kellstadt Chaired Professor of Marketing, Goizueta Business School, Emory University