New product Management: Increasing your odds of success

Bryan Cassady Guest Professor, [email protected]

INTRODUCTION The sad fact is 9 out of 10 new products/services fail. This course is about why products fail and what you can do to increase your odds of success. In this PDF you will find 11 lectures from my last course and a bonus lecture on viral marketing. I hope in 1224 pages that follow you will find new ideas and inspiration If you have a new product or service you would like help with, please feel free to contact us. We offer a 1 hour first consultation free of charge Bryan Cassady [email protected] +32-475-860-757


Click on layers to to the different lectures and slide titles

Or simple go to the page numbers listed Eg. 6 Fist Movers vs. Fast Seconds _ 528

Starts on page 528

Click here for outline


Daves story


"A medium-sized 'butter' popcorn at a typical neighborhood movie theater

contains more artery-clogging fat than a bacon-and-eggs breakfast, a Big Mac and fries for lunch, and a steak dinner with all the trimmings combined!"


Talk to someone tonight

The kidney heist The story

The details (probably not all)

Movie popcorn A lot of fat

The car The visuals

The brand

The benefit

The non-profit

company ?


A lie can get halfway around the world before the truth can even get its boots on.

Mark Twain


To develop sticky ideas, make your

message:

1

2

3

4

5

6

S imple U nexpected C oncrete C redible E motional S tory Based


1

2

3

4

5

6

10 minutes


It is always easier to explain after the fact


16 reasons products fail (Nielsen) Lecture Number 1 A less-than-optimal "configuration" of product or service attributes and benefits is selected. 1 What is a new product

2 Marketers fall in love with a product no one else loves 3 Marketers assess the marketing climate inadequately. 2 Market research

4 A failure to ask the right questions and a belief that everything is a big idea

5 A questionable pricing strategy is implemented. 3 Pricing 6 Cannibalization underestimated 4 Forecasting and business planning

7 Over-optimism about the marketing plan leads to a forecast that cannot be sustained in the real world.

8 Too focused on the internal game not enough on the market 5 What really happens at work/ Selling a business case 9 Too focused on being first 6 Timing: Is there a first mover advantage

10 The Lemming effect 11 Lack of a strong sustainable position in the market 7 The basics of market interaction

12 The marketing plan for the new product or service is not well implemented in the real world. 8 Execution

13 The plan is too complicated 14 No Support to get things done 9 Selling your ideas 15 A weak positioning strategy is used.

16 The advertising campaign generates an insufficient level of new product/new service awareness.

10 Popper : Asking the 1 big question


A group presentation 20-30 min

Lecture 80-90 min

Then a discussion 60 min


Date Lecture Who Assignment Student PresentationPresentGroup

Reading

11/02/2010 intro B Brand You None Summary: Made to Stick

18/02/2010 What is a new product B Concept proposals None New product evaluation methodsConcept Training

25/02/2010 Market research B 3 big research Qs/ How to answer Concept proposals 1-Jan The wisdom of crowds

04/03/2010 Pricing for Value B Pricing Reco in 1 category 3 big research Qs/ How to answer 2-Jan TBD

11/03/2010 Forecasting and business planning B A systems view of the business Pricing Reco in 1 category 3-Jan Chapter 5 Senge + Fifth discipline

18/03/2010 Building Buzz and interest B A buzz activity: contest invite or link requestA systems view of the business

4-Jan The cluetrain manifesto

25/03/2010 What really happens at work/ Selling a business case E Choosing the Best adA buzz activity: contest invite or link request 5-Jan PG 99

01/04/2010 Timing: Is there a first mover advantage E First mover or fast second your reco Choosing the Best ad 6-JanManaging What consumers learn through experiencethe second mover advantage

08/04/2010 No Class(Spring Break) X no assignment X X

15/04/2010 No Class(Spring Break) X no assignment X X

22/04/2010The basics of market interaction (strategy)

E Choice of a value discipline First mover or fast second your reco

7-Jan The discipline of market leaders

29/04/2010 S-D Logic (execution) E A service Mantra proposal Choice of a value discipline 8-Jan TBD

06/05/2010 Selling your ideas E A sales letter A service Mantra proposal 9-Jan Cialdini/ The new positioning

13/05/2010 New Class or no class ? E Winner or loser A sales letter 10-Jan TBD

20/05/2010 Class wrap up j no assignment Winner / Loser 11-Jan Nothing

Practice Exam Due

If all goes as planned , an Oxford style debate in the last class


Success is a question of how to marshal your resources. Be really great in four or five areas. Make some hard choices.

The big challenge is to worry less about your weaknesses and build more on your strengths. Every success in your life will be based on your strengths.


Bryan Cassady Email: [email protected] Why did you take this course? :To teach it About you: A long time ago, an American boy came to Belgium, where he met a pretty woman in a Laundromat. They got married a year later and decided to stay in Europe. Since then, Bryan has set up 9 successful business in 7 different countries. Several of which should have never succeeded. Skills: A born marketer and salesman with a proven track of record business start-ups and

business development A Talent for thinking outside the box and finding simple solutions to complex business

issues.

Driven by the challenge of new business initiativesProud to be able to make impossible things to happen. Now in academia, because he enjoys learning and teaching.


