Internet Marketing

New Product Development

andthe Net

Marketing ProcessesThat Can Be Digitized

Understand Markets

& Customer

s

Involve Customer

s in Design Process

Market & Sell

Products &

Services

Deliver Value

Through Distributi

onProvide

Customer Care

Manage Customer Informati

on

Topics

• High-tech battles• Speed• Flexible new products• Standards

High-Tech BattlesThe Browser Wars

The browser battles started with a strong showing from Netscape. From a startup in 1995, Netscape became a billion-dollar company, the fastest-growing software

company ever.

Four generations of browser technology took Microsoft… from sideline player to

browser lead. The battles also led to controversy, anti-Microsoft newspaper editorials, and governmental antitrust

attention.

The Need for Speed• Internet time refers to rapid change and evolution

of– Internet tools– The marketplace– Business practices

• An entire industry created in < 5 years• Internet time also refers to acceleration of

– New product development– Competitive activity– Business tactics

• Using the Net’s communication & research capabilities to bring new products to market quickly is essential

Speed and Profits

• High profits from a successful early market entry can be plowed back into next generation products

• Slow entry and lost profits lead to erosion of a company’s fortunes

Figure 8.3

Profits and Speed to Market

3x

2x

1xX

06 months early 6 months late

Time of Market I ntroduction Relative to Competitors

Speed and Innovativeness• Slowness to market erodes consumers’

positive perceptions of a company• Best-in-class companies use time pacing

to govern new product activity• Rapid product introduction is critical in

high-tech markets– Market leaders can count on high consumer

interest, feedback and free advice– Speed to market leads to learning

• Companies that use customer feedback have an important advantage over rivals

Speed and Alliances• Early market entrants attract leading-

edge partners– Third-party suppliers approach market

leaders with enhancements and improvements

– Allies fill in product and marketing gaps to provide a complete solution for customers

• For the market leader, money and talent are too scarce to “go it alone”

• Distribution partnerships are key to getting product to market

Speed and Standards• Market leaders often play a key role in

setting standards• Companies that define standards can be

in a strong strategic position for decades• Rivalries between competing standards

don’t usually last long– Once a standard is established, the

marketplace swings dramatically toward it– The losing standard sinks quickly– VHS vs. Beta Max

• When standards matter, success breeds success

Traditional New Product Development

• Too slow for Internet time

• Two main goals– Uncover unmet customer

needs– Eliminate design

mistakes before too many resources are committed

• Many new ideas enter the new product process

• Only a few new products emerge

• This process is expensive and time consuming

Figure 8.5

General Product Design Funnel

Rapid New Product Development

• Internet time forces firms to find new ways to identify user needs and rapidly launch new products

• The keys– Maintain flexibility as long as possible– Accelerate the process of market feedback

• These methods work especially well for online products

• But they are spreading to the rest of the economy

Figure 8.6 Sensing the Market

Specifi cation

Design

Testing

I ntegration

Stabilization/ Ramp-Up

Modularity in Design• Modular design breaks a new product

into subsystems or modules– Each module can be designed and tested

separately– Teams can work in parallel, rather than wait

for a preceding group to finish its work

• Parallel efforts reduce dramatically the total time to launch new products

• Enables firms to handle speed and complexity in new product development

Modularity in Design• Modularity requires two design features

– Visible design rules– Hidden design parameters

• Visible design rules: define the ways that modules interact with each other and describe how they should fit together

• Hidden design parameters: define how each module works internally– Each team has full control over the hidden

design parameters of its module– Enables the team to delay final design choices

as long as possible, to reflect marketplace feedback and to accommodate changing technologies

Early Feedback• Flexible new product development relies

on the ability to get meaningful and rapid feedback from customers– Identify new opportunities– React to new designs– Spot declining interest in existing products

• E-mail enables low-cost, rapid access to customers– Can speed up feedback from lead users– Faster and cheaper method of conducting

surveys

• Using the Net to release early prototypes also permits valuable learning and testing

