1. Imperatives for Market-Driven Strategy

2. Markets and Competitive Space

3. Strategic Market Segmentation

4. Strategic Customer Relationship Management

5. Capabilities for Learning about Customers and Markets

6. Market Targeting and Strategic Positioning

7. Strategic Relationships

8. Innovation and New Product Strategy

9. Strategic Brand Management

10. Value Chain Strategy

11. Pricing Strategy

12. Promotion, Advertising and Sales Promotion

Strategies

13. Sales Force, Internet, and Direct Marketing Strategies

14. Designing Market-Driven Organizations

15. Marketing Strategy Implementation And Control

Strategic Marketing

CHAPTER 8

Innovation and New Product Strategy

The Innovation Mandate

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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INNOVATION AND NEW PRODUCT STRATEGYINNOVATION AND NEW PRODUCT STRATEGY

* Innovation as a Customer Driven ProcessInnovation as a Customer Driven Process

* New Product PlanningNew Product Planning

* Idea GenerationIdea Generation

* Screening, Evaluating, and Business AnalysisScreening, Evaluating, and Business Analysis

* Product and Process DevelopmentProduct and Process Development

* Marketing Strategy and Market TestingMarketing Strategy and Market Testing

* CommercializationCommercialization

* Variation in the Generic New Product Variation in the Generic New Product Planning ProcessPlanning Process

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INNOVATION FEATUREINNOVATION FEATUREManaging Google’s Idea FactoryManaging Google’s Idea Factory

As director of consumer Web products Marissa Mayer is a champion of innovation. She favors new product launches that are early and often.

She joined Google in early 1999 as a programmer when the workforce totaled 20. By 2007 Google had 5,700 employees with expected sales of $16 billion.

How Google Innovates

The search leader has earned a reputation as one of the most innovative companies in the world of technology. A few of the ways Google hatches new ideas: FREE (THINKING) TIME

Google gives all engineers one day a week to develop their own pet projects, no matter how far from the company’s central mission. If work gets in the way of free days for a few weeks, they accumulate. Google News came out of this process.

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THE IDEAS LISTAnyone at Google can post thoughts for new technologies of businesses on an ideas mailing list, available companywide for input and vetting. But beware: Newbies who suggest familiar or poorly thought-out ideas can face an intellectual pummeling.

OPEN OFFICE HOURSThink back to your professors’ office hours in college. That’s pretty much what key managers, including Mayer, do two or three times a week, to discuss new ideas. One success born of this approach was Google’s personalized home page.

BIG BRAINSTORMSAs it has grown, Google has cut back on brainstorming sessions. Mayer still has them eight times a year, but limits hers to 100 engineers. Six concepts are pitched and discussed for 10 minutes each. The goal: to build on the initial idea with at least one complementary idea per minute. ACQUIRE GOOD IDEAS

Although Google strongly prefers to develop technology in-house, it has also been willing to snap up small companies with interesting initiatives. In 2004 it bought Keyhole, including the technology that let Google offer sophisticated maps with satellite imagery.

Source: “Managing Google’s Idea Factory,” BusinessWeek, October 3, 2005, 88-90.

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FINDING CUSTOMER VALUE OPPORTUNITIESFINDING CUSTOMER VALUE OPPORTUNITIES

Customer value analysisObjective is to identify needs

for:

1. New products

2. Improvements to existing products

3. Improvements in production processes

4. Improvements in supporting services

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CustomerExpectations

CustomerSatisfaction Gap

ActualProductPerformance

OPPORTUNITIES

(1) New Products(2) Improvements(3) New and Improved Processes

8-8

TRANSFORMATIONAL Break-through innovation Digital photographyNEW PRODUCT CATEGORY

Dell Printers Nike Apparel Golf clubsLINE EXTENSION New color/package/styleINCREMENTAL IMPROVEMENTS Software updates

8-9

The Evolution of the Creative CompanyThe Evolution of the Creative Company

STEP 1Technology and information become commoditized and globalized. Suddenly, the advantage of making things “faster, cheaper, better” diminishes, and profit margins decline.

STEP 2With commoditization, core advantages can be shipped abroad. Outsourcing to India, China, and Eastern Europe sends a growing share of manufacturing and even the Knowledge Economy overseas.