S imple U nexpected C oncrete C redible E motional S tory Based


A less-than-optimal "configuration" of product or service attributes and benefits is selected.

Lack of a strong sustainable position in the market

Marketers fall in love with a product no one else loves

The marketing plan for the new product or service is not well implemented in the real world.

Marketers assess the marketing climate inadequately. The plan is too complicated

A failure to ask the right questions and a belief that everything is a big idea No Support to get things done

A questionable pricing strategy is implemented. A weak positioning strategy is used.

Cannibalization underestimated The advertising campaign generates an insufficient level of new product/new service awareness.

Over-optimism about the marketing plan leads to a forecast that cannot be sustained in the real world. Too focused on the internal game not enough on the market The Lemming effect


Marketing is the management process that identifies, anticipates and satisfies customer

requirements profitably. The Chartered Institute of Marketing

(CIM)


Sometimes you gotta shoot the puppy before he grows up


There will always be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed is to make the product or service available. Peter Drucker


Expected


Core Benefit Generic Product Expected Product

Augmented Product Potential Product

Q: Why is the iPod a success


What makes what youre selling Different and desirable


Business analysis Evaluation of ideas Making things happen

3 fundamental roles

Accountable for definition, development, marketing and profits of a product

Defines the business case, gets money, responsible for ROI

Managing a business

A baby CEO


Product Manager

Customer Service

R & D Logistics

Advertising

Top Management

Sales

Purchasing

Marketing Research

Legal

Customers

Finance

Production


Product management is one of the most common training grounds for senior executives. Many VPs and CEOs were

formerly product managers. The joy (and sometimes pain) of product management is its horizontal nature, working with Sales, Development, Marcom, Finance, Professional Services

and senior Executives. Product management is where we learn to lead through influence rather than mandate.

Barbara Nelson, Pragmatic Marketing


You have to keep pulling


High

Low High

New product

lines 20%

Improvements to existing products

26%

Additions to existing

product lines 26%

New-to-world products 10%

Repositioning's 7% N

ewne

ss t

o co

mpa

ny

Newness to market

Size of circle denotes number of introductions relative to total


Apple operating system vs. Windows

This South African Shiraz received 87pts from Rovani, Wine Advocate #155


people look at what interests them and sometimes its your ad.

Howard Gossage


1965 1974 1981 1986 1990 1997

34%

24%

13% 12% 8%

?

Percent of adult viewers who could name one or more brands advertised in a TV program they had just watched:

Newspaper Ad Bureau


More than nine out of ten consumable products launched in the last ten years offered absolutely nothing new to the consumer.

More than eight out of ten new products fail. You dont need to be a statistician to realize theres a correlation between the two numbers.

-- Robert McMath


Idea Generation

Screening

Concept Development & Testing

Marketing Strategy

Business Analysis

Product Development

Test Marketing

Commercialization


Ideas, screening Concept, analysis

Prod. devel

Test mktg commercialization

The time to Make mistakes !

Budget


I think theres a world market for about five computers.

(President of IBM)

TV wont be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.

(President of 20th Century Fox)


todays business


Study Test

Do


Solution

Do more

But in my opinion, almost certainly wrong


Ready, Aim,Fire


Concept Development

Implementation

Project Start Concept Freeze Market Introduction

Concept Time Response Time

Total Lead Time


Post-It-Notes: the super glue that wouldnt stick

Levi jeans: the failed gold digger feeding his family


Ready, Fire, Aim


Failure = Normal = Good. (Reward excellent failure. Punish mediocre success.)

Fail faster. Succeed sooner.

Fail. Forward

Tom Peters


Concept Development

Implementation

Project Start Concept Freeze Market Introduction

Concept Time Response Time

Total Lead Time


Fire, Fire, Fire


"Life is what happens while youre busy making plans"

--John Lennon


Exultation

Disenchantment

Confusion

Search for the guilty

Punishment for innocent

Distinction for uninvolved Introduction

Testing/Test MKTG

Screening & Refinement

Idea Generation


Remember Perspective is everything.

Two shoe salesmen... find themselves in backward part of Africa. The first salesman wires back to the head office.... there is no prospect of sales.. Natives do not wear shoes.

The second wires "No one wears shoes here. We can dominate the market. Send all available stock

Plus organization in groups

business ideas

Which puppy(ies) worth saving ?


Group Number

Pets.com Kosmo Despair.com Etoys.com Petrock.com Flooz WebvanIs there a benefit (real or percieved)People willing to pay (enough)Cost of cut-through acceptablePeople will see the benefit buy again / recommend to othersWill someone hate it

Kill Puppy (0 = kill, 1 = love)

Member Views

Class ID

Pets.com Pet supplies via the

internet

Save big, save time Stay at home

Kosmo.com Instant delivery of products purchased via the internet in big cities. Order a wide variety of products, from movies to snack food, and get them delivered to your door for free within an hour.