Rapid Prototyping and Testing

• Alpha release: limited release to trusted lead users and company employees– May be asked to sign NDA– The goal is to shape the product and

understand how functional it is– The competitive clock starts ticking with the

alpha release

• Beta release: public release to widely test and to continue to refine the feature set– Key goals are reliability, compatibility, and

fixing user interface problems– Beta-testing is a form of advertising and

sampling– A valuable substitute for extensive testing

Rapid Release• Rapid product development sets

the stage for profitability• The ability to go to market quickly

is a final key to success• Time lost in the distribution cycle

is even more damaging than time lost in development

• Once the product design is frozen and has been released to manufacturing, all time lost is pure cost

Standards Marketing

• Standards are a defining feature of high-tech markets

• Standards determine– How hard drives, floppy disks, screens,

keyboards, and memory communicate with each other

– How computers connect to the Internet– How files and messages are turned into packets– How packets reach their destination

• Conventions are also important– General practices that designers expect – Not formally set by a standards body

Two Types of Standards

• Open standard: based on an official process of debate, consensus, and voting by an official standards body

• De facto standard: established when a product or approach is so widely adopted that it becomes expected

• De facto standards are controlled by a single company – open standards are not– Sun Microsystem’s has submitted Java to the

ISO for acceptance as an open standard– Microsoft’s Active X: a proprietary standard

owned and controlled by Microsoft

Creation of an Open Internet Standard

Figure 8.9 Write

Specifi cation

Plausible?

Clear?

Proposed Standard

At least two independent

working versions?

Draf t Standard

Technically mature

consensus exists?

I nternet Standard

Rewrite

Wait f or working

code

Wait f or

resolution

NO

YES

YES

NO

NO

Standards Strategy

• High-tech companies often have formal staff positions that set standards strategy– Participate in the standards bodies– Project which standards seem to be winning

• Managers need to decide which standards to deploy in their products– Should base their products on open standards?– Or should they try to win a battle in the

marketplace with a proprietary standard?

• In high-tech markets, a single standard generally emerges and the winner takes all

Standards Competition Leading to Domination

Figure 8.12

Unstable

sharing of

market

Market share of standard A in time t

0% 50%

100%

50%

100%

0%

A loses

A wins

Information Acceleration Systems

• Place consumers in a virtual buying environment

• IA systems simulate the information that’s available to consumers when they make a purchase decision– Virtual showroom visits– Advertising (TV, magazines, newspapers)– Review articles and consumer-oriented reports– Word of mouth

• Are these virtual environments realistic enough to accurately measure behavior?– Early evidence is positive, but mixed

Solving Problems Online

• Lower customer support costs

• Improved online value for customers

• Companies and consumers benefit– Lower costs improve

profit margins– Savings can be

passed through to consumers Figure 6.3

Provides Strong Justification for Investing in the Web

Cost Savings

Q: Where do these cost savings come from?

• Online publishing saves the cost of printing and shipping manuals

• Software updates can be downloaded, saving the cost of burning and shipping CDs

• Virtual problem solving• Inexpensive communication

Traditional Customer Service Methods Are

Expensive

• Sales calls and call centers – Require expensive, assisted, real-time

interactions– Are labor intensive

Customer ServiceMethod

Agent:CustomerRatio

Type ofInteraction

Type ofService

Sales Force 1:1 Real- time Assisted

Call Center 1:1 Real- time Assisted

Headline

Insert excerpts from a current article out of the business press (e.g. Wall Street

Journal, Wired News, Business 2.0, or Fast Company) that talks about the importance of online customer support. I usually take excerpts out of the lead paragraph, and highlight keywords. There have been a

number of articles talking about increased investments in online customer support.

Name of Publication - Date

The ADR FrameworkAcquisitionSupported

DevelopmentSupported

RetentionSupported

Web Advertising E- mail accounts Free trials Amazon partners Edmund's QFN

Community andpersonalizationspending

I nformationcollection

Syndication expenses

Customer support Enhancement

spending Eff ectiveness

spending

• Acquisition: the cost of bringing in new customers• Development: costs incurred expanding the share-

of-customer that firms receive from existing customers

• Retention: costs to keep the business and loyalty of current customers