The Product

New Product / Service Development Process

Life Cycle Management
Market response analysis Competitive monitoring & defense Innovation at maturity

Introduction
Launch planning Tracking the launch

Testing
Advertising & product testing Pretest & pre-launch forecasting Test marketing

Design
Customer needs Sales forecast Product positioning Engineering Segmentation Marketing mix

Opportunity Identification
Market definition Idea generation

Reposition

The NewProd Scoring Model

To help evaluate ideas generated
Very Good (10) EP EV .1 .1 1 1 Good (8) EP EV .2 .2 1.6 1.6 Average (6) EP EV .5 .4 3.0 2.4 Poor (4) EP EV .2 .2 0.8 0.8 Very Poor (2) EP EV .1 0.2

Sub-factor Product Superiority Unique features for users Reduce customer costs Higher quality than competitors Does unique task for user Priced lower than competition

Sub-factor Weight 1 1

TOTAL EV 6.4 6.0

Sub-factor Evaluation 6.4 6.0

.3

.4

3.2

.2

1.2

.1

0.4

7.8

23.4

.1

.2

1.6

.5

3.0

.2

0.8

6.4

6.4

2 2

.5 -

5 -

.4 .2

3.2 1.6

.1 .5

0.6 3.0

.3

1.2

8.8 5.8

17.6 11.6

10

TOTAL

71.4

Steps in the Design Process

Customer Measurement Opportunity Definition
1. Qualitative measurement to identify issues 2. Quantitative measurement for input to models

Summary of Customer Refinement Marketing

R&D Engineering Production Preference Choice Segments

HONDA

Perception

Product Features

What-if Forecasts Evaluation

1. Aggregate Individuals 2. Awareness & Availability

Quality Function Deployment (QFD)

A set of planning and communication routines

Focuses on coordinating skills within an organization for: 1. Design 2. Manufacture and marketing of goods & services
Foundation of the House of Quality is the belief that products should be designed to reflect customers needs - so marketing people, design engineers, and manufacturing staff must work closely together from the time a product is first conceived Conceptual map that provides the means for inter-functional planning and communications

Building the House of Quality

Q1: What do customers want?
Bundles Easy to open & close door Isolation Customer Attributes Easy to close from outside Stays open on a hill Does not leak in rain No road noise Customer Attributes Easy to close from outside Stays open on a hill Does not leak in rain No road noise Importance 7 5 3 2

Q2: Are all attributes equally important?

Bundles Easy to open & close door Isolation

Building the House of Quality Continued

Q3: Will delivering on needs yield competitive advantage?
Bundles Easy to open & close door Isolation Customer Attributes Easy to close from outside Stays open on a hill Does not leak in rain No road noise Importance 7 5 3 2
Worst

Customer Perceptions
O BA

BOA
ABO BA O Best

O: Our Car; A: As Car; B: Bs Car

1 2

Questions 1~3 are based on the customer responses. From this we can identify opportunities for improvement - Easy to close from outside which we are weak on, and Stays open on hill which all 3 cars are weak on. To improve these attributes, we now need to enter the engineering domain.

Building the House of Quality Continued

Q4: How can we change the product?
Relative Importance

Open-Close Effort + Force on level ground Engineering Characteristics - Energy to close door + Door seal resistance + Force on 10o slope

Sealing Insulation + Road noise reduction

Customer Attributes Easy to Open & Close Door

Customer Perceptions 1 O BOA 2 3 4 BA 5

Easy to close from out Stays open on a hill

7 5

Isolation

Doesnt leak in rain No road noise

3 2

ABO BA O

Building the House of Quality Continued

Q5: How much do engineers influence customer perceived qualities?
Relative Importance

Open-Close Effort + Force on level ground Engineering Characteristics - Energy to close door + Door seal resistance + Force on 10o slope

Sealing Insulation + Road noise reduction

Relationships + Strong Positive + Medium Positive _ Medium Negative

Strong Negative

Customer Attributes Easy to Open & Close Door

Customer Perceptions 1 O BOA 2 3 4 BA 5

Easy to close from out Stays open on a hill

7 5

+ + +

Isolation

Doesnt leak in rain No road noise

3 2

+
+

ABO

BA

Relative Importance

Open-Close Effort + Force on level ground Engineering Characteristics - Energy to close door + Door seal resistance + Force on 10o slope

Sealing Insulation + Road noise reduction

Relationships + Strong Positive + Medium Positive _ Medium Negative

Strong Negative

Customer Attributes Easy to Open & Close Door

Customer Perceptions 1 O BOA 2 3 4 BA 5

Easy to close from out Stays open on a hill

7 5

+ +
+
+
ftlb 11 9 9.5 lb 12 12 11 lb 6 6 7

Isolation

Doesnt leak in rain No road noise Measurement Units Our Car As Car Bs car

3 2

ABO

BA

lb/ft db 3 9 2 5 2 6

Objective Measures

Q6: How does one engineering change affect other characteristics?

_

Roof Matrix

+
+ Force on level ground + Door seal resistance + Force on 10o slope

+
Sealing Insulation + Road noise reduction Relationships Strong Positive + Medium Positive _ Medium Negative

Relative Importance

Open-Close Effort

Engineering Characteristics

- Energy to close door

Strong Negative

Customer Attributes Easy to Open Isolation & Close Door Easy to close from out Stays open on a hill

Customer Perceptions 1 O BOA ABO 2 3 4 BA 5

7 5

+ +
+
+

Doesnt leak in rain No road noise

3 2 ftlb

BA

Objective Measures

Measurement Units
Our Car As Car Bs car

lb lb 11 12 6
12 11 6 7

lb/ft db 3 9
2 2 5 6

9 9.5

Q7: What are the technical limitations and costs associated with various changes
_
Relative Importance

_ _
Roof Matrix

+
+ Force on level ground + Door seal resistance

+
Sealing Insulation
+ Road noise reduction

Engineering Characteristics

Open-Close Effort
- Energy to close door

+ Force on 10o slope

Relationships Strong Positive + Medium Positive _ Medium Negative

+ _
1

Strong Negative

Customer Attributes
Easy to Open & Close Door

Customer Perceptions 2 O BOA 3 BA 4 5

Easy to close from out Stays open on a hill

7 5

+ +

Objective Measures Isolation

Doesnt leak in rain No road noise Measurement Units Our Car As Car Bs car

3 2 ftlb lb lb 11 12 6
9 9.5 12 11 6 7

+
+

ABO

+
5 6

BA

lb/ft db 9 3
2 2

Technical Difficulty Estimated Cost Targets

4-Approaches to Mass Customization

Representation

change

Transparent

Collaborative

Product

no change

Adaptive

Cosmetic

no change

change

Flexible Product Development

Sensing the market Testing technical solution Integrating customer needs with technical solutions Sensing the Market Specs Design Testing Integration Stabilization/Ramp Up

Cyclical Workload Mismatch

hi Product Definition marketing Workload break Product Development Product Launch

engineering lo Time

New Product / Service Development Process

Life Cycle Management
Market response analysis Competitive monitoring & defense Innovation at maturity

Introduction
Launch planning Tracking the launch

Testing
Advertising & product testing Pretest & pre-launch forecasting Test marketing

Design
Customer needs Sales forecast Product positioning Engineering Segmentation Marketing mix

Opportunity Identification
Market definition Idea generation

Reposition

Pre-Test & Pre-Launch Forecasting

Used by firms introducing high-tech products; telecom products; consumer apparel; utilities; financial services; medical services; insurance; software; durable goods; entertainment products Based on primary data collection
Concept Exposure Offering Price

Key Measures Seek Info? Intent Liking Price / Value