Despair.com We hate all the senseless, wasted time on employee motivation and un-founded optimism We imagine you do to, buy our products and show your true colors


Continuous effort is the key to unlocking your potential Winston Churchill

Etoys.com The new place to buy toys. Find you want on the internet

Petrock.com Pets take a lot of time and energy. Your kids can have almost as much fun with a pet rock. We even include a care guide


Webvan.com Buying groceries should be easier. With web van you can get all your groceries, so you have time for other things


Group Number

Pets.com Kosmo Despair.com Etoys.com Petrock.com Flooz WebvanIs there a benefit (real or percieved)People willing to pay (enough)Cost of cut-through acceptablePeople will see the benefit buy again / recommend to othersWill someone hate it

Kill Puppy (0 = kill, 1 = love)

Member Views

Class ID

Where do big ideas come from ?


Distinguishing Characteristic: Selecting between given means to achieve pre-determined goals

Sometimes new means may be generated

M1

M2

M3

M5

M4

Given Goals


E2

E3

E . . .

En

M1 M2 M3

M4 M5

Given Means

Imagined Ends

E1

Distinguishing Characteristic: Imagining possible new ends using a given set of means


Who is coming What will they like Plan a menu Go Shopping Make the meal Enjoy

Traditional What is in the

Fridge ? What can we do

with that Guess what is for

dinner ? Enjoy ?

Effectual


?


Leverage contigencies


Who I am What I know Whom I Know

What can I do? Interact with others

Stakeholder pre-

commitments

New goals

new means


Causal Logic

(predict)

Visionary Logic

(predict)

Adaptive Logic

(react)

Effectuation Logic

(negotiate) low

hi

gh

low high

Pre

dict

abili

ty

of t

he

futu

re

Controllability of the future

Effectuate under uncertainty in new markets for new products


The quickest easiest way to get started selling a product

Objective: Fast failures and maybe a big success


Concepts are ideas that you think will resonate and mean something to people interested in a product or service. Good concepts are insight based.

You need to think about what are the real benefits consumers are looking for. Concept statements should be written in a manner that stresses the strategic benefits of any given concept vs. creative writing appeal.

While the copywriting should be neither boring nor bland, it is important to distill the idea down to its primary reason-for-being.


or


Reciprocity On is more willing to comply with a request for participation to the extent that compliance

constitutes repayment of a perceived gift favour or concession.

Consistency Once an individual has taken a freely chosen stand on an issue, he/ she will exhibit a

tendency to act consistently with this commitment

Social validation Individual commonly decide on appropriate actions for themselves by searching for

information as to how similar other have acted or are acting in a similar situation

Authority People are more likely to participate if a legitimate authority is asking for participation

Scarcity Requests than emphasise the value of making your voice hear or having your opinion

count will be more effective when coupled with information suggesting that such an opportunity is rare.


What you need to deliver Group Core Concept + Loans: Home or personal 1 6

Core Concept + Credit Card 2 7

Core Concept + Insurance: Life, Home, Car, Travel 3 8

Core Concept + Telephone/ Internet or Mobile 4 9

Core Concept + Utility: Gas, Electric, Water 5 10


Accepted beliefs Consumers are getting more and more frustrated with "unwanted mail The mail I send is not junk mail - it just needs to go to the right people There is a shortage of relevant data. Data is often out of date/not updated very regularly

Benefit Select Post gives you the information you need to reach consumers that want your mail

Reason to believe in the product Proven to work in other countries. Response rates 20-400% higher a program being developed with you in mind with the support of the Belgian Post brand

Reassurance Developed in collaboration with leading companies, and industry leaders based on detailed consumer and advertiser testing

Brand Character Always on the look out for win/win/ solutions. Always doing the right thing.... A good listener, willing to learn/open/progressive, well-informed/ever striving


1000 40

1000 30

1000 20

1000 10

5,000


Paradigms = models, patterns the basic way of perceiving, thinking valuing

A dominant paradigm is seldom if ever stated explicitly; it exists unquestioned transferred through culture

and unspoken business practices William Harmon-

An incomplete guide to the future


Hot summers Warm winters

Evidence of global warming

Cold summers Cold winters

Evidence of global warming


I will see it when I believe it vs.

I will believe it when I see it

Too much research is the first type


We often do research to check our brilliant ideas

SUGGING (Selling under the guise of market research)

Issues

Objective criteria in place before the research starts Is 35% planned purchase good or

bad

Clearly define your biases before you start

Focus on insight (vs. confirmation) Do regular reality checks

Solutions


The formulation of the problem is often more essential than its solution

Albert Einstein


Research that Produces Customer Insights Based on a lecture by M. Sawney

(Northwestern University)


A good product manager Builds, Shares, and uses insights

Chris Start P&G


Example

The consumer isnt a moron. She is your wife.

David Ogilvy

We dont sell cosmetics, we sell hope

Revlon


todays business


Offering (WHAT)

Process (HOW)

Presence (WHERE)

Customers (WHO)

1

4 2

3

Networking

Brand

Supply Chain

Organization Value Capture

Customer Experience

Platform

Solution


Offering (WHAT)

Process (HOW)

Presence (WHERE)

Customers (WHO)

Networking

Brand

Supply Chain

Value Capture

Customer Experience

Platform

Solution

Organization


Offering (WHAT)

Process (HOW)

Presence (WHERE)

Customers (WHO)

Networking

Brand

Supply Chain

Value Capture

Customer Experience

Platform

Solution

Organization

One place all The info

Answers in 30 minutes


Using observation to formulate an idea or theory. Qualitative or Interpretative research draws on inductive reasoning. Sheba cats are part of the family

Inductive Reasoning

Taking a known idea or theory and applying it to a situation (often with the intention of testing whether it is true). Quantitative or positivist research draws on deductive reasoning.

