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Tech 101

Chapter 2

The Market Opportunity

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The Market Opportunity Roadmap

• The business concept embodied in the new product idea

• Solving consumer’s problem in the product

• The product as a business

• The competitive game• Idea evaluation within the

business framework• Playing the game well

• It’s a faster changing world

• Winning the game• New product

development as competitive weapon

• The strategic difference between large and small firms

• Business capabilities• Model for brand labels

and tradeoffs

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Introduction

• Identifying and evaluating the market opportunity is key to new product success.

• The opportunity must be clear and tangible, not obscure and indirect.

• Test and retest the strategy and the opportunity throughout the process.

• Establish contingency plans for longer developments because conditions may change, forcing you to regroup and fall back on these plans.

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The business concept embodied in the new product idea

THE BETTER MOUSETRAP

• Design a better mousetrap and the world will beat a path to your door.

• There are increasing requirements for success today, such as: – Who else makes mousetraps? – What must our mousetrap do to induce people

to buy it over others? – Are we a low-cost mousetrap producer?

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The Business Concept Embodied In The New Product Idea continued . . . .

– Have we complied with the new mousetrap standards?

– What steps have we documented to ensure that humans will not get injured using our mousetraps?

– Is there a significant influx of foreign mousetrap manufacturers encroaching on our market?

– Are there new ways to functionally displace mousetraps, such as high-frequency deterrents? All of these issues make the age-old adage now multidimensional.

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Generating Ideas and failing to Encompass a Plan

• Most systems for generating new product ideas focus on the idea, the market opportunity, and the timing.

• The concept for a new product must encompass the plan to carry it off effectively.

• The business concept must be entwined with the product concept.

• Each will draw on the other in the development phase.

• Each contributes to each other’s progress.

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Activities Should be Integrated

• Designers design, engineers create bills of materials and manufacturing people design the process

• There has been a lot of discussion about interdisciplinary project teams and group effort.

• Within this group mentality the engineers need to design a bill of material and a manufacturing process that will bring the product concept to a business reality.

• The team needs to build a business around these products.

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Looking at the Business Aspect of Products

Who, What, Where, Why, and How

• The field of new product development can be very exciting, and intoxicating at the same time.

• Managers must look at the business aspect of the program to complete the analysis and plan.

• How will the company do business with this new product?

• Where will the money change hands? • Why will the customer be willing to part with money for

the product? • How will the transaction take place? • Provisions and steps must be taken to address these

issues to have an effective launch and program.

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• As an example, the electric car is an age-old idea that with the advent of computerization, modern batteries, and electronic drive technology, it can begin to become a market reality.

• If an electric car was designed, produced, and introduced in a mass market, there would be significant infrastructure issues to deal with.

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• The issues such as: safe disposal, recharge locations, battery remanufacturing, financing and supply/demand changes could affect the price of conventional fuel and thus could affect operating costs.

• Operating cost changes could affect market acceptance. In addition, all of the “off peak” charging of batteries at “night” at reduced rates would now create new peak requirements in power generation.

• It is not just a great product that makes great businesses. It is also the infrastructure that supports the product that must be integrated.

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Solving The Customer’s Problem In The Product

• The buying decision is made based in part on the perceived value of the solution to the customer’s problem.

• The customer buys a solution

• How does this new product development solve a customer’s need/problem?

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Under What Conditions Does The Customer Commit?

• What is the universal model for customer acceptance?

• The answer to this question is as complex as the number of different customers there are in the marketplace.

• A means for gathering data on the customer buying-decision dynamics is to monitor competition. How are they selling products?

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How Can This New Product Development Fit The Conditions Demographically?

• The marketing assessment outlines the market segments (i.e., that group of customers who have identified features, needs, and preferences that are similar).

• The manager needs to break down the market opportunities into the component parts so they may be reassembled into product versions, to be used to address the market.

• What version of the basic platform will be used where, and why?

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Product as a Servant to the Business, NotConversely

• Products and the technology must be a servant to the strategic plan of the business, and not visa versa.

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Plug the Development Team Into the Concept of Business

• One of the most positive things a manager can do to improve the efficiency of the development team is to “plug” them into the business.

• Most members of a development team know something about business.

• They are generally familiar with the cost structures, the material content, the overhead and burden rates, and have a general product-costing orientation.

• Very few, however, have an appreciation for the more strategic and tactical aspects of the business.

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The Competitive Game

• Upsetting the playing field to your advantage – may not be ethical in some cases

• Faster, more informed solving of the customers problem• Quality products/on-time delivery/doc; all is assumed• Playing field is in application to specific needs• The marketplace is a different one from that of 10 or 20

years ago• Competitive edge won’t come from these areas; they are

assumed• The competitive advantage will come from mass

customization, for a diverse set of customers, availability, application of specific products, and from low-cost, feature-rich innovative producers.

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Idea Evaluation Within the Framework of theBusiness

System for evaluation

• To objectively evaluate a wide variety of diverse new product ideas, it becomes desirable to have criteria. To remove emotions from the evaluation

• Each idea must be tested against the criteria the same way with the same questions.

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Setting Up The Criteria

• One of the challenges is in setting up the criteria.

• What questions are important? • What are things to avoid? For example, is

the opportunity dependent on the development of technology that requires a few select people?

• Are they available within the time frame you desire? If they leave the project, what means for recovery do you have?