STEP 3Design Strategy begins to replace Six Sigma as a key organizing principle. Design plays a key role in product differentiation, decision-making, and understanding the consumer experience.Source: Bruce Nussbaum, “How to Build Innovation Companies,” BusinessWeek, August 1, 2005, 62-63.

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STEP 4Creative innovation becomes the key driver of growth. Companies master new design thinking and metrics and create products that address consumers’ unmet, and often unarticulated, desires.

STEP 5The successful Creative Corporation emerges, with new Innovation DNA. Winners build a fast-moving culture that routinely beats competitors because of a high success rate for innovation.

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Characteristics of Successful InnovatorsCharacteristics of Successful Innovators

STRATEGIC INITIATIVES

Creating an Innovative Culture

Leveraging

Capabilities

Selecting the Right

Innovation Strategy

Developing and Implementing Effective New

Product Processes

Making Resource Commitments

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Creating an Innovation Culture

Innovation Workshop for top executives to develop an innovation plan. Innovation Statement highlighting objectives and senior management’s role and responsibilities. Training programs for employees and managers. Communicate the priority of innovation. Speakers to expose employees to innovation authorities.

Source: Thomas D. Kuczmarski et al., “The Breakthrough Mindset,” Marketing Management, March/April 2003, 43.

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The Innovation Strategy Spells Out Management’s The Innovation Strategy Spells Out Management’s Priorities for New Product OpportunitiesPriorities for New Product Opportunities

1. Set specific New Product Objectives.2. Communicate the role of New

Products throughout the organization.3. Define the areas of strategic focus:

Product ScopeMarketsTechnologies

4. Include longer term discontinuous projects in the portfolio along with incremental projects.

Source: Robert Cooper, “Benchmarking New Product Performance,” European Management Journal, Feb. 1998, 1-7.

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CustomerNeeds

Analysis

CustomerNeeds

Analysis

BusinessAnalysisBusinessAnalysis

Screeningand

Evaluation

Screeningand

EvaluationIdea

GenerationIdea

Generation

MarketingStrategy

Development

MarketingStrategy

Development

ProductDevelopment

ProductDevelopment

TestingTesting

CommercializationCommercialization

NEW PRODUCT PLANNING PROCESS

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Achieving Cross-Functional Interaction and Coordination

R & D

Operations Marketing

Finance

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* Coordination of new product activities by a high-level Coordination of new product activities by a high-level general managergeneral manager

* Inter-functional coordination by a team of new Inter-functional coordination by a team of new product planning representativesproduct planning representatives

* Creation of a project task force responsible for new Creation of a project task force responsible for new product planningproduct planning

* Designation of a new products manager to Designation of a new products manager to coordinate planning between departmentscoordinate planning between departments

* Formation of matrix structure for integration new Formation of matrix structure for integration new product planning with business functionsproduct planning with business functions

* Creation of a permanent design centerCreation of a permanent design center

Responsibility for New Product Planning

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* Idea search: targeted or open-ended?Idea search: targeted or open-ended?* How extensive and aggressive?How extensive and aggressive?* What specific sources are best for generating a What specific sources are best for generating a

regular flow of new product ideas?regular flow of new product ideas?* How can new ideas be obtained from How can new ideas be obtained from

customers?customers?* Where will responsibility for the new product Where will responsibility for the new product

ideas search be placed?ideas search be placed?* What are potential threats from alternative (or What are potential threats from alternative (or

disruptive) technologies?disruptive) technologies?

IDEA GENERATION

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METHODSOF

GENERATINGIDEAS

DirectSearch

LinkingMarketing

and Technology

FacilitatingLead UserAnalysis

CreativeMethods

National Policy

ExploratoryCustomerStudies

Alliances/Acquisition/Licensing

TechnologicalInnovation

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An Innovation Champion An Innovation Champion in Action at GEin Action at GEBeth Comstock calls herself “a little bit of the crazy, wacky one” at corporate

headquarters. And it’s an apt description when you realize she works at

General Electric Co. Comstock, 44, is charged with transforming GE’s culture,

famously devoted to process, engineering, and financial controls, to one that’s

more agile and creative. Chairman and CEO Jeffrey R. Immelt tapped the

former communications chief to become GE’s first-ever chief marketing officer

almost three years ago. The job came with a critical twist: the goal of driving

innovation through the company’s 300,000 plus ranks.