Sheba buyers are 240% more likely to buy pet magazines

Deductive Reasoning


Qualitative Research Quantitative Research Also Known As interpretative / responsive positivist / deductive

Type of Reasoning (usually) inductive (usually) deductive

Objective Generate insights that lead to hypotheses

Validate insights by testing hypotheses

Outcomes Illuminate a situation to create deeper understanding and insights

Accept or reject a proposed theory, or get specific answers to well - defined questions

Methods Qualitative, eclectic Quantitative, rigorous

Approach to Validity truth seen as subjective and socially constructed

truth seen as objective and universal


New understanding that is actionable and competitively unique

Interpretation of the research findings

Consider carefully the research objectives.

Data Analysis and Data Reduction

Traditionally, marketing researchers and research

agencies stop here


Of most value because offers new ways of looking at markets that lead to

competitive advantage

Summarizes the implications of the research for the business

Selected information that is of interest, but lacking in implications

Informs the business about a market, but no indication of relative importance

of different pieces of information

Of little value because it is usually difficult to understand and interpret on

its own.


Inductive, Qualitative, Exploratory Research

that Produces Insights

Deductive, Quantitative, Confirmatory Research that Validates Insights


New Products focus

Proactive, Episodic

Reactive, Routine

Validation Research

Exploratory Research


Customer insights

Ideas from Innovative

Customers and Partners

Patterns in Customer

Transaction Data

Observation of Customer Behavior

in Native Surrounding

Anomalies and Discrepancies

Metaphors and Analogies

Introspection, Intuition and Brainstorming


Top Management

Product Development

Legal and corporative

affairs

Corporate Marketing

Market Research Product

Marketing


Worst practices Best practices


Source : McKinsey

Finance & Accounting

Marketing

Information Service

Human Resources

Market Research

How useful is the information? Not very 1 2 3 4 5

very


How do you think the insight was developed ?


His conclusion the idiots errors cancelled each other out


Bringing new members into the organization, even if theyre less experienced and less capable, actually makes the group smarter simply because what little the new members do know is not redundant with what everyone else knows.

(p.31)


Alpha Group

138

132 135

139

135

137

Diverse Group

121 84 111

75 135 31


Most of the time the diverse group outperforms the group of the best by a substantial margin.

See Lu Hong and Scott Page Proceedings of the National Academy of Sciences (2002)


Alpha Group

ABD

ADE BCD

ABC

BCD

ACD

Diverse Group

AHK FD AEG

EZ BCD IL


collective intelligence increases as the herd mentality decreases and the people in the group express what they genuinely think rather than going along with whatever everyone else is saying.

The more influence a groups members exert on each other, and the more personal contact they have with each other, the less likely it is that the groups decisions will be wise ones.

(p.42)


Decentralization means everyone in the crowd will try their own approach to the problem rather than having their efforts

directed from the top down.


Mon Tue Wed


Brad: (8-8)2 +(10-12)2 +(10-9)2 = 5

Matt: (10-8)2 +(12-12)2 +(8-9)2 = 5

Crowd: (9-8)2 +(11-12)2 +(9-9)2 = 2


(Brad-Crowd)2 = 1 + 1 + 1 = 3

(Matt-Crowd)2 = 1 + 1 + 1 = 3


Implication: Diversity can trump skill


If a group satisfies those conditions [diversity, independence, decentralization, aggregation] , its judgement is likely to be accurate. Why? At heart, the answer rests on a mathematical truism. If you ask a large enough group of diverse, independent people to make a prediction or estimate a probability, and then average those estimates, the errors each of them makes in coming up with an answer will cancel themselves out. Each persons guess, you might say, has two components: information and error. Subtract the error, and youre left with the information.

James Surowiecki


Armstrongs seer-sucker theory no matter how much evidence exists than seers do not

exist, suckers will pay for the existence of seers


Why do we believe in seers

because we get fooled by randomness because we are looking back not looking forwards..


Why not just hire an expert Because, groups usually do better than experts

Conclusions Cheap crowds Expensive research Greater descrimination between ideas

New Product Concept

Monadic Test With matched samples of 100

in the target market (Top 2 Box Purchase Intent)

Research Market 1* With diverse group of 500

people- *betting (Top 2 Box Purchase Intent)

Significant Differences

A 85 86

B 83 82

C 81 90 +

D 78 91 **

E 74 69

UK Norms (top 2 box) 67 67

F 64 24 ***

G 64 22 ***

H 54 53

I 49 39 ***

J 43 17

Respondent Base Sizes: Monadic = 100 per cell / Research Market *Betting =502

Fig. 1, Top Two Box Purchase Intention Result Research Market 1*


The best collective decisions are the product of disagreement and contest, not consensus or compromise.

(p.xix)

The best way for a group to be smart is for each person in it to think and act as independently as possible.

(p.xix)


Unfortunately, they lost a few dollars on every customer they served.


Source: Compustat; Mckinsey analysis

100.0

19.2

68.3

12.5

101.1 13.5

Revenuees Fixed Costs Variable costs Operating profits

1 1

Price increase of 1.0%

Price increase of 8.0%


2.3

3.3

7.8

11.1%

Fixed cost

Volume

Variable cost

Price

Create Operating Profit Improvement of 1% improvement in...

