C H A P T E R S E V E N

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C H A P T E R S E V E N
A Preface to Marketing Management
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New Product Development
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New Product Strategies

• New-to-the-world products Products that are new
  inventions
• New category entries Products that take the
  firm into a new category
• Additions to product lines Products that are
  line extensions to current markets
• Product improvements Current products made
  better
• Repositionings Products targeted for new use or
  application

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New Product Planning

• Many new products are failures
• From 33 to 90 depending on industry
• New product sales grow faster than current
  products- improves companys growth rate
• Effectiveness of new product programs varies from
  company to company
• Limited vision affects new product success

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Why Products Fail?

• Company can not match its product offerings to
  the needs of the customers
• Inaccuracy of intelligence information
• Failure of the company to stick close to what it
  knows best
• Inability to provide or articulate better value
  than competing companies or technologies

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Product Development Misconceptions

• It worked there, it will work here Not all
  products transfer easily.
• It worked once, it will work again Peaks and
  valleys accompany every product development
  process.
• The cart can come before the horse The product
  improvement process will fail if there are other
  systemic issue in the company.

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What are New Products?

• New-to-the-world of products Product innovations
  Laser printers, VCRs, Polaroid cameras, in-line
  skate boards
• New category entries products that bring the
  company into an existing market- PG first
  shampoo, Hallmark gift items, ATM/Credit cards
• Additions to product lines line extensions- Tide
  liquid detergent, Bud Light, Power Mac
• Product improvements existing products that are
  made better or improved -
• Repositioning products that are retargeted for
  new use or application Arm Hammer baking
  soda refrigerator freshener, drain deodorant,
  toothpaste, deodorant, etc.

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H. Igor Ansoff Strategy
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Elements of New Product Success

• New products tend to succeed with . . .
• Product superiority high quality
• Economic advantage to user
• Overall company development project fit
• Technological requirements fit the company
• Familiarity to the company and to Customers as
  opposed to new customers

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Elements of New Product Success

• New products tend to succeed with . . .
• Identified market need, growth and size
• Competitive situation and superior opportunity or
  niche
• A well defined opportunity
• A business acting on a market-driven process
• Excellence in customer service

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Miller Brewing Co. Strategies

• Building its premium-brand franchises through
  investment spending
• Develop value-added products with clear consumer
  benefits
• Leveraging local markets to build brands
• Building businesses globally

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Why develop new products?

• Top management must consider
• A working definition of the profit concept
  applied to the product.
• Minimum level or floor of acceptable profits.
• Availability and the cost of capital to develop
  the new product.
• Specified time within which the new product must
  recoup costs and begin contributing to profit.

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New Product Standards

• Which products should be developed and why?
• Proper and detailed business case and analysis
• Clear market goals
• Backed by customer inputs stakeholders
• Compatible with companys Goals Objectives
• Within distinctive competencies

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New Product Outcomes

• Clear and working definition of product revenues
  and profit margins
• Financial impact and cash flow impact
• A target Return on Investment
• Known cost of development
• Payback period
• Risk mitigation/contingency plan/check and
  balances
• Control plan

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Development Process
IDEA GENERATION
IDEA SCREANING
PROJECT PLANNING
PRODUCT DEVELOPMENT
TEST MARKETING
COMMERCIALZATION
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Idea Generation

• How do new products originate?
• Every product starts as an idea.
• Most ideas do not become products.
• Idea generation, the least expensive step in new
  product development, requires recognizing
  available idea sources. Requires 60 to 70 ideas
  to get a good one
• New product development must focus on meeting
  customer needs.
• Customers lead to new product improvements or
  point to radical new products that can drive the
  market

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Sources of New Product Ideas

• Customers
• Customer Requests
• Complaints/compliments
• Market surveys
• Focus groups
• Competitors
• Competitors developments
• Testing competing products
• Industry moves
• Distribution Channels
• Suppliers
• Distributors
• Retailers
• Trade shows

• RD
• Product testing
• Product endorsement
• Brainstorming meetings
• Accidental discovery
• Other internal sources
• Management
• Sales force
• Employee suggestions
• Innovation group meetings
• Stockholders
• Other external sources
• Consultants
• Media/Journals

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Idea Screening

• Consider
• Strategic risk Does the product meet a
  strategic need or goals of the business? New
  radical product requires strong commitments
• Market risk Will the product meet a market need
  in a value-added, differentiated way? What is the
  market dynamics/change?
• Internal risk Can the product be developed on
  time and within budget? Control plan? Project
  goals/Gate process.

