CASE STUDY What Segway Learned About the Value of Feasibility Analysis the Hard Way Web: www.segway.com Introduction

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CASE STUDY

What Segway Learned About the Value of Feasibility Analysis the Hard Way

Web: www.segway.com

Introduction

The Segway PT is a two-wheeled, self-balancing transportation device that consists primarily of a set of tall handlebars on top of two disc-like wheels. There are no chains or visible mechanical workings. Riders lean forward to move forward and back to move backward. Turning is done mechanically via hand controls. The device is driven by a quiet, nonpolluting electric motor and can travel up to 10 miles per hour. The name "Segway PT" stands for "Segway Personal Transporter. "

The Segway was built in secrecy and was unveiled on December 3, 2001, on the ABC program Good Morning America.

The initial reaction to the Segway PT was enthusiastic. Venture capitalist John Doerr predicted that it would be as important as the Internet. Apple's Steve Jobs predicted that cities would be built around it. To cope with the expected demand for the product, Segway's factory in Bedford, New Hampshire, was designed to build up to 40,000 units per month. Initial sales were targeted at between 10,000 and 50,000 units during the first 12 months. But, after 21 months, only 6,000 units had sold. What went wrong?

Feasibility Analysis

While the Segway was a technological marvel, in retrospect there were fundamental flaws in both its product feasibility analysis and its market feasibility analysis. When reviewing Segway's prelaunch and post launch behavior, one has to wonder how so many critical issues seemingly weren't analyzed or were missed. It provides lessons for future entrepreneurs to be more rigorous in their thinking regarding the feasibility of a new product or service, regardless of how much of a technological marvel it is.

Product Feasibility Analysis

The Segway itself was extensively was tested and retested during development, and was subjected to all the conditions it might experience in the field: extreme heat, extreme cold, rain, snow, high humidity, salt, dust, and so forth. It came through with flying colors. Its durability was also rigorously tested.

The testing was apparently successful. Despite all the knocks the Segway has taken over the years, there have been few reports of mechanical problems.

Yet, curiously, although the company put substantial effort into the Segway itself, people immediately questioned its price and how it could be used. First, it was priced at $4,950, which put it out of reach for many consumers. Second, while there were a few Segway dealers initially, there weren't many so it was unclear to people that if they bought a Segway, where they'd get it serviced. Finally, while most people admired what the Segway could do, they just couldn't see it fitting into their environments and lives. Imagine you owned a Segway. Try to answer the following questions:

• How do you take it with you in your car?

• How do you park it?

• How and where can you ride it? Sidewalks or

roads?

• Where and how do you charge it?

• If you park it outside a building, how do you keep it safe? Is it something you park like a motorcycle or a car, or do you chain it to a bike rack, as if it were a bike?

• Is it safe to drive on the street if it can only go 10 mph?

• What if the battery runs out before you get it home?

There are even more penetrating questions. The Segway is best suited for densely populated areas where people could ride their Segway to work. But how would that work in a place like Manhattan, in New York City, where both the sidewalks and the streets are packed? It takes both hands to operate a Segway safely.

So how would a businessperson carry a briefcase or a student carry books? The U.S. Postal Service, a large potential market for Segway, tested the device for use by mail carriers, who still deliver mail by foot. The postal service abandoned the idea after mail carriers complained that they couldn't sort mail while operating a Segway.

Segway's failure to address its potential users' questions in these areas provides an important reminder. When conducting product analysis, it's important to evaluate how the product or service will fit into the existing way that its potential customers live and behave. A company may have a product that on a stand-alone basis is fantastic. But people don't use products or services in isolation. They must fit into the existing framework of their environments and lives to be beneficial.

Segway scrambled to try to fix some of the usability issues, with mixed success. For example, the company hired lobbyists to try to persuade large city governments to make using the Segway on public sidewalks legal. Ironically, San Francisco, usually thought of as a progressive city, passed a law specifically making the Segway illegal on its sidewalks as a result of safety concerns. The San Francisco Board of Supervisors was convinced that the Segway posed a risk to pedestrians.

Market Feasibility Analysis

In regard to markets, from the outset Segway positioned itself for a large rollout. It assumed success. A large amount of its capital, for instance, was dedicated toward production capacity and regulatory issues, rather than proving its concept. In most cases a more measured approach is pursued. A company rolls out incrementally and invests capital in production capacity once it validates that there is a market for its product.

Segway also went national from day one. Rather than identifying niche markets to penetrate and build from, the company saw its product as a solution in all markets. Many observers who have commented on Segway's missteps have singled out this issue, and feel that Segway should have gained traction in one market or a small number of markets before expanding. For example, what if Segway would have picked one city-say Boston-where in the downtown area a large number of people live near their jobs. They could have given Segways to 1,000 people to use for three months, free of charge, based on the condition that they use their Segways to travel back and forth to work each day. Had that test gone well, it would have generated tremendous positive publicity, and provided an example for people in other urban areas that the Segway could be used effectively. A similar approach would have been to ask a cross-section of bicycle clubs, for example, across the country to start using Segways when they weren't biking. If the test went well, Segway could have started using bike shops to sell and service Segways. It could have then developed a more powerful version of the Segway PT and added motorcycle shops. This is how a company integrates itself into existing distribution channels rather than trying to create a new channel just for itself, which is costly and difficult.

Instead of pursuing these types of approaches, Segway went for the home run and never found a large market. As the company has downsized its expectations, it has had some success in niche markets. These include police departments, military bases, warehouses, corporate campuses, industrial sites, and theme parks.

Segway Pivots with No Significant Changes in Its Long-Term Prospects

Reeling from criticism and poor sales, in March 2003, Segway started a dealership expansion program. In October 2003, it launched the Segway HT p-series model, which was lighter and more portable than the original model, and was priced at $3,995. Around the same time, it dropped the price of the original Segway HT from $4,950 to $4,495. In March 2005, Segway introduced its 2005 product line-up, which featured three new models: The Segway HT i180 with enhanced range; the Segway XT, a cross terrain transporter; and the Segway GT, a golf transporter. It also launched an improved line of batteries. While Segway experienced moderate success with each of its new offerings, none of them materially changed the long-range outlook for the company.

Segway Today

Segway continues to operate and serve several niche markets. According to the company's Web site, over 1,000 police and security agencies are using Segway PTs in their patrolling operations.

QUESTION 100 Marks (Around 1000 words)

What could Segway have done to ensure that its product would do a better job of fitting into its user’s environments and lives? What niche market do you think Segway should have targeted initially and been successful in?