*Based on average econimics of 2,463 companies in comopustat aggretate


And most importantly something you think about, not (and I repeat) not something

determined solely by your competition


Illustrating Price Relationship Price Vol. Rev. Cost Profit

() Unit (m) (m) (m) (m) 1 17 17 27 -10

2 16 32 36 6

3 14 42 24 18

4 9 36 19 17

5 7.5 37.5 17.5 20

6 5 30 13 15

7 3 21 13 8

8 2 16 13 8

9 1 9 11 -2

10 0 0 10 -10


-15

-10

-5

0

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10


High Value

Super Value

Mild Value

Economy


The right price is not objective, but value based


How much a rational consumer would be willing to pay for your product, if he had a perfect understanding of its actual worth*

John Gourville Harvard Marketing Guru


$120 $108

$480 $432

$100 $108

Price

Labour Costs

Servicing/Diesel

$700 - $540

- 10%

- 10%

$ 700


The problem: result = ball dependent Consumers didnt use the ball Worse results, product died

(same idea back as Liquid compact)


High Price Low Price Price 31 18

Client 60 100

Cost/ Unit 14 10

Net/ unit 17 8

Profit 1020 800


Our chef's thinking High Price Low Price Likely Best Case

Price 31 18 24.5 54.5

Clients 60 100 80 85

Cost /unit 14 10 12 11.5

Net/ unit 17 8 12.5 13

Profit 1020 800 1000 1105

Differential Pricing High Medium Low Total

Price 31 24.5 16 27.5

Clients 55 25 10 90.0

Cost /unit 11 11 11 11.0

Net/ unit 20 13.5 5 16.5

Profit 1100 337.5 50 1,487.5

Extra points % Increase

Versus likely results 578 63%

Versus maybe scenario 383 26%

Before you start Do you have a product someone wants ? If not, dont waste your time


Facts The new airplane will be competing against Cessnas flagship C172 which has a list price of $300,000. This would be your logical starting price point.

Thoughts Customers look to substitutes for clues on what your product is worth. Even if you have a great product but competitors set their prices unrealistically low, customers will assume your product is worth less.

Substitutes

Competitors

Income

Demand

Environment


Facts Your plane will have a faster cruising speed, a longer cruising range, a faster climb rate and a revolutionary new safety system. Your research suggests these attributes should be worth about $120,000 to purchasers. Your brand, however, is less well known meaning resale value will be affected. Detract $30,000 from the new airplanes value to allow for this.

Thoughts How your product measures up (in terms of attributes) by comparison with your competitors. Customers will look at brand, convenience, quality, service, style and other attributes to evaluate whether your products value is lower or higher. This dictates whether you can charge a premium.

Substitutes

Competitors

Income

Demand

Environment

$300,000


Facts People who purchase your airplanes are able to claim a $25,000 tax break on their federal taxes because this plane features an enhanced safety system.

Thoughts The income level of your products buyers, and whether they have discretionary income or watch every penny. Obviously the higher their income, the more wriggle room you have to increase your margins. Increases in your customers income will also impact their value perceptions

Substitutes

Competitors

Income

Demand

Environment

$300,000

$90,000


Facts To cover increased operational costs, airports have recently raised their landing fees. To compensate for that, most airplane manufacturers are lowering their list prices by $20,000.

Thoughts Changes in the price for related products. For example, the price of gasoline influences the relative value of gas guzzlers. Increases or decreases in the prices of any products which are related to yours will impact noticeably on the perceived value of your product.

Substitutes

Competitors

Income

Demand

Environment

$300,000

$90,000

$25,000


Facts There have recently been some very positive news articles run in major newspapers talking about the benefits of private ownership of airplanes. Its currently considered to be the in thing to do. This should allow you to increase your prices by about $15,000

Thoughts The overall market environment and whether your products value is going to be affected by the arrival of a fad, new information, or other external events beyond your control

Substitutes

Competitors

Income

Demand

Environment

$300,000

$90,000

$25,000

- $20,000


$5 $6 $7 $8 $9 $10 $11 $12 $13 $14 $15

Potential Price Points

Too Cheap Expensive Too Expensive Bargain

100

Van Westerndorp Output

0

80

60

40

20

Stress Zone

MPC (Marginal Cheap Price) OPP (Optimal Price Point)

IDP (Indifference Price Point)

MEP (Marginal Expensive Price)


$5 $6 $7 $8 $9 $10 $11 $12 $13 $14 $15

Potential Price Points

40%

20%

0%

Van Westerndorp Output


Brand A Brand B Brand C

I would not buy any of

these.

Brand A Picture Brand B Picture Brand C Picture No Bells and Whistles Bells and Whistles Bells, no Whistles

Regular Shipping Next Day Delivery Two Day Delivery

No Money Back Guarantee

Money Back Guarantee

Money Back Guarantee

$27.00 $44.00 $35.00

A regression technique - usually multinomial logit -- is used to analyze the model. Even so, a fair amount of analysis can be done using high level data summaries.


Note: Disguised example. Attributes and measures have been altered.

