Grande Praire Ken Wong Innovation Workshop

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Innovation: Beyond New Products

Ken Wong

Strategic Fit: The Basis of Planning

CUSTOMER ANALYSIS Who BUYS What, Where, When, How and Why

Determine Basis of Segmentation

ASSESS MARKET-COMPANY FIT Define Quality and

Identify Segments You Can Serve

COMPETITOR ANALYSIS Who OFFERS What, Where,

When, How and Why

Determine Basis ofDifferentiation

ASSESS PRODUCT-COMPANY FIT Evaluate Relative Quality and Identify Competitors

You Can Beat

COMPANY ANALYSISGiven your objectives and resources...what can you do, for whom, where and when?

DEVELOP PRODUCT-MARKET FIT Does a market exist for your intended price/quality level?

IF YES: Objectives focus on activities needed to communicate/deliver/insulate positioning IF NO: Objectives focus on the implicated remedial actions or new market entry

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Evaluating the Sales Prospects of an Innovation

Slow Rate of Adoption and Low Level of

Acceptance

Rapid Rate of Adoption and High Level of

Acceptance

Characteristics Affecting Adoption Rates and Penetration Levels

Dimension

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Little HighRelative qualityadvantage



Acceptance


Acceptance


Dimension

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Inconsistent ConsistentCompatibility withbuyer’s values


Finding Two: "What Matters Most" Depends On Your Profit Model

Marketing Effort

Customer Value

Barriers to Entry

Market Share Strategies

Product Innovation

Product Quality

Marketing Effort

Price Strategies

Margin

Volume

Process Innovation

Functional Efficiencies

Discretionary Spending

Integration

Cost Strategies

Net Income

New Products

New Markets

More Usage Occasions

More Usage Per Occasion

Market Size Strategies



Acceptance


Acceptance


Dimension

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Difficult SimpleComplexityof adoption





Acceptance


Acceptance


Dimension

Cannot use on limited basis

Can use onlimited basisTrialability




Three Types of Buyer Risk

1. Non-Performance

2. Downstream Consequences

3. Personal Status



Acceptance


Acceptance


Dimension

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Difficult tocommunicate

Easy tocommunicate

Communicability

Cannot use on limited basis

Can use onlimited basisTrialability




34%EarlyMajority

Customers Vary in Their Willingness to Innovate

Time of adoption of innovationsTime

% ofMarketBuyingfor theFirstTime

2.5%Innovators

13.5%Early Adopters

34%Late

Majority16%

Laggards

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34%EarlyMajority

34%Late

Majority16%

Laggards

THE “CHASM”

Growth Must Be “Stolen” in Mature Markets

0102030405060708090100

+13.5%

EarlyAdopters

+34.0%

EarlyMajority

+34.0%

LateMajority

+16.0%

Laggards orNon-Adopters

Time

PercentAdoption

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2.5%

Innovators

Why Customers’ Needs and Preferences Change Over Time

Price

High

Low

Price

High

Low

Price

High

Low

Low High Low High Low High

Customers lack experience• Need extensive support• Insist on high quality• Do not worry about priceif the functionality is thereEffective businesses cater to the factors that drive the diffusion of innovations

Customers build experience and volume;; they become less dependent on vendors for support and they become more powerful negotiatorsBuying is moved to the procurement function;; service becomes less vitalCompetitors enter on a lower price/quality basis or via more customization for the carriage trade

Stage 1: Early Market Development

Stage 2: Market Development

Stage 3: Market Saturation

Service Service Service

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InnovatorsInnovators

If the benefit is “trivial,” bargain basement buying occursIf the benefit is important or complex, aggressive buying occursNote: The situation will not change in all accounts at the same time or in the same way

EarlyAdopters

EarlyMajority

Innovators AggressiveBuyers

EarlyAdopters

Market Characteristics Over the Product Life Cycle

GrowthIntroduction DeclineMaturity

Time

Sales

Characteristics

Low salesHigh cost percustomerNegative

Innovators

Few

Rapidly risingsales

Average costper customerHigh profits

Early adopters

Growing number

Peak salesLow cost percustomerHigh profits

Middle majorityStable number,decline starting

Declining salesLow cost percustomer

Declining profits

Laggards

Declining number

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Sales

Costs

Profits

Customers

Competitors

GrowthIntroduction DeclineMaturityTime

Sales

Marketing Objectives

StrategiesPRODUCT Offer a basic

productOffer product extension,service,warranty

Diversifybrands andmodels

Phase outweak items

PRICE Use cost-plus Price to penetratemarket

Price to matchor beatcompetitors

Cut price

DISTRIBUTION Build selectivedistribution

Build moreintensivedistribution

Build moreintensivedistribution

Go selective:phase outunprofitableoutlets

ADVERTISING Buildawareness and interest in the mass market

Stress brand difference and benefits

Reduce tolevel needed to retain hard-core loyals

Build productawareness among earlyadopters and dealers

SALES PROMOTION Use heavysales promotionto entice trial

Reduce to takeadvantage ofheavy consumerdemand

Increase toencouragebrand switching

Reduce tominimal level

Maximizemarket share

Maximize profitwhile defendingmarket share

Reduceexpenditure andmilk the brand

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Marketing Objectives

Create productawareness and trial

Can we plot sales to infer life-cycle stage?

