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Chapter 7New Product Planning and DevelopmentCopyright © 2.docx
- 1. Chapter 7 New Product Planning and Development Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 14 e New Products Inventions that create a whole new market New-to-the-world products Take the firm into a category new to it but not to the world New category entries Extend existing product lines to current markets Additions to existing product lines Current products made better Improvements and revisions of existing products Retarget products for a new use or application Repositionings Replace existing products with similar performance but lower cost Cost reductions 2 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- 2. 2 Figure 7.1 - Organizational Growth Strategies 3 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. New Product Strategies Market penetration Denotes a growth direction through the increase in market share of present products in present markets Product development Seeks to create new products to replace existing ones Market development Seeks to find new customers for existing products Diversification Seeks to develop new products and cultivate new customers 4 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. New Product Strategies Policy-making criteria on new products should specify:
- 3. Working definition of profit concept acceptable to top management Minimum level or floor of profits Availability and cost of capital Specified time period in which the new product must recoup its operating costs and begin contributing to profits 5 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Figure 7.2 - The New Product Development Process 6 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Idea Generation All new product ideas considered by the organization should have the opportunity to be heard and evaluated Ideas are the raw materials for product development Top-management support is critical to providing an atmosphere that stimulates new product activity 7
- 4. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Idea Generation Technology push and market pull research activities play an important role To foster cooperation between design engineers and marketers, firms use: Out-rotation Outsider involvement Rewards 8 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Idea Screening Purpose is to: Eliminate ideas that can not be profitably marketed Expand viable ideas into full product concepts Evaluation of an idea based risk 9
- 5. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Categories of Risks Strategic risk No match between the role of a new product with a strategic need of the organization Market risk New product won’t meet a market need in a value-added, differentiated way Internal risk New product won’t be developed within the desired time and budget 10 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Strategic Alliance Long-term partnership between two organizations designed to accomplish strategic goals of both parties Potential benefits Increased access to technology, funding, and information Market expansion and greater penetration of current markets De-escalated competitive rivalries 11
- 6. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Project Planning Idea is evaluated further and responsibility for the project is assigned to a project team Evaluation is done in terms of production, marketing, financial, and competitive factors Development budget is established Preliminary marketing and technical research is undertaken Product is designed in a rough form 12 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Project Planning Alternative product features and component specifications are outlined Project plan is written up and scheduled Project proposal is given to top management for a go or no-go decision Alternatives for creating and managing teams Skunkworks: Team members work in relative privacy, away from the rest of the organization 13
- 7. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Project Planning Rugby or relay approach: Groups in different areas of the organization work simultaneously on the project Cross-functional teams: Members from different departments come together to jointly establish new product development goals and priorities and to develop schedules Key component contributing to the success of a company’s product development efforts 14 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Product Development Post meeting expectations, product idea is considered for further research and testing Development report to management contains: Results of the studies by the engineering department Required plan design and estimated release date Production facilities design Tooling requirements and marketing test plan Financial program survey
- 8. 15 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Test Marketing Management submits the product candidate for customer approval Controlled experiment in a limited geographical area Tests the new product as well as elements of the marketing mix 16 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Goals of Test Marketing Evaluate and adjust the general marketing strategy and the appropriate marketing mix Help producers explore issues related to the next generation of product development Help analyse findings and develop volume forecasts, and reduce risks Help finalize marketing plan and prepare for a product launch 17
- 9. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Commercialization and Importance of Time Commercialization - Launch of the product and implementation of the marketing strategy Emphasis is given to: Organization structure and management talent Bugs in the design and inventory requirements Production costs and quality control Importance of time Time to market: Elapsed time between product definition and marketplace product availability 18 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. New Product Decisions Quality level Warranty: Statement of the producer of what it will do to compensate the buyer if the product is defective or does not perform properly Guarantee: Assurance by the producer that the product is as represented and will perform properly 19
- 10. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Figure 7.3 - Some Criteria for Determining Perceptions of Quality 20 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. New Product Decisions Product features: Fact or particular specification about a product New product features are determining by what customer wants the products to offer Product design Good design adds great value to a new product Well-designed product pleases customers without necessarily costing more 21
- 11. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Product Safety Ethical and practical issue Ethical issue - Customers should not be harmed by using the product as intended Practical issue - When users get harmed by a product, they may: Stop buying Tell others about their experience Sue the company that made or sold it 22 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Causes of New Product Failure No competitive point of difference Unexpected reactions from competitors Poor positioning Poor quality of product Nondelivery of promised benefits of product Too little marketing support Poor perceived price/quality relationship 23
- 12. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Causes of New Product Failure Faulty estimates of market potential & other marketing research mistakes Faulty estimates of production and marketing costs Improper channels of distribution selected Rapid change in the market after product introduction 24 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Need for Research Top management has a responsibility to ask questions New product planning team has an obligation to generate answers to these questions Research should provide: Marketing information Economic information Engineering information Production information 25
- 13. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 6 Product and Brand Strategy Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 14 e Product Definition Physical entity or service that is offered to the buyer Tangible product Tangible product along with whole cluster of services that accompany it Extended product Includes the essential benefits the buyer expects to receive Generic product Sum of the physical, psychological, and sociological satisfactions the buyer derives from purchase, ownership, and consumption Product 2 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written
- 14. consent of McGraw-Hill Education. Product Classification Useful as an analytical device to assist in planning marketing strategy and programs Criteria for classification End use or market Degree of processing or physical transformation 3 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Product Classification Agricultural products and raw materials Goods grown or extracted from the land or sea Organizational goods Purchased by business firms for the purpose of running the business Raw materials and semi finished goods Major and minor equipment Parts which become a part of a finished good Supplies that do not become a part of a finished good 4 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written