Select the beverage you would be most likely to purchase at your next visit to a convenience store. If you would not choose any of these, select the none option.

Next

None


Price

+20%

+15%

+10%

+5%

Current

-5%

-10%

Share of Demand

Elasticity: Rate at which demand falls as price increases.

10% 14% 18% 22% 26% 30% 34% 36%


Consumer surplus Ride 1 at $ 0 price

Price willing to Pay per ride

Demand

0 1 2 3 4 5 6

Number of rides


Strategic Options Lever Segment Attribute Importance

Price Discount

Smart Consumer

High Income Shopper

Advance Purchase

Smart Consumer

High Income Shopper

Airlines Smart Consumer

High Income Shopper

Restricted Timings

Smart Consumer

High Income Shopper

Magnet

Fence

Proposed Design

Discount Vocation travel Fare

Feature Rationale

50% discount to full fare

Attract price sensitive Smart Consumer segment

1 month advance purchase No ability to

specify airline carriers Weekday

department

Discharge High income Shopper from switching to low price seats


Be Found offers several flexible pricing solutions which are all based on a "no cure no pay" model. For example you may choose to pay for the

qualified visitors who enter your site, a flat fee for every new membership or a percentage of each online sale.


One fallacy is the belief that the consumer acts logically in his or her buying decisions.

James P. Nault, Fairmont Foods


Source: Dickson & Sawyer (1990)


$ 9.95 Shipping and handling = their profit Question: Why does it work


i

iii

ii

iv

I offered to pay 0

They then processed my order


Note Best Selling album in 2008 4 million copies

0

1

2

3

4

5

6

7

8

9

10

utilities mortgage credit cards internet pension savings telephone personal loans

insurance

Lowest chance of success

Highest chance of success


Group 2 3 4 5 6 8 9 Total Utilities 55 69 77 106 42 76 49 72

Credit cards 136 149 85 45 52 53 72 86

Mortgage 96 43 44 144 106 101 79 89

Pension 98 79 81 58 111 113 109 94

Internet 67 51 181 96 98 129 93 102

Savings 128 113 111 125 85 102 83 106

Telephone 75 98 135 75 163 105 136 111

Personal loans 114 132 79 141 129 78 144 114

Insurance 133 177 100 109 130 144 136 129

Correlations Group 0.42 0.58 0.50 0.48 0.40 0.40 0.34 0.45

Class 0.17 0.32 0.13 0.12 0.36 0.22 0.35 0.24


* Not accurate, but for description


Number of hits on website 1.4

Number of books sold in the U.S. 1.5

Telephone calls received 1.22

Magnitude of earthquakes 2.8

Diameter of moon craters 2.14

Intensity of solar flares 0.8

Intensity of wars 0.8

Net worth of Americans 1.1

Number of persons per family name 1

Population of U.S. cities 1.3

Market moves 3 (or lower)

Company sizes 1.5

Exceedance = breaking point = 250K Exponent = power = 1.5

Num Books Sales

0 16,000,000

0 8,000,000

0 4,000,000

3 2,000,000

A 12 1,000,000

64 500,000

Given 96 250,000

272 125,000

2,172 62,500

B 49,152 31,250

3,145,728 15,625

569,437,594 7,813

291,552,047,998 3,906

Calculations

A 96/((1,000,000/250,000)^-1.5)

B 96* ((250,000/31,250))^1.5)


Exponent Share of the top 1% Share of the top 20%

1 99.99% 99.99%

1.1 66% 86%

1.2 47% 76%

1.3 34% 69%

1.4 27% 63%

1.5 22% 58%

2 10% 45%

2.5 6% 38%

3 4.6% 34%

* Clearly, you do not observe 100 percent in a finite sample.


Investment Investment Return ROI Cum invest Cum return Cum ROI 1 100 2000 2000% 100 2000 2000% 2 100 150 150% 200 2150 1075% 3 100 100 100% 300 2250 750% 4 100 100 100% 400 2350 588% 5 100 50 50% 500 2400 480% 6 100 50 50% 600 2450 408% 7 100 25 25% 700 2475 354% 8 100 25 25% 800 2500 313% 9 100 10 10% 900 2510 279% 10 100 10 10% 1000 2520 252% 11 100 5 5% 1100 2525 230% 12 100 4 4% 1200 2529 211% 13 100 3 3% 1300 2532 195% 14 100 2 2% 1400 2534 181% 15 100 1 1% 1500 2535 169% 16 100 1 1% 1600 2536 159% 17 100 1 1% 1700 2537 149% 18 100 0 0% 1800 2537 141% 19 100 0 0% 1900 2537 134% 20 100 0 0% 2000 2537 127%

Totals 2000 2537 127%


0%

500%

1000%

1500%

2000%

2500%

0%

500%

1000%

1500%

2000%

2500%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Cumulative ROI

ROI


Output Output Output

20.0% 80.0%

*20%

36.0% 64.0%

*20%

48.8% 51.2%

20.0% 51.2%


For each of the following ten items, provide a low and high guess such that you are 90 percent sure the correct answer falls between the two. Your challenge is to be neither too narrow (i.e., overconfident) nor too wide (i.e., underconfident). If you successfully meet this challenge you should have 10 percent misses that is, exactly one miss.

