Introducing New Market Offerings

Session 14
Session Objectives
2
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
New Products
3
Which companies come to mind when you
think 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?


Most Innovative Companies Business Week
4
COMPANY
RANK RESEARCH AND DEVELOPMENT
2013 2012
Spend 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
The Top 10 R&D Spenders
5
COMPANY Country Industry
RANK R and D Spending
2013 2012 2013
Increase
over 2012
% of
Sales
Volkswagen Germany Auto 1 11 11.4 22.4% 4.6%
Samsung South Korea
Computing and
Electronics
2 6 10.4 15.6% 5.8%
Roche Holding Switzerland Healthcare 3 3 10.2 14.7% 21.0%
Intel USA
Computing and
Electronics
4 8 10.1 19.0% 19.0%
Microsoft USA
Software and
Internet
5 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
Spending by Industry 2013
6
Computing and
Electronics, 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%
Most Innovative Countries
7
RANK
2013
COUNTRY
TOTAL
SCORE
R&D
Intensity
Rank
Manufacturing
Capability
Rank
Productivity
Rank
High tech
density
rank
Tertiary
Efficiency
Rank
Researcher
Concentration
Rank
Patent
Activity
Rank
1 South Korea 92.10 3 2 33 3 3 6 2
2 Sweden 90.80 4 22 7 5 13 8 26
3 United States 90.69 10 24 10 1 37 12 5
4 Japan 90.41 5 6 14 8 30 9 3
5 Germany 88.23 9 3 20 6 25 17 6
6 Denmark 86.97 6 56 6 17 27 3 14
7 Singapore 86.07 17 14 15 14 24 4 34
8 Switzerland 86.02 8 16 3 9 35 22 29
9 Finland 85.86 2 21 12 32 5 2 15
10 Taiwan 83.52 7 N/A 30 2 2 5 1
Source Bloomberg Rankings China ranks 25
th
and India is not even in Top 50.
Chotukool
8
Problem Identified
Unavailability of undisrupted power supply
Affordability
Need for small quantities
The Product
Top loading available in 30 litres and 48 litres
Dual power supply and portable
Weight 8 Kgs and works on chip technology
High end insulation
Bright colours
Priced 35% lower than smallest refrigerator.
Disruptive innovation through interaction with rural
consumers

Acquire or Develop
9
Buy a company
Patents
Buy a licence or franchise from other party
Acquisition
On their own
Through new product developers
Develop
Developing New Products
10
New to the
world, 10%
New Product
line, 20%
Addition to
existing product
line, 26%
Revisions or
improvements,
26%
Repositioning,
11%
Cost reductions,
7%
New Product Success
11
Incremental innovation
by tweaking products
Disruptive technologies
for cheaper
alternatives
Unique superior
product with distinct
advantage
Well defined product
concept aimed at
specific target segment
Technological and
marketing synergy
Execution in all stages
Market attractiveness
New Product Failures
12
Shortage of ideas
Examples
Fragmented
markets leading
to lower profits
Social, economic
and governmental
constraints
Cost of
development
Capital shortages
Faster required
development
time
Shorter product
life cycles
Stages of the New Product Development Process
13
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?
1 Idea Generation
14
Map consumer needs and wants
Demand landscape
Use of tools to achieve market perspectives from
different angles
Opportunity landscape
Look at customers and differentiation from competitors
Strategic blueprint
1 Idea Generation
15
Customers
Employees
Channel members
Marketing agencies
Competitors
Ideas can originate from:
Brainstorming
Crowdsourcing
Creative Techniques
16
Modifying different attributes for suitability Attribute listing
Consider each in relationship to the other
and consider combinations
Forced relationships
Start with a problem and think of
dimensions to arrive at different solutions
Morphological analysis
Reverse the normal assumptions to come
out with innovations
Reverse assumption
analysis
Take familiar processes and change the
context
New contexts
Connecting thoughts to come out with new
ideas
Mind mapping
Lateral Mapping
Gas stations + food
Cafeteria + Internet
Cereal + snacking
Candy + toy
Audio + portable
17
2. Idea Screening
18
Identify good ideas and drop poor ideas
Avoid DROP Error
Avoid GO Error Absolute, 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?

3. Concept Development
19
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 different
brands and decide segment to concentrate on.

3. Concept Testing
20
Presenting the product concept symbolically or
physically 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?
Conjoint Analysis
21
Deriving utility values that consumers attach to
varying levels of a products attributes.
Respondents see different hypothetical offers by
combining varying levels of the attributes and then
ranking them.
Marketers then identify the most attractive
combination and work out market share and profit.
Need not choose the most attractive one.
Foodworld
Name
Location
Service level
Format
4. Marketing Strategy Development
22
Define the target market size, structure and
behaviour.
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
5. Business Analysis
23
Estimating total sales
Will the products be
one time purchases?
Are they infrequently
purchased products?
Are they frequently
purchased 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
sold
0 165 215 275 395
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
6.Product Development
24
1. Desired customer attributes are to be transferred
into engineering attributes
2. Physical prototypes are developed
3. Customer tests are conducted:
Alpha testing within the firm
Beta testing with the customers through focus groups or
home placement tests
4. Measuring customer preferences
Rank order method rank the options
Paired comparison choosing one out of a pair
Monadic rating rating on a scale
7. Market Testing
25
Seek to estimate four variables:
Trial
First repeat
Adoption
Purchase frequency
Sales Wave Research
Offering of product at different price points or with
different promotional support to check
pricing/promotion strategy
Simulated test marketing
Exposing shopper group to ads of product category
including the new product
Shoppers given a certain amount of money and
shopping behaviour noted

7. Market Testing
26
Controlled test marketing
Monitoring of a panel of stores which carry the product
at a fee
Visual display, POP and pricing are controlled
Interviews with customers at end of test period
Test Markets
How many cities?
Which cities?
How long will the test marketing last?
What information to collect?
What action to take?
o High trial, high repurchase N
o High trial, low repurchase R
o Low trial, high repurchase C
o Low trial, low repurchase D


8. Commercialisation
27
When?
First entry
Parallel entry
Late entry
Where?
Regional
National
International
To Whom? Target
Market Prospects
How? Introductory
Market Strategy
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
28

Diffusion of Innovation
29
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
Using the Diffusion of Innovation
Theory
30
Factors affecting
Diffusion of Innovation
Observability
Are they easily
communicable?
Relative Advantage
Does it look superior?
Complexity/ Trial
ability
Small samples or trial
runs
Compatibility
to user values and
experiences
Relative Advantage and Compatibility
31
How does each incarnation of the telephone offer
relative advantage? How did compatibility affect
diffusion?
Discussion question
2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Evaluation of Results
32
Satisfaction of
financial
requirements
Satisfaction
of
technical
requirements
Customer
acceptance

New-Product Development
Reasons for new product failure

33
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

Success Factors
34
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
Next Session
35
Integrated Marketing
Communication
Reading Chapter 16 including
caselets