Copyright © 2004 Pearson Education Canada, Inc. 12-1 Chapter 12 Developing New Market Offerings.

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Copyright © 2004 Pearson Education Canada, Inc.

ChapterChapter 1212Developing New Market OfferingsDeveloping New Market Offerings

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Who should ultimately design the product? The customer, of course.

Kotler on Kotler on MarketingMarketing

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Chapter Objectives Chapter Objectives • In this chapter, we focus on the following

questions:– What challenges does a company face in

developing new products?– What organizational structures are used to

manage new-product development?– What are the main stages in developing new

products, and how can they be managed better?– What factors affect the rate of diffusion and

consumer adoption of newly launched products?

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Developing New Market OfferingsDeveloping New Market Offerings

• Six categories of new products1. New-to-the-world products

2. New product lines

3. Additions to existing product lines

4. Improvements and revisions of existing products

5. Repositioning

6. Cost reductions

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Challenges in New-Product Challenges in New-Product DevelopmentDevelopment

– Incremental innovation– Disruptive technologies

• Why do new products fail?– A high-level executive pushes a favorite idea

through in spite of negative research findings.– The idea is good, but the market size is

overestimated.– The product is not well designed.

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– The product is incorrectly positioned in the market, not advertised effectively, or overpriced.

– The product fails to gain sufficient distribution coverage or support.

– Development costs are higher than expected.

– Competitors fight back harder than expected.

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• Factors that tend to hinder new-product development– Shortage of important ideas in certain areas– Fragmented markets– Social and governmental constraints– Cost of development– Capital shortages– Faster required development time– Shorter product life cycles

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Organizational ArrangementsOrganizational Arrangements

• New-product deployment requires specific criteria – one company established the following acceptance criteria– The product can be introduced within five years– The product has a market potential of at least $50

million and a 15 percent growth rate.– The product would provide at least 30 percent

return on sales and 40 percent on investment.– The product would achieve technical or market

leadership.

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• Budgeting for New Product Development– 3M’s approach:

• 15% rule

• Each promising idea gets an “executive champion”

• Expect some failures

• Golden Step awards handed out each year


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3M online: The 3M Innovation Network3M online: The 3M Innovation Network

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Table 12.1 Finding One Successful New Product (Starting with 64 New Table 12.1 Finding One Successful New Product (Starting with 64 New Ideas)Ideas)

StageNumber of

IdeasPass Ratio

Cost per Product Idea Total Cost

1. Idea screening 64 1:4 $ 1,000 $ 64,000

2. Concept testing 16 1:2 20,000 320,000

3. Product development 8 1:2 200,000 1,600,000

4. Test marketing 4 1:2 500,000 2,000,000

5. National launch 2 1:2 5,000,000 10,000,000

$5,721,000 $13,984,000

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• Organizing New-Product Development– Product managers– New-product managers– High-level management committee– New product department– Venture teams

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– Stage-gate system• Gatekeepers make one of

four decisions:– Go

– Kill

– Hold

– Recycle


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• Idea Generation– Interacting with Others

• Sales representatives

• Intermediaries

• Product champion

Managing the Development Process: Managing the Development Process: IdeasIdeas

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– Techniques for stimulating creativity in individuals and groups

• Attribute listing

• Forced relationships

• Morphological analysis

• Reverse assumption analysis

• New contexts

• Mind-mapping


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Idea ScreeningIdea Screening Idea managerIdea manager Idea committeeIdea committee Two types of errors in Two types of errors in

screening ideasscreening ideas DROP-errorDROP-error GO-errorGO-error


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Some of the most notable “drop-errors” have Some of the most notable “drop-errors” have come from the most recognizable names in come from the most recognizable names in American business. Xerox saw the potential American business. Xerox saw the potential of the copy machine, IBM and Eastman of the copy machine, IBM and Eastman Kodak did not. IBM thought the personal Kodak did not. IBM thought the personal computer market would be miniscule. computer market would be miniscule. Can you think of any Can you think of any “drop-errors” that the “drop-errors” that the company didn’t survive?company didn’t survive?

