If organizations value it, why won’t they pay for it?

A client recently asked us this questions as part of a market sizing exercise. Fortunately this client asked the question before entering the market and was able to plan accordingly. The buzz surrounding new products or technologies often attracts established vendors that can find after investing in a new category the market does not live up to their expectations in terms of market size or revenue growth. The disconnect stems from behavioral gaps in the typical market adoption curve.

Our research explores products and technologies at various stages in their life-cycle from nascent markets where most organizations have yet to recognize any value in a new technology to mature markets where prospects see little differentiation between products so brand equity drives many purchase decisions. At these polar ends of the continuum the market’s behavior is consistent.

It is when new products and technologies transition from early adopters to mainstream markets where there is the most risk of betting too early on the market’s readiness to adopt. It is here where interest can significantly outpace actual investments leading vendors to overestimate the short term potential of new products.

As new products and technologies mature they start to seem ubiquitous. They are profiled in industry journals and vendors begin using them—or the ideas behind them—in their marketing materials and sales pitches. They appear in presentations and panels at major trade shows and work their way down to local talks and events. Mainstream buyers begin to recognize the potential benefits of the product or technology and start to informally investigate how they might make use of it. They become more open to sales calls because they view them as a way to learn more about new products and approaches. Eventually the new product or technology makes its way into their consideration set as part of their due diligence for future decisions.

This is the point where the disconnect occurs: The market understands the potential benefits of the product or technology but after an evaluation of their options selects a different direction – often the same way they have been doing things.

So what happens? What keeps organizations from investing at a level that matches the value and benefits they appear to see in the new product or technology?

As with any multifaceted situation, there is no single factor that holds organizations back. However, our research across a range of sectors has identified a few broad dynamics that often explain this disconnect.

Priorities and budget: In many cases the answer is a simple matter of priorities and budget considerations. As valuable as the new product may be on its own, organizations must allocate budgets across competing priorities and the benefits provided may not be as great on an overall basis as other investment alternatives and necessities.

Internal lifecycle management: Organizations have often spent significant resources implementing their existing solutions and have established schedules for replacement and due diligence reviews. Even if they see value in a new technology or approach, many organizations are unwilling to adjust these schedules.

Hypothetical benefits: In many cases individual companies believe that new product should provide the hypothetical benefits in theory. However, they are unsure if it will provide the benefits for their individual organization given the practical realities they face. They may not feel they have the people or processes in place to realize the benefits – the new product or technology is only part of the equation.

Lack of use by peers: A key evaluation criteria for most business decision-makers when evaluating new products is if any of their peers or competitors are using them. They want to be able to ask colleagues about their experiences or read about how a firm that looks like them has used the technology.

CYA: Regardless of the potential benefits, few business decision-makers want the finger pointed at them if they recommend a new product or technology that fails – especially if it replaced something that worked well enough. Many decision-makers prefer to wait until new products are mainstream enough that making a decision to use them does not reflect on them personally one way or another. This is an emotional decision that overrides rational justifications of the benefits of the new product or technology.

So what do this mean for vendors evaluating how and when to enter a new market?

Remember that consideration leads investment: Prospects often use due diligence activities as their way of better understanding the pluses and minuses of new technologies and as a way to get comfortable with new products. Organizations will take sales calls and show interest in new products long before they are ready to invest in them.

Systematically evaluate all the market dynamics: When conducting market sizing activities it is important to consider the full scope of dimensions that determines the opportunity. Ensure you ask questions such as: Do existing internal processes create a barrier to investment? What are the competing priorities the product is up against? What emotional barriers exist to making a change of products or technologies?

Price the offer appropriately: When prospects are unsure if a new product or technology will deliver the promised benefits – whether because of questions about the product itself or about their internal issues – they are typically reluctant to make large investments.  Even if they believe it should work they must weigh the likelihood of its success against an investment in another area. To overcome this price sensitivity it can make sense to package the offer in a way that makes it acceptable to the market – lower risk options have a better chance of getting in the door sooner.

Recognize the importance of brand: As products and technologies become mainstream brand becomes a key decision criteria. This is especially true when decision-makers lack a thorough understanding of how the product or technology works. They rely brand equity and trust as surrogates for the aspects they don’t understand about the product.

Facilitate the transition: Vendors have a role in facilitating the transition from consideration to purchase by creating sales and marketing materials that help prospects overcome some of the specific barriers they face. This would include creating relevant case studies, tools to help show the prospect how to ensure benefits aren’t just hypothetical, and best practice guidance when business processes must be transitioned.

In the end the market will eventually pay for new products and technologies it values. The question is when. Early indicators of interest can make it appear that the market is closer to mainstream adoption than it actually is. A systematic evaluation of market conditions and dynamics can help established vendors make better decisions about how and when to enter new markets. It still may make sense to enter markets early, but a broader evaluation can help businesses and business units set more realistic expectations in terms of adoption rates and revenue growth.