S 14 New Products

8/11/2019 S 14 New Products

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Introducing New Market Offerings

Session 14


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Session Objectives

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In this session, we focus on the following :The importance of new products in the marketing strategy

New-Product Development Process

Managing New-Product Development

Rate of diffusion and consumer adoption process


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New Products

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Which companies come to mind when youthink of innovation?

Which company spends the most on R&D

in the world?Which industry spends the most on R&D?

Which country leads in innovation?


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Most Innovative Companies Business Week

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COMPANY

RANK RESEARCH AND DEVELOPMENT

2013 2012Spend USD billion RANK for R&D % of Sales

2013 2012 2013 2012 2013 2012

Apple 1 1 3.4 2.4 43 53 2.2 2.2

Google 2 2 5.2 5.2 12 26 13.5 13.6

Samsung 3 4 10.4 9.0 2 6 5.8 6.0

Amazon 4 10 4.6 2.9 30 48 7.5 6.1

3 M 5 3 1.6 NA 85 86 5.5 5.3

GE 6 5 4.5 4.6 31 30 3.1 3.2

Microsoft 7 6 9.8 9.0 5 5 13.3 12.9

IBM 8 8 6.3 6.3 16 17 6.0 5.9

Tesla Motors 9 NA 0.3 NA 377 NA 66.3 NA

Facebook 10 NA 1.4 NA 101 NA 27.5 NA

Source Booz and Company annual survey


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The Top 10 R D Spenders

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COMPANY Country Industry

RANK R and D Spending

2013 2012 2013Increase

over 2012

% of

Sales

Volkswagen Germany Auto 1 11 11.4 22.4% 4.6%

Samsung South KoreaComputing and

Electronics2 6 10.4 15.6% 5.8%

Roche Holding Switzerland Healthcare 3 3 10.2 14.7% 21.0%

Intel USA Computing andElectronics

4 8 10.1 19.0% 19.0%

Microsoft USASoftware and

Internet5 5 9.8 13.3% 13.3%

Toyota Japan Auto 6 1 9.8 3.7% 3.7%

Novartis Switzerland Healthcare 7 2 9.3 16.5% 16.5%

Merck USA Healthcare 8 7 8.2 17.3% 17.3%

Pfizer USA Healthcare 9 4 7.9 13.3% 13.3%

Johnson & Johnson USA Healthcare 10 12 7.7 11.4% 11.4%

Source Booz and Company based on survey of 1200 senior executives


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Spending by Industry 2013

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Computing andElectronics, 27%

Healthcare, 22%

Auto, 16%

Industrials, 10%

Software and Internet,

8%

Chemicals and Energy,6%

Consumer, 4%

Aerospace and

Defence, 3%Telecom, 2%

Others, 2%


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Chotukool

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Problem IdentifiedUnavailability of undisrupted power supplyAffordabilityNeed for small quantities

The Product

Top loadingavailable in 30 litres and 48 litresDual power supply and portableWeight 8 Kgs and works on chip technologyHigh end insulationBright colours

Priced 35% lower than smallest refrigerator.Disruptive innovation through interaction with ruralconsumers


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Acquire or Develop

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Buy a company

Patents

Buy a licence or franchise from other party

Acquisition

On their own

Through new product developers

Develop


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New Product Success

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Incremental innovationby tweaking products

Disruptive technologiesfor cheaperalternatives

Unique superiorproduct with distinct

advantage

Well defined productconcept aimed at

specific target segment

Technological andmarketing synergy

Execution in all stages

Market attractiveness


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New Product Failures

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Shortage of ideas

Examples

Fragmentedmarkets leadingto lower profits

Social, economicand governmental

constraints

Cost ofdevelopment

Capital shortagesFaster requireddevelopment

time

Shorter productlife cycles


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Stages of the New Product Development Process

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Is the idea worth

considering?

Is it compatible

with company

objectives,strategies and

resources?

Testing the new

product idea among

a set of potential

consumers

Can we find a cost

effective and

affordable marketing

strategy?

Will the product

meet our profit

goal?

Is it technically and

commercially viable?

Have product sales

met expectations?

Will the product meet

our profit goal?


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1 Idea Generation

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Map consumer needs and wants

Demand landscape

Use of tools to achieve market perspectives fromdifferent angles

Opportunity landscape

Look at customers and differentiation from competitors

Strategic blueprint


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1 Idea Generation

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Customers

Employees

Channel members

Marketing agencies

Competitors

Ideas can originate from:

Brainstorming

Crowdsourcing


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Creative Techniques

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Modifying different attributes for suitabilityAttribute listing

Consider each in relationship to the otherand consider combinations

Forced relationships

Start with a problem and think ofdimensions to arrive at different solutions

Morphological analysis

Reverse the normal assumptions to comeout with innovations

Reverse assumptionanalysis

Take familiar processes and change thecontext

New contexts

Connecting thoughts to come out with newideas

Mind mapping


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Lateral Mapping

Gas stations + food

Cafeteria + Internet

Cereal + snackingCandy + toy

Audio + portable

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2. Idea Screening

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Identify good ideas and drop poor ideasAvoid DROP Error

Avoid GO ErrorAbsolute, partial or relative

Does the product meet a need?

