Title: Improving Marketing’s Contribution to New Product Development (Fee or subscription required)
Authors: Wenzel Drechsler (Goethe University Frankfurt), Martin Natter (Goethe University Frankfurt), and Peter S.H. Leeflang (University of Groningen)
Publisher: Journal of Product Innovation Management, vol. 30, no. 2
Date Published: March 2013
For marketing departments, the pendulum seems to be swinging again, and this time in their favor.
According to several recent studies, marketing’s role has been in steep decline at many companies. But the authors of this new study conclude that firms that play to marketing’s special strengths in understanding consumer preferences often outperform their peers in developing new products and in innovation efforts overall. To get a seat at the table, though, marketers will have to do a better job of marketing themselves internally.
The prevailing view, according to this paper, is that marketing departments have lost much of their distinctiveness, leading to a belief that “everyone can do marketing.” The function’s stock is particularly low in the product development cycle, where the R&D division typically dominates the agenda. Yet, when new products fail—and they frequently do—marketing is likely to take the fall for not eliciting accurate, relevant, and timely information about consumers and target markets.
However, a few lines of research counter this view, suggesting that some of the most innovative companies heavily integrate the marketing department into the development process. What has remained unclear, though, is which capabilities can improve the marketing unit’s contribution, and lift the performance of both new products and the firm’s innovation initiatives as a whole.
This study aims to fill in some of the gaps by empirically exploring the link between marketing capabilities and a firm’s relative success at innovation, with a particular focus on the business-to-business sector. The results show that firms with strong marketing groups are indeed better at launching new products. The success of these marketers hinges on pairing high-quality customer research with the right technical skills: They have the capabilities to translate customer needs into winning product specifications. Companies need to support these capabilities, the authors argue, but the responsibility is on the marketers to hone them and make the case for their usage. “Firms need not only key marketing capabilities and skills but also a marketing department that itself functions as an expert,” the authors write.
As a key part of this effort, marketing needs to take a more sophisticated approach to evaluating, filtering, and sourcing new products, an approach that includes the use of so-called idea or prediction markets. These sites are used by a growing number of companies to solicit information from the public about whether an event (such as a product launch) is likely to succeed. Using these tools can help shift the innovation process away from internal debates and toward the integration of external data.
To arrive at their findings, the authors first surveyed 239 executives working in finance, marketing, or R&D at large German firms (the average company had more than 3,500 full-time employees). To ensure that their results could be generalizable, the authors studied firms in a variety of industries, although most of the companies operated in business-to-business markets and focused primarily on products rather than services. Almost three-quarters of the firms pursued a differentiation strategy, tailoring their new product development to specific types of customers or markets, and nearly one-fourth of the companies had a CEO with a background in marketing.
The surveys touched on a variety of issues related to marketing and product development. For example, one question asked respondents to divvy up 100 points to rate the degree of influence the marketing, sales, finance, and R&D sectors had on decision making in the development process. On average, the R&D department received 43 points, whereas marketing’s score was just 24.
Another question measured the percentage of new products or services introduced in the last five years that were initiated by R&D, marketing, sales, or some other department. Once again, the influence of R&D loomed large: 37 percent of new products emanated from that wing, compared with only 28 percent from marketing.
In the next phases of analysis, the authors combined information from the executive surveys with objective financial and customer data. They constructed several statistical models that assessed how marketing departments could influence new product development and affect firm performance. The authors considered standard aspects of finance such as cost outlays, profitability, and sales, as well as nonfinancial elements such as customer satisfaction and loyalty. The models also controlled for the differing characteristics of marketing departments and firms, the type of industries they operated in, and whether top managers had a marketing background. A number of other variables, including firm strategy, size, and general innovativeness, were also taken into account.
The results showed that the quality of the marketing team’s research and technical skills had an especially significant impact on its level of influence on innovation. These capabilities also enabled marketing divisions to initiate more cycles of product development themselves. General knowledge about marketing and management, on the other hand, had no effect on the department’s influence.
Previous studies had found that marketing’s ability to link its actions and strategies to financial performance largely determined its influence. However, this paper found no support for that hypothesis, and the authors speculate that the ties between marketing and financial performance are more relevant for existing products, which have plenty of past data available, than for new ones. Another surprising finding: The degree of collaboration between marketing and R&D had no significant impact on marketing’s influence, a result that underscored the two functions’ distinct roles.
But there is definite value in making sure marketers get the resources and support they need: Innovation success significantly boosted the overall performance of a firm, the authors found, and companies that could execute the most important marketing capabilities (turning high-quality research into new products that connect with customers) posted the strongest financial performance.
In contrast to the prevailing opinion, the authors say, their results show that not everyone in a firm can do marketing, and the department should have higher status in the product development area.
“Top management officials should strengthen the marketing department’s position within the firm and especially within” new product development, the authors write. “It is necessary for a firm not only to develop these capabilities but also to ensure that the marketing department has the power to translate this knowledge into performance-driving activities and decisions.”
Although the marketing department plays a minor role in the development of new products at most companies, this study shows that firms with an influential marketing wing have better innovation outcomes and overall performance. In particular, the quality of research and the ability of employees to translate customer needs into specific product characteristics boost the influence of the marketing division, and in turn benefit the firm’s innovation efforts.