Time Time Time

Time Time Time Time

Sales

Sales

Sales

Sales

Sales

Sales

Sales

A. Traditional B. Boom or Classic C. Fad

D. Extended Fad E. Seasonal orFashion

F. Revival orNostalgia

G. Bust

Different types of products have different shapes to their life cycles

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Strategies for Extending the Mature Stage of the Product Life Cycle

Strategy Examples1. Develop new uses for JELL-O used in garden saladsthe product Arm & Hammer baking soda used as a refrigerator

deodorant2. Develop new product Zoom lenses for 35mm camerasfeatures and refinements Battery-powered televisions

3. Increase market Family and individual sizes for food productssegmentation Regional editions of major magazines

4. Find new classes of Nylon carpeting for institutional marketsconsumers for the Johnson & Johnson baby shampoo used by adultspresent product Coca-Cola and Pepsi-Cola in less-developed nations

5. Find new classes of Breakfast menu at McDonald’sconsumers for the Industrial power tools altered for the do-it-yourself marketmodified product

6. Increase product usage Multiple packages for soda and beeramong current users Jeans promoted for wear at social gatherings

Season tickets for sports and entertainment events7. Change marketing Hosiery sold in supermarketsstrategy Electronic games priced at $30 (down from $100)

Reader’s Digest advertising on television

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Profitability Over the Life Cycle

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PORTFOLIO MODELS

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Product Portfolio

l ConceptŸBusinesses vary in their resource needs depending upon:

ŸMarket attractivenessŸCompetitive position

ŸEach business has a different role and set of strategic options depending upon these factors

ŸA company must have a balanced portfolio to ensure that resources are optimally allocated across businesses

l VariationsŸThe alternative models differ primarily in terms of how they measure “market attractiveness” and “competitive position”

ŸBoston Consulting Group: BCG growth-share matrixŸGE/McKinsey: Multi-factor matrixŸShell/Arthur D. Little: Directional policy matrix

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Determinants of Profitability

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MarketAttractiveness

AverageProfitability

in This Industry

Numberof

Businesses

Competitive PositionProfit

Potential

Alternative States of Profitability

WEAK Market AttractivenessWEAK Competitive Position

STRONG Market AttractivenessWEAK Competitive Position

WEAK Market AttractivenessSTRONG Competitive Position

STRONG Market AttractivenessSTRONG Competitive Position

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?Profitability

% offirms

% offirms

% offirms

% offirms

?

Boston Consulting Group’s Growth-Share Matrix

Objective:Increase Share or Out

LargeNegativeCash Flow

High

Low

GrowthRate or PLCStage

(Cash Use)

High LowRelative Market Share or Competitive Position

(Cash Generation)

Objective:Maintain/Reinforce Lead

Objective:Re-Focus or Out

Objective:Maintain Share (Hold)

Modest+ or -

Cash Flow

Modest+ or -

Cash Flow

LargePositiveCash Flow

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GE/McKinsey Multi-Factor Matrix

1

1

2 3 3

2 3

21

Evaluating the Ability to CompeteSizeGrowthShare by segmentCustomer loyaltyMarginsDistributionTechnology skillsPatentsMarketingFlexibilityOrganization

Evaluating Industry Attractiveness SizeGrowthCustomer satisfaction levelsCompetition: quality, types, effectiveness, commitment

Price levelsProfitabilityTechnologyGovernmental regulationsSensitivity to economic trends

High Medium Low

High

Medium

Low

1. Invest/grow2. Selectiveinvestment

3. Harvest/divest

Businessposition;; its ability to compete

Industry attractiveness

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Build a Model or Scorecard to Build Consistency Into Portfolio Assignments …

Very Very OverallBusiness Attractiveness Relative Unattractive Attractive AttractivenessFactors Importance 0 1 2 3 4 5 6 Score

Market Opportunity• Market size .20 X 1.20• Growth rate .20 X .40• Level of buyer power .10 X .20• Market development index .10 X .30• Number of competitors .10 X .30• Ease of differentiation .20 X .60• Ease of entry .10 X .50

1.00 3.50Competitive Position• Customer loyalty (share) .20 X 1.20• Company fit .40 X 2.00• Sources of advantages .30 X 1.20• Brand development .10 X .60

1.00 5.00

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… or to compare business opportunitiesMajor Attractiveness Relative Factor Weighted Maximum OverallMarket Forces Weight Index Index Index Index

(a) (b) (c) = (a) x (b) (d) = (a) x 6.0 (c) / (d)• Market Opportunity .40 3.50 1.40 2.40 58.3%• Competitive Position .60 5.00 3.00 3.60 83.3%

OVERALL SCORE 1.00 4.40 6.00 73.3%

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Caveats in Application

1. Calibration: Measurement is highly sensitive to how the market is defined and requires extensive data

2. Generalizability: Model-based prescriptions are based on “average tendencies”ŸChallenge the model’s assumptions before accepting its outputŸCash flow may not be the “best” indicator of resource needs/availabilityŸManagers may need to adjust their “natural” strategic preferences and personal operating styles to suit the role of their business unit

3. Specificity of prescriptions: Portfolio analysis was NEVER intended to be the sole method of strategy selectionŸHighlights one type of problem/opportunity facing a business (i.e. the source and use of resources)

ŸSays little about how (specifically) resources should be used to overcome problems or capitalize on opportunities

Grande Praire Ken Wong Innovation Workshop

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