Some customers are more trouble than they're worth.
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Conventional wisdom dictates that every customer is a good customer. But a new study suggests that some customers are actually bad for business.
The study by researchers at Northwestern University's Kellogg School of Management studied the research efforts of brands in the process of bringing new products to market. Not surprisingly, the researchers found that positive feedback from lead users — professionals or enthusiasts with extreme needs and special insights — is a good indicator that a product will succeed.
Interestingly, however, the researchers also found that positive feedback from another demographic of customers — those the study authors call "harbingers of failure" — is almost a sure sign that a product will fail. [3 Steps to Finding Your Startup's Niche (And Keeping It!)]
To get a better sense of who these product-dooming customers are, the researchers used data from a major retailer's loyalty card program to examine the purchasing habits of nearly a million customers over a two-year period. Specifically, the researchers wanted to figure out which customers purchased new products that eventually failed.
Results showed that failed products typically have strong sales across various demographics, but that eventually, the customer base dwindles until just a small group of customers continues to buy the product. And it's this group that the researchers dub harbingers of failure.
"What seems to be happening is these customers have preferences that might be non-mainstream, or as we like to put it, they're not representative of the overall population," said Eric Anderson, professor of marketing at the Kellogg School of Management and lead author of the study. "We know when they really like your product it shows that your product really appeals to a narrow group of customers."
As Anderson explained, products that only appeal to a small group of customers with niche tastes are destined to fail in the long term. But Anderson also explained that knowing who these harbingers are before a product goes to market might help businesses figure out which products are going to be a flop.
"You see this happening over and over again, where managers or product developers think that their product is great because they can find customers who love it," said Anderson. "Customers were able to raise their hand early in the process and say, 'This is a fantastic beer, or, 'This is a fantastic shampoo.' Whatever the product was, customers came back and said they loved it. But then we asked, well what kind of customers said they love it?"
Answering that question, the researchers suggest, might help product developers avoid the cost of bringing doomed products to market.
"It's easier to find out whether your product is going to fail than to find out whether your product is going to succeed," said Anderson. He went on to say that if the people who love your new product also loved your last product, which failed, "you may not want to launch this product, because it's probably not going to have the mainstream appeal that sustains products for the long run."
Originally published on Business News Daily.