This chapter is from the book
This chapter is from the book
This chapter is from the book
What Is RDE?
RDE is a systematized solution-oriented business process of experimentation that designs, tests, and modifies alternative ideas, packages, products, or services in a disciplined way so that the developer and marketer discover what appeals to the customer, even if the customer can't articulate the need, much less the solution!
You got an assignment to launch a new credit card for your bank. How do you make consumers pick your offer out of hundreds and hundreds of look-alikes? The marketing department suggested conducting a survey of a targeted group of consumers. What should customers read in a credit card offer to convince them to apply? Well, what if we just ask them what kind of APR, rewards, annual fees, appearance, name, and so on they'd like? Sounds like a very prudent way to obtain consumer insights to innovate. In fact, a very big chunk of consumer research is still done this way.
As you can guess, the results of this market research exercise turn out to be quite predictable. The consumers want 0% APR, no annual or transaction fees, and, of course, a bunch of meaningful, expensive benefits that are easy for them to earn and to redeem.
Wow! How "insightful" these findings are! But are they feasible? Can you act on them? Did you solve the problem or just identify it? Have you discovered rules as a result of this research, the way the world operates, so you can do far better? Can you even afford the solution?
The challenge is that, in many cases, consumers cannot articulate exactly what they need, want, or like. Is there a way to solve the problem? In focus group after focus group, developers and marketers are often stymied, despite their best efforts. However, the solution comes quickly, often blindingly so, when the developers and marketers take their time to identify and experimentally explore the factors that could drive consumer interest—whether features of a credit card, sweetener for a soft drink, color and picture for a package, or a specific message for an advertisement. Show the customers (or let them try) several systematically designed prototypes, and they will tell what they like, what they do not, and what does not make any difference to them. The experimental design used for the prototypes creation will "magically" return to you what each individual feature (option or ingredient) "brings" to the party. Now you have a clear way to create rules for winning offerings or new best-selling products by combining those features into the best possible combinations—even if no consumer ever tested these specific combinations. You will see this simple, structured process in many examples later in this book.
Different types of RDE are surprisingly similar to each other. You follow these straightforward steps:
- Think about the problem and identify groups of features that comprise the target product (offering, etc.). For example, in the case of a soft drink formulation, the variables could be Amount of Sugar, Acid, and so on. In credit card RDE, the variables (categories of features) could be Annual Fees, APRs, Rewards Options, and so on. Every such variable (or a "bucket" of ideas) comprises several alternatives. For example, when you work with a beverage, sugar content may be 6, 8, or 10 units; when you work with a credit card, APR may be 0%, 4.00%, 9.99%, 15%, and 21.99%. So the first step is to do your homework and structure the problem. This is the most difficult part of your job. Here is where your expertise comes in. Be aware of the GIGO (Garbage In, Garbage Out) principle to appreciate the importance of the first step. The good news is that you can throw many ideas into the buckets for customers to test. The rest of the process is highly automated, virtually painless.
- Mix and match the elements according to a special experimental design (a schema of putting together elements)2 to create a set of prototypes. The second step is usually done automatically by a tool that creates a unique individual design plan for each respondent, resulting in individual models of utilities for each respondent.
- Show the prototypes to consumers (or let the respondents taste them, in the case of products) and obtain their reaction (usually, purchase intent, liking, or interest in the idea). The third step is typically an automated Web survey or a taste exercise in a facility.
- Analyze results3 (build individual models) using a regression module. The magic of experimental design estimates the contribution of each individual element to the liking scores that a consumer would assign, whether the contribution is positive (so the liking is higher) or negative (so the liking is lower). Colloquially, analysis shows what everything brings to the party. This analysis is automated. Shortly after completing the survey, RDE tools provide a table of utilities (individual scores of elements), the building blocks of your new products.
- Optimize. To uncover your optimal product or ideas, you just need to find (usually an automatic process as well) the best, or optimal, combination that has the highest sum of utilities. It is that simple!
- Identify naturally occurring attitudinal segments of the population that show similar patterns of the utilities. The segments span demographically and socially among different groups of people. By creating rules for the new products or services using the attitudinal segments, it's possible to increase the acceptance by 10–50% or even more. You don't have to worry about creating modestly better products averaged for everyone when you can create superb products for selected people. The good part of the process is that it is (as you can guess by now) also an automated procedure.
- Apply the generated rules to create new products, offerings, and so on. Want to have a credit card optimized for value-oriented middle-aged customers? Just "dial in" the parameters in the tool, and voilà! Here is the best possible offering! Want to offer a credit card for young professionals? You have the data already—just "dial in" what you want, and the rules are immediately generated.4 This step is the most fun to use.
RDE breeds market success through knowledge by clearly and dramatically revealing how specific factors drive consumer acceptance and rejection. Best of all, RDE prescribes for business what to do, rather than just leaving the suggestions as hypotheses. RDE produces actionable rules (directions), even if there was no inkling or iota of direction about what to do at the start of the RDE process. And best of all, these rules can be the powerhouse for sustained competitive advantage because they show how the world works.
RDE is not a new idea. Parts of it have been around a long time, but it takes a while to sink in. In some respects, RDE is obvious, in the same way that two well-known platitudes are evident:
- Every parent realizes this simple truth, handed down from mother to child, from mother to child: Do your homework and you'll be promoted to second grade.
- Most people in agriculture realize that the following well-known Irish proverb contains a lot of truth: The best fertilizer is the farmer's footsteps.