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Risk Mitigation

• Remember, firms should not hastily discount new
  products because of a lack of resources or
  expertise.
• Develop alliances or joint ventures
• Increased access to technology, information and
  funding
• Market expansion and better penetration of
  current markets
• Deescalated competitive rivalries and pressures
• Increase resource pool

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Development Project Planning

• 1. Analyze the proposal in terms of production,
  marketing, financial and competitive factors.
• 2. Establish a development budget with
  preliminary marketing and technical research.
• 3. Create a rough form product.
• 4. Create a Product plan with estimated costs.
• Market Plan
• Product Plan
• Financial and Operations plan
• 5. Review the Product plan with top management.

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Product Development

• Evaluate the product from the viewpoint of
  engineering, manufacturing, finance and
  marketing.
• Organize cross-functional teams early in the
  process with expertise in different areas
• If all expectations are met, consider further
  research and testing.
• Produce a finished product and market test it.

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Project Development

• 5. Prepare a development report for top
  management that includes . . .
• results of the studies,
• required plan design,
• production facilities design,
• tooling requirements,
• marketing test plan,
• financial program, and
• estimated release date.

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Development Alternatives

• Skunk work a small team hides and develops the
  product
• Rugby or relay approach several teams are
  working in parallel to create the final product
• Tiger teams
• Cross-functional teams

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New Product Team
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Test Marketing
The main goal is to evaluate and adjust, if
necessary, the marketing strategy to be used in
the marketing mix. Evaluate business processes
and procedures such as order entry, fulfillment,
delivery, support and returns. Developers can
also use interaction with buyers as a foundation
for product development. Upon completion of the
test market, prepare a final marketing plan in
preparation for launch.
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Commercialization
The firm commits to introducing the product into
the marketplace. Heavy emphasis is placed on
organizational structure and management talent
needed to implement the marketing
strategy. Follow-up to eliminate bugs in the
design, production costs, quality control, and
inventory requirements.
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Measures of New Product Performance
FINANCIAL CRITERIA

• Return on investment (ROI)
• Various profit margin measures
• Sales and Sales growth
• Various profit measures
• Payback and payback period
• Internal rate of return (IRR)
• Return on assets (ROA)
• Return on equity (ROE)
• Breakeven and breakeven point
• Share and market share

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Measures of New Product Performance
NONFINANCIAL CRITERIA

• Performance of new products
• Market share achieved
• Satisfaction of customer needs
• Other market-related benefits
• Strategic issues/fit/synergy
• Technical aspects of production
• Uniqueness of the new products

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Time to Market
Time to market-- The elapsed time between product
definition and marketplace product
availability. The time between research and
marketplace delivery may be the most critical
development process element. It is well
documented that companies that reach the market
first with a new product enjoy both profit and
market share advantages.
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Causes of Failure

• No competitive point of difference, unexpected
  reactions from competitors, or both
• Poor positioning
• Poor quality of product
• Nondelivery of promised benefits of product
• Too little marketing support

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Causes of Failure
6. Poor perceived price/quality relationship 7.
Faulty estimates of market potential and other
marketing research mistakes 8. Faulty estimates
of production and marketing costs 9. Improper
channels of distribution selected 10. Rapid
change in the market or economy after product
introduction
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Research Considerations

• What is the anticipated market demand over time?
• Can the item be patented? Any anti-trust issues?
• Can the product be sold through present channels
  and sales force? If not, what are the new needs?
• At different volume levels, what will be the unit
  manufacturing costs?

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Research Considerations
5. What is the most appropriate package in terms
of color, design, material and so forth? 6. What
is the estimated return on investment? 7. What is
the appropriate pricing strategy? 8. What are the
specific use cases?
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New Product Success

• More customer focus
• Product designed for customers with direct
  customers input
• Product concept development/product
  mockup/prototype
• Re-inventing the company

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Management Pyramid
CEO, Comptroller, Vice Pres.
Top
Mid-Level
Sales Mgrs Plant Mgrs.
Supervisors Foremen
Front Line/Supervisory
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Inverted Organization Structure
Empowered front-line workers
Support Personnel
Top Mgmt.
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CRM

• Customer relationship management requires total
  customer centric organization
• Use of intranets and extranets
• Virtual corporations

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A Virtual Corporation
Production Firm
Distribution Firm
Accounting Firm
OUTSOURCED
OUTSOURCED
Core Firm
Legal Firm
Advertising Agency
Design Firm