“Creativity is still a word we’re wrestling with,” Comstock concedes. “It seems

a bit undisciplined, a bit chaotic for a place like GE.” More comfortable

territory is the term “imaginative problem-solving” – encouraging people to

think “what if” – yet always with the aim of driving growth. One of

Comstock’s first moves was to bring in anthropologists to audit GE’s culture.

They came back with praise for GE’s famous work ethic but noted that

employees wanted more “wow” – more discoveries from the company

founded by Thomas Edison.

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Comstock has a role whose importance is spreading throughout Big Business –

that of innovation champion. She began by studying the best practices at

companies such as Procter & Gamble, FedEx, and 3M. She brought in a raft of

creativity consultants, futurists, and design gurus to lead sessions with

different operations. Their names were jolting for GE types: Play, a Richmond

(VA.) group that helps execs think differently, and Jump, based in San Mateo,

CA., which researches how people use things. GE is expanding its army of

designers to bring businesses closer to customers. And Comstock is staging

“dreaming sessions” where Immelt, senior execs, and customers debate

future market trends. Comstock concedes some managers view the

workshops as a waste of time. “We have a long way to go,” she says. But for

GE, there’s no turning back.

Source: Bruce Hussbaum, “How to Build Creative Companies,” BusinessWeek, August, 2005, 77.

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IDEA GENERATION

SCREENING(fit/feasibility)

CONCEPT EVALUATION

BUSINESS ANALYSIS

SCREENING, EVALUATING, AND BUSINESS ANALYSIS

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Business AnalysisBusiness Analysis

* Revenue ForecastsRevenue Forecasts

* Preliminary Marketing PlanPreliminary Marketing Plan

* Cost EstimationCost Estimation

* Profit ProjectionsProfit Projections

* Other ConsiderationsOther Considerations

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NEWPRODUCTCONCEPT

PRODUCTDEVELOPMENT

AND USETESTING

MARKETINGSTRATEGY

DEVELOPMENT

MARKETTESTING

LAUNCH

PRODUCT AND PROCESS DEVELOPMENT

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* Development of the new product includes:Development of the new product includes:

* Product designProduct design

* Packaging designPackaging design

* Decisions to make or purchase product componentsDecisions to make or purchase product components

* Product Development Process:Product Development Process:

* Product SpecificationsProduct Specifications

* Industrial DesignIndustrial Design

* PrototypePrototype

* Use TestsUse Tests

* Process DevelopmentProcess Development

* Collaborative DevelopmentCollaborative Development

Product and Process DevelopmentProduct and Process Development

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PURPOSE OFUSE TESTS

Does it have therequired attributes?

Verifyclaims

Ideas forimprovements

Identify usesituations

8-26

MARKETING STRATEGY AND MARKET TESTINGMARKETING STRATEGY AND MARKET TESTING

Marketing Strategy DecisionsMarketing Strategy Decisions

* Market TargetingMarket Targeting

* Positioning StrategyPositioning Strategy

Market Testing OptionsMarket Testing Options

* Simulated Test MarketingSimulated Test Marketing

* Scanner – Based Test MarketingScanner – Based Test Marketing

* Conventional Test MarketingConventional Test Marketing

* Testing Industrial ProductsTesting Industrial Products

* Selecting Test SitesSelecting Test Sites

* Length of the TestLength of the Test

* External InfluencesExternal Influences

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Less artificial than simulated testing

Costs less than full-scale market test

Test is controlled by using IRI’s 2300 panel members in each test city

Cable TV enables use of controlled ad testing

Tests take about 12 months

Scanner-based Test Marketing

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COMMERCIALIZATIONCOMMERCIALIZATION

The Marketing PlanThe Marketing Plan

* Complete marketing strategyComplete marketing strategy

* Responsibilities for executionResponsibilities for execution

* Cross – functional approach Cross – functional approach

Monitoring and ControlMonitoring and Control

* Real – time trackingReal – time tracking

* Role of the InternetRole of the Internet

* Include product performance metrics with performance Include product performance metrics with performance targetstargets

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Market Target(s)

Marketing Program(s)

Objectives

Marketing Strategy

8-30

* Technology Push ProcessesTechnology Push Processes

* Platform ProductsPlatform Products

* Process – Intensive ProductsProcess – Intensive Products

* Customized ProductsCustomized Products

VARIATIONS IN THE GENERIC NEW PRODUCT PLANNING