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Table 12.2 Product-Idea Rating DeviceTable 12.2 Product-Idea Rating Device

Relative Weight

Product Score

Product Rating

Product Success Requirements (a) (b) (c = a x b)

Unique or superior product .40 .8 .32

High performance to cost ratio .30 .6 .18

High marketing dollar support .20 .7 .14

Lack of strong competition .10 .5 .05

Total 1.00 .69

Rating scale: .00-.30 poor; .31-.60 fair; .61-.80 good. Minimum acceptance rate: .61

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Managing the Development Process: Managing the Development Process: Concept to StrategyConcept to Strategy

• Concept Development and Testing• Product idea

• Product concept

– Concept development• Category concept

• Product–positioning map

• Brand concept

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Figure 12.3: Product Figure 12.3: Product and and Brand Brand PositioningPositioning

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Sometimes a new product is developed, like the Sometimes a new product is developed, like the felt-tip pen and the “walkman” style personal felt-tip pen and the “walkman” style personal music device. Consumers weren’t clamoring music device. Consumers weren’t clamoring for either of these products before they came for either of these products before they came to market. Most people hadn’t even conceived to market. Most people hadn’t even conceived of such an item. Careful planning developed of such an item. Careful planning developed markets for these new lines.markets for these new lines.Can you think of more recent Can you think of more recent examples?examples?

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– Concept Testing• Rapid prototyping

• Virtual reality

• Customer-driven engineering

– Questions to measure product dimensions• Communicability and believability

• Need level

• Gap level– Need-gap score

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• Perceived value• Purchase intention• User targets, purchase occasions, purchasing

frequency

– Conjoint Analysis• Example: five design elements

– Three package designs– Three brand names– Three prices– Possible Good Housekeeping seal– Possible money-back guarantee

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Managing the Development Managing the Development Process: Concept to StrategyProcess: Concept to Strategy

Marketing StrategyMarketing Strategy Business AnalysisBusiness Analysis

Estimating Total SalesEstimating Total Sales

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• Survival-age distribution

– Estimating Cost and Profits

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Table 12.3 Projected Five-Year-Cash-Flow Statement (in Table 12.3 Projected Five-Year-Cash-Flow Statement (in thousands of dollars)thousands of dollars)

Year 0 Year 1 Year 2 Year 3

1. Sales revenue $ 0 $11,889 $15,381 $19,654

2. Cost of goods sold 0 3,981 5,150 6,581

3. Gross margin 0 7,908 10,231 13,073

4. Development costs -3,500 0 0 0

5. Marketing costs 0 8,000 6,460 8,255

6. Allocated overhead 0 1,189 1,538 1,965

See text for complete table

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• Break-even analysis

• Risk analysis

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Managing the Development Process: Development to Managing the Development Process: Development to CommercializationCommercialization

• Product Development– Quality Function Deployment (QFD)– Customer attributes (CAs)– Engineering

attributes (EAs)

Lands’ End Lands’ End Japan Web siteJapan Web site

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Managing the Development Process: Managing the Development Process: Development to CommercializationDevelopment to Commercialization

– Customer tests– Alpha testing– Beta testing– Consumer preference measures

• Rank-order

• Paired-comparison

• Monadic-rating

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• Market Testing– Consumer-Goods Market Testing

• Seeks to estimate four variables– Trial

– First repeat

– Adoption

– Purchase frequency

• Sales wave research

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• Simulated Test Marketing

• Controlled Test Marketing

• Test Markets– How many test cities?

– Which cities?

– Length of test?

– What information?

– What action to take?

– Business-Goods Market Testing

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Managing the Development Process: Development to Commercialization

Philips’ Pronto Web sitePhilips’ Pronto Web site

• Commercialization– When (Timing)

1. First entry

2. Parallel entry

3. Late entry

– Where (Geographic Strategy)

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– To Whom (Target-Market Prospects)– How (Introductory Market Strategy)

• Critical path scheduling (CPS)

Managing the Development Process: Development to Commercialization

The iMac, launched with The iMac, launched with a dramatic countdown a dramatic countdown campaigncampaign

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The Consumer-Adoption ProcessThe Consumer-Adoption Process

– Adoption• Consumer-adoption process

• Consumer-loyalty process

• Mass-market approach

• Heavy-usage target marketing

• Stages in the Adoption Process• Innovation

• Innovation diffusion process

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– Adopters of new products move through five stages

• Awareness• Interest• Evaluation• Trial• Adoption

• Factors Influencing the Adoption Process– Readiness to Try New Products and Personal

Influence

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Figure 12.7: Adopter Categorization on the Basis of Relative Time of Adoption Figure 12.7: Adopter Categorization on the Basis of Relative Time of Adoption of Innovationof Innovation

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• Personal influence

– Characteristics of the Innovation• Relative advantage

• Compatibility

• Complexity

• Divisibility

• Communicability

– Organizations’ Readiness to Adopt Innovations

Copyright © 2004 Pearson Education Canada, Inc. 12-1 Chapter 12 Developing New Market Offerings.

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