Low High Correct

1. Martin Luther King's age at death _________ _________ _________

2. Length of the Nile River (km) _________ _________ _________

3. Number of countries that are members of OPEC _________ _________ _________

4. Number of books in the Old Testament _________ _________ _________

5. Diameter of the moon (km) _________ _________ _________

6. Weight of an empty Boeing 747 (kg) _________ _________ _________

7. Year in which Wolfgang Amadeus Mozart was born _________ _________ _________

8. Gestation period (in days) of an Asian elephant _________ _________ _________

9. Air distance from London to Tokyo _________ _________ _________

10.Deepest (known) point in the ocean (meters) _________ _________ _________


PERCENTAGE OF MISSES

Type of People Tested Type of Question Asked Ideal Target Actually Observed

Harvard MBAs Trivia facts 2% 46%

Employees of a chemical company

Chemical industry and company - specific facts

10% 50%

50% 79%

Managers of a computer Co. General business facts Company - specific facts 5% 80%

5% 58%

Physicians Probability that a patient has pneumonia 0-20% 82%

Physicists Scientific estimates like the speed of light 32% 41%

(Source: Gary Larson, The Farside Gallery Chronicle Publishing Co.,1980)

What do you mean Your guess is as good as mine? My guess is a hell of a lot better than your guess!

2 out of 10 real differences, the rest statistically significant

Yes

Yes

Source: New products what separates winners from losers Cooper & Kleinschmidt

40

60

50

30

20

10

0

True accuracy

Part 1

Estimated accuracy

Amount of case study read by subjects

Part 2 Part4 Part 3

Per

cent

age

of q

uest

ions

cor

rect


Items of information available to handicappers

40 5 20 10

40%

20%

10%

30% Confidence Does Increase

Accuracy Does Not Increase

Perf

orm

ance


Actu

al p

roba

bilit

y

Predicted probability (confidence)

Medical Diagnoses

Weather forecasts


The British were sinking many German subs.

The assumptions: Codes could not be broken

It must be a leak

The right Q: How could they have broken our code

A false code released just in code could have tested the assumption and might have changed the way

It is now 2 years after the launch, Beatthatquote has failed

Why did it fail

Just asking the question Youll get more ideas (about 50% more on average)


Be humble 1

2

3 Look at the big picture

4


For a good introduction see The Fifth Discipline, Peter Senge


Turn knob Measure Change

Filling a glass of water


Soviet Arms Threat to Americans Need to Build

US Arms

US Arms Threat to Soviets Need to Build USSR Arms

USSR Arms

Threat To Soviets

US Arms

Need To Build US Arms

Threat To Americas

Need to build USSR ARMS


Number of visits

Experience

Partner sites

Number of leads

Client conversion costs

Quality of Leads

What clients will pay

Type of clients

Repeat Visits

Page visits Trust


1

2

3

4


Issues Can we increase

profitability with a new production process?

Sub-Issues Will it reduce our costs?

Sub-Issues Can our organization

implement the changes?

Sub-Issues Will our quality level fall

while making the changeover?


Events

Patterns

Structures

**Mckinscy&Company


1

2

3

4

Look at the big picture


Key word_ English UK num

Key_Word_ NL BE num NL num

loan 7.87 4,090,000 lening 7.1 49,500 7.23 90,500

home mortgage 7.31 60,500 hypotheek 6.04 18,100 3.21 260

mortgage 11.72 5,000,000 hypotheek 6.04 18,100 3.21 450,000

Cost per click

Searches per month


Key word_ English UK num

Key_Word_ NL BE num NL num

loan 7.87 4,090,000 lening 7.1 49,500 7.23 90,500

home mortgage 7.31 60,500 hypotheek 6.04 18,100 3.21 260

mortgage 11.72 5,000,000 hypotheek 6.04 18,100 3.21 450,000

Belgium Netherlands Data from google adwords Are Belgian consumers really less interested ? If yes, why is the price higher than the Netherlands ? Are they searching in a different way (eg. Using google.nl instead of google.be) Do you believe the numbers ?


Secondary source

Data

Calculation Result


Belgium Mortage New House

Households 4,000,000.00

% Move/ year 0.08

Total Movers 320000

Renters 0.4

Net 192000

% take loan 0.75

Market Size 144000

Re-mortgage

Households 4000000

% second mortage 0.04

Market Size 160000

Total Market 304000

Avg. Value of a new loan 5000

Market Value 1,520,000,000.00

Available market

Total Loans 304,000

% Internet 60%

% would use internet 50%

Available market 91,200


Registered Minivans Dodge Caravans 120,000

Ford Windstars 20,000 Toyota Sienas 8,000 Total Market Size 148,000


Costs of production Number Fixed Costs First 50 K After 50 K Total Costs Avg. Cost 25,000.00 100,000 150 40 3,850,000 154.0

50,000.00 100,000 150 40 7,600,000 152.0

75,000.00 100,000 150 40 8,600,000 114.7

100,000.00 100,000 150 40 9,600,000 96.0

125,000.00 100,000 150 40 10,600,000 84.8

150,000.00 100,000 150 40 11,600,000 77.3

175,000.00 100,000 150 40 12,600,000 72.0

200,000.00 100,000 150 40 13,600,000 68.0

225,000.00 100,000 150 40 14,600,110 64.9

250,000.00 100,000 150 40 15,600,220 62.4

275,000.00 100,000 150 40 16,600,330 60.4


1

2

3

4


At companies like P&G, brand managers are trained hard to stay in touch with their gut feelings