Would it offer superior value?Does the company have enough know-how and

capital?

Will the product generate expected sales and profits?

Overall probability of success is a function of :1. Can it be completed?2. Is it commercially viable?

3. Chances of economic success?


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3. Concept Development

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Convert idea to different concepts based on:1. Who will use the product?2. What primary benefit should the product

provide?

3. When and where will it be consumed?

The category concept defines the products

competitors

Create a perceptual product positioning map to

determine where it stands in relationship to its

competitors

Build a brand positioning map of differentbrands and decide segment to concentrate on.


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3. Concept Testing

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Presenting the product concept symbolically orphysically to target customers

Response areas could be:Are the benefits clear and believable?

Does the proposed product meet a need?

Is there a need gap amongst the present products?

What is the perceived value?

Purchase intention on a 5 point scale

When and how often would they buy the product?


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Conjoint Analysis

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Deriving utility values that consumers attach tovarying levels of a products attributes.Respondents see different hypothetical offers bycombining varying levels of the attributes and thenranking them.

Marketers then identify the most attractivecombination and work out market share and profit.Need not choose the most attractive one.Foodworld

NameLocationService levelFormat


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4. Marketing Strategy Development

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Define the target market size, structure andbehaviour.

Define the target market and positioning statement

The targeted market share and time frame for breaking

even

Planned marketing mix and marketing budget for the

first year

Long run sales and profit goals and marketing mix


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5. Business Analysis

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Estimating total salesWill the products be

one time purchases?

Are they infrequently

purchased products?

Are they frequentlypurchased products?

Estimating costs and

profits to arrive at

payback period

YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4

Sales Revenue 0 500 650 830 1190

Less Cost of goods

sold0 165 215 275 395

Gross Margin 0 335 435 555 795

Developmental costs -150 0 0 0 0

Marketing costs 0 335 235 325 475

Allocated overheads 0 50 65 85 115

Gross Contribution -150 -50 135 145 205

Supplementary

contribution

0 0 0 0 0

Net contribution -150 -50 110 145 205

Discounted

contribution-150 -43 80 89 91

Cumulative

discounted cash flow-150 -193 -113 -24 67


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6.Product Development

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1. Desired customer attributes are to be transferredinto engineering attributes

2. Physical prototypes are developed

3. Customer tests are conducted:

Alpha testing within the firmBeta testing with the customers through focus groups or

home placement tests

4. Measuring customer preferencesRank order methodrank the options

Paired comparisonchoosing one out of a pair

Monadic ratingrating on a scale


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7. Market Testing

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Seek to estimate four variables:TrialFirst repeatAdoptionPurchase frequency

Sales Wave ResearchOffering of product at different price points or withdifferent promotional support to checkpricing/promotion strategy

Simulated test marketing

Exposing shopper group to ads of product categoryincluding the new productShoppers given a certain amount of money andshopping behaviour noted


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7. Market Testing

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Controlled test marketingMonitoring of a panel of stores which carry the productat a feeVisual display, POP and pricing are controlledInterviews with customers at end of test period

Test MarketsHow many cities?Which cities?How long will the test marketing last?What information to collect?

What action to take?o High trial, high repurchase No High trial, low repurchase Ro Low trial, high repurchase Co Low trial, low repurchase D


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8. Commercialisation

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When? First entry

Parallel entry

Late entry

Where? Regional

National

International

To Whom? TargetMarket Prospects

How? IntroductoryMarket Strategy


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The Adoption Process

Adoption

Full and regular user of the product

Trial

To test the evaluation

Evaluation

Consideration for trial

Interest

Stimulated to seek information

Awareness

Aware but lacks information

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Diffusion of Innovation

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High risk takers

Brand switchers

Medium risk takers

and brand switchers

Wait for innovators

and early adopters to

pass opinions

High resistance to change

Brand loyal


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Using the Diffusion of Innovation

Theory

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Factors affecting

Diffusion of Innovation

ObservabilityAre they easily

communicable?

Relative AdvantageDoes it look superior?

Complexity/ Trial

abilitySmall samples or trial

runs

Compatibilityto user values and

experiences


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Relative Advantage and Compatibility

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How does each incarnation of the telephone offer

relative advantage? How did compatibility affect

diffusion?

Discussion question


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2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Evaluation of Results

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Satisfaction offinancial

requirements

Satisfactionof

technicalrequirements

Customer

acceptance


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New-Product Development

Reasons for new product failure

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Overestimation of market size

Poor match between features and customer needs

Incorrect positioning

Wrong timing

Priced too high or too low

Ineffective promotion

Inadequate distribution

High development costs

Competition


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Success Factors

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Listen to customers

A vision of the future market

A commitment to innovation

Follow the process

Strong leadership

Project based approach

Willingness to fail occasionally


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Next Session

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Integrated Marketing

CommunicationReadingChapter 16 including

caselets

S 14 New Products

Documents

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