“So,” the executive sponsor of the new growth effort said. “What do we do now?”
It was the end of a meeting reviewing progress on a promising initiative to bring a new health service to apartment dwellers in crowded, emerging-market cities. A significant portion of customers who had been shown a brochure describing the service had expressed interest in it. But would they actually buy it? To find out, the company decided to test market the service in three roughly comparable apartment complexes over a 90-day period.
Before the test began, team members working on the idea had built a detailed financial model showing that it could be profitable if they could get 3% of customers in apartment complexes to buy it. In the market test, they decided to offer a one-month free trial, after which people would have the chance to sign up for a full year of the service. They guessed that 30% of customers in each complex would accept the free trial and that 10% of that group would convert to full-year subscribers.
They ran the test, and as always, learned a tremendous amount about the intricacies of positioning a new service and the complexities of actually delivering it. They ended the three months much more confident that they could successfully execute their idea, with modifications of course.
But then they started studying the data, which roughly looked as follows:
Overall trial levels were lower than expected (except in Complex 2); conversion of trials to full year subscribers were a smidge above expectations (and significantly higher in Complex 3); but average penetration levels fell beneath the magic 3% threshold.
Scott Anthony is the managing partner of Innosight.