- Startup firm


Convert the value proposition into a market offering

Inbound Product Development

Outbound Product Marketing

Take the offering and the value message to market


Outbound/Tactical Outbound-heavy role Understanding of product Understanding of vertical markets Less authority and direct influence Ability to manage interfaces Ability to communicate internally

Inbound/Strategic Inbound-heavy role Close interaction with engineering Defining target markets Generating customer wins Broad authority and influence Ability to think strategically


Market requirements Positioning framework

Product launches List pricing/SKUs


Product Manager Influence (1-None, 10- Complete)

Defining Product Specifications 7.23 Managing Product Releases 6.96 Product Positioning 6.93 Product Upgrade Decisions 6.28 Managing Launch Events 6.44 Product Pricing 6.28 Product Packaging/SKU Decisions 6.31 Customer Segmentation 5.62 Consumer Promotions 5.48 Channel and Partner Promotions 5.15 Product Advertising 5.26 Channel Selection 4.78 Corporate Branding & Advertising 4.46


Product Development

Product Conception

Product Launch

Product Sustaining

Responsibilities: Market research Target market definition Competitive analysis Positioning Market Requirement

Forecasts

Interfaces: Customers Research firms Engineering Finance Sales

Responsibilities: Refine market

requirements Customer research Trade-off schedule

vs. features

Interfaces: Engineering Customers Partners

Responsibilities: Product introduction plan Customer demos Refined forecasts Sales training Press kits Trade shows Events

collateral Promotion/Advertising BOM/Inventory

Responsibilities: Sales training Customer promotions Trade promotions Product updates Next version planning

Interfaces: Customers Engineering Tech support Sales Partners

Interfaces: Customers Sales Analysts Press Engineering Finance Tech support


Yes No Product Revenues 62.2% 37.8%

Product Profitability 61.5% 38.5%

Market Share 46.9% 53.1%

Customer Satisfaction 19.7% 80.3%


Business Knowledge

Business Knowledge

Business Knowledge

Business Knowledge

Business Knowledge

What it does What it needs to do Product functionality Product roadmap Product architecture Core technology Product bugs/gaps Product usability Complementary products Competing products

Who - Customer segments Why - Customer needs Where End-use scenarios How often Usage levels Why not Usage barriers Who else Customer DMU How Customer DMP Purchase drivers Upgrade drivers Installation experience Usage experience Customization experience Support experience Upgrade experience Partner/VAR experience Unmet needs Known product problems Known service problems Brand/company image Customer satisfaction

Key demand trends (by segment)

Key technology trends Key alliances/partnerships Competitive products Competitors motivations Potential competitors Strengths/weaknesses

(company) Strengths/weaknesses

(product) Strengths/weaknesses

(partners) Strengths/weaknesses

(brand)

Customer insight process MRD development process Product planning process Budgeting process Product development

process Product testing process Product launch process Partner management

process

Company values Company vision/strategy Company image/brand Vision of the business Goals of the business


Importance (10 point scale) Customer knowledge 8.81

Product knowledge 8.65

Competitor knowledge 8.21

Company business knowledge 8.00

Macro environmental knowledge 7.61


+/- 20% 20-30%

+/- 20% +/- 40%


Important ! What you know dont know might be less important

than what dont know you dont know


Important: remember we tend to over-estimate our capabilities I wouldnt invest in this business


Group Group

Prediction Score

Group Size Worse Percentile Number Correct Group

Number Indiv. Avg

9 1 5 4 20% 7 4.4

1 1 9 8 11% 5 3.0

4 2 9 7 22% 5 3.2

10 3 7 4 43% 4 2.8

5 4 8 4 50% 4 3.0

2 4 5 1 80% 4 3.0

7 6 7 1 86% 4 4.4

8 3 8 5 38% 3 1.6

6 5 8 3 63% 3 2.9

3 7 8 1 88% 2 2.6

50%


Statement of Purpose

An introductory sentence that concisely and succinctly states the reason for the recommendation. Provides a context for the memo as a whole

Background

Factual analysis That connects the purpose of the memo to the strategic objectives of the company or the brand. Also provides facts in relation to the problem recommendation Is supposed to address.

Rationale

The reasons for the recommendation, and the logic by which the recommendation was reached.

Recommandation

The specific proposal on how to solve the problem or exploit the opportunity detailed in the background section.

Discussion

Details of the recommendation, anticipated questions or areas of concern, risk assessment, identification of other alternatives, details of the recommendation.

Next Steps

Who will be following through on the recommendation, what target dates they would be working towards, what actions they would be taking to execute the recommendation

Supporting Exhibits

Other supplementary information as appropriate.


(not looking for an answer but how to find the answer)

Is there a market for high priced (very effective) loan leads in Belgium


Note; if you want to make this east, think about how an advertisement is put together. Hook, Product (in your case your Reco) Benefit, Reason Why, Next steps.

Bryan Cassady Guest Professor, Bryan@f

New product Management: Increasing your odds of success

Business

Transcript of New product Management: Increasing your odds of success