- 15. consent of McGraw-Hill Education. Product Classification Consumer goods Convenience goods - Purchased frequently with minimum effort Shopping goods - Purchased after some time and energy are spent comparing various offerings Specialty goods - Unique in some way for which consumer makes special purchase effort 5 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Organizational Goods Demand is attributed as derived Purchased directly from the original source with few middlemen Subject to multiple-purchase influence Market is concentrated geographically Vertical market: Limited number of buyers Horizontal market: Product purchased by all types of firms in different industries 6 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- 16. Product Quality Quality: Degree of excellence or superiority that an organization’s product possesses Encompasses both the tangible and intangible aspects of a firm’s products or services Total-quality management (TQM) - Organization wide commitment to satisfying customers by improving business processes ISO 9000 - Standardized approach for evaluating a supplier’s quality system 7 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Product Value What the customer gets in exchange for what the customer gives Encompasses quality and price Customer’s perception of value depends on: Degree to which the product meets his or her specifications Price that he or she will have to pay to acquire the product 8 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- 17. Product Mix Full set of products offered for sale by an organization Described by: Width: Number of individual product lines offered by the organization Depth: Average number of products in each product line 9 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Product Line Group of products that share common characteristics, distribution channels, customers, or uses Reasons why organizations offer varying products within a given product Potential customers rarely agree on a single set of specifications regarding their ideal product Customers prefer variety and dynamics of competition lead to multiproduct lines 10 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- 18. Product Line To reach a decision on product line additions, organizations need to evaluate whether: Total profits will decrease Quality/Value associated with current products will suffer 11 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Branding Brand: Name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers Trademark - Legal term for brand 12 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Branding Strategies Line extension: Uses a well-known brand name to enter into a new market segment Brand extension: Uses a current brand name to enter a completely different product class
- 19. Franchisee extension: Organization’s attachment of the corporate name to a product to enter either a new market segment or a different product class Called family branding 13 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Branding Strategies Dual branding: Two or more branded products are integrated Multibranding: Assigns different brand names to each product 14 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Multibranding Strategy Advantages Firm can distance products from other offerings it markets Image of one product is not associated with other products the company markets Products can be targeted at specific market segments Should the products fail, the probability of failure impacting on other company products is minimized
- 20. Disadvantages No consumer brand awareness Significant amounts of money must be spent familiarizing customers with new brands 15 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Brand Equity Set of assets or liabilities linked to the brand that add or subtract value Value of assets depends upon results of marketplace’s relationship with the brand Determined by the consumer on the basis of consumer’s assessment of the: Product Company that manufactures and markets Variables that impact on the product 16 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- 21. Figure 6.1 - Elements of Brand Equity 17 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Packaging Helps differentiate homogeneous products Helps create new attributes of value in a brand Can make products urgently saleable Things to consider while making packaging decisions Consumer Cost 18 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Figure 6.2 - Product Life Cycle 19
- 22. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Product Life Cycle Decisions to be taken when sales decline Dropping or altering the product Seeking new uses for the product or new markets Continuing with more of the same Limitations Length of time a product will remain in each stage is unknown Not all products go through the product life cycle in the same way 20 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Variations of the Life Cycle Fashion: Accepted and popular products that go through a repetitive cycle of popularity, lost popularity, and regained popularity Fads: Product that experiences an intense but often very brief period of popularity 21
- 23. Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Product Adoption and Diffusion Not all customers immediately purchase a product in the introductory stage of the product life cycle Majority of sales occur after the product has been available for awhile Diffusion of innovation - Spread of a product through the population 22 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Figure 6.3 - Adopter Categories 23 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Adopter Categories
- 24. First to buy a new product Innovators Buy the product if the experience of innovators is favorable Early adopters Avoid risks and make purchases carefully Early majority Avoid risks and are cautious and skeptical about new ideas Late majority Reluctant to make changes and are comfortable with traditional products Laggards 24 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Product Audit Marketing management technique whereby the company’s current product offerings are reviewed To ascertain whether each product should be continued as is, improved, modified, or deleted 25 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- 25. Deletions Occur when too many products are fighting for too little shelf space Product audit helps in detecting sick products and then buries them Factors to be considered during deletion Sales trends Profit contribution Product life cycle Customer migration patterns 26 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Product Improvement Product audit helps ascertain if a product requires altering Product altering involves changing: Attributes - Product features, design, package, and so forth Marketing dimensions - Pricing, promotion strategy, and channels of distribution Product audit works as a management device for controlling product strategy 27 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written
- 26. consent of McGraw-Hill Education. Benchmarking Process of measuring products, services, and practices against those of the toughest competitors or renowned leaders Assists companies in: Boosting product quality Developing more user-friendly products Improving customer order processing activities Shortening delivery lead times 28 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Organizing for Product Management Marketing-manager system: One person is responsible for overseeing an entire product line with all of the functional areas of marketing Popular in organizations with line of similar products or one dominant line Brand-manager system: Manager focuses on a single product or a very small group of new and existing products 29 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written
- 27. consent of McGraw-Hill Education. Organizing for Product Management Criticism of Brand manager system Brand managers: Have difficulty because they do not have authority commensurate with their responsibilities Often pay inadequate attention to new products Are more concerned with their own brand’s profitability than with the profitability of all of the organization’s brands 30 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Organizing for Product Management Successful new products requires the cooperation of teams Cross-functional teams: Teams requiring membership and cooperation of all the various functional departments in the organization to create successful new products Venture teams: Cross-functional teams responsible for all of the tasks involved in the development of a new product 31 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
- 28. Requirements for the Effective Use of Cross-Functional Teams Commitment of top management and provision of clear goals Trust among members Cross-functional cooperation Time and training 32 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.