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Testing Each Idea

• Each idea should be tested against the criteria • Figure 2-2 is a format that can be used to

evaluate an idea. It is structured with a weighted sum arrangement of criteria. Next to each criteria is a preference assessment of that specific criterion. Does the business desire that attribute in a new product development?

• The range is from -1 to +1.

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Testing Each Idea continued . . .

• By observing the individual values posted for each criterion or attribute, one can learn a fair amount about how the organization will absorb and prosecute the program.

• The organization has a high desire to select an opportunity that has sales of $2.5M for 4 years.

• They are highly technical and are not concerned about absorbing the technology.

• They do, however, have an aversion to field service and support, perhaps a weak field organization. This criteria shows up as a negative value.

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Measure of Ongoing Effectiveness

• As the system is put in place and used for some time, it is important to measure its effectiveness.

• What ideas were brought in, how were they evaluated, and what were the results in selection?

• What degree of success was obtained in pursuing the market?

• Are the evaluation criteria still the right ones? Are they consistent with the strategic plan?

• These questions need to be periodically reviewed. Figure 2-3 on Page 52 is an illustration of how the process should work.

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Demonstrate Speed, Accuracy, and Agility to a Customer Before Your Competitor

• How does your company win the competitive game?

• How can you differentiate your company from all the others?

• The answering of these questions lie in your company’s ability and desire to demonstrate speed and agility to the changing market conditions.

• Responding to these changing conditions in a timely manner will improve the chances for success.

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New Product Development as a Competitive Weapon

• New product development as a survival means in a market– Companies do not have to compete on price

and delivery alone. – New product development can be used as a

competitive weapon in– New product development is a means for a

company to gain advantage, secure a position, or win a new customer.

– It is the ultimate weapon in changing the playing field and should be used as such.

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Raising The Expectations of The Customer

• Your company’s actions should raise the customer’s expectations of provided products and services. By setting the standard for performance in your marketplace, you make the competition to follow the standards you set, not visa versa.

• This continual resetting of the customer’s expectation level will also raise the barrier to entry from a features and services perspective.

• Your schedules will chart the pathway and will be known only to you and the customer/partner, making it a guessing game for anyone else.

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The Strategic Difference Between Large and SmallCompanies

• Large companies buy, dominate, intimidate, steamroll, and cover the market

• In a homogeneous market condition, a large company can have an advantage. By virtue of its size, its capabilities, and its staying power, a large company can dominate a market. If it is a dominant player in the specific market segment, it can influence the future of the segment and its general progress. An entrenched player has the capability to eliminate competition by pricing actions, availability, supply logistics, and produced costs.

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Small Companies - Niche Players

• Small competitors have advantages of their own, but in different ways.

• A small company can react to changing market conditions, and capitalize on them. The smaller company will enter a market to exploit an opportunity and are prepared to leave at a moment’s notice.

• They do not have the staying power or temperament for a long drawn-out market battle. By virtue of their culture, they will abdicate certain markets under contest and look for new opportunities.

• Fast to enter and fast to leave is often their operational perspective.

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While Large Plans Evaluate and Strategize, Small Companies Execute Tactics

• In contrast, large firms, plan, strategize, evaluate, and then act. The result can summarized by the product life cycle chart in Figure 2-6, Page 59

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Large Top-down Strategy Versus Small Bottom-up Tactics

• The difference in the size of the company also determines the differences in implementation.

• As can be seen from the Figure 2-6, larger companies may be slower at the initial implementation but achieve significant volume once the massive selling and manufacturing machine is mobilized.

• The small company may be lightning quick at the first article implementation; however, it will quickly lose momentum compared to the larger company as a result of lack of critical mass.

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Large Top-down Strategy Versus Small Bottom-up Tactics continues . . .

• Figure 2-7 shows the traditional product life cycle. There are three distinct phases of the product life cycle (i.e., emergence, growth, and decline).

• The emergence phase is the start• of the new product’s business. The volume

is low, and the product is embryonic in its market share.

• The second phase is the growth phase, where planned volumes are achieved.

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Large Top-down Strategy Versus Small Bottom-up Tactics continues . . .

• The third phase is the decline if left untended, the company will lose market share and volume will drop off.

• Generally at this point the company is no longer competitive in that specific market segment.

• Ideally, at the time when volume is stabilized and the company is enjoying good profit margin and good volume, the project to replace the product with an updated or next-generation

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The Product Evolution Flowchart (The Roadmap to Success)

Identifying the opportunities that contribute to thevision• The product evolution is one of the most

valuable documents a forward-thinking organization can make.

• It is the essence of the road map to success. It defines where the company plans to go, in what time frame, and how it will get there.

• In the case of planning the content of a well-considered flowchart can be worth more than the strategic plan itself, since this defines the product path to be taken to the future.

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Product Mix Analysis, New Versus Existing, and Technology Patterns

• The real value in the process is to get a “feel” for the trends, and the degree of sensitivity each item has, and how it affects the company as a whole.

• In a historical analysis, look for patterns or performance behaviors in products and businesses.

• In a future-planning exercise, decide which products and businesses will be the big contributors and which will create large variations in margin and profit numbers.

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Internal Requirements, External Requirements

• Up until this point, we have examined the product-planning process as an external market driven exercise only.

• There may be instances in which a strategic requirement for a new product would be a cost reduction or a quality improvement. In these cases these internally generated reasons for new product development must require a narrative in the flowchart.

• From a general management perspective, each product must generate cash and profit.

• Existing programs that are in trouble, either from a prime cost issue or a cost of quality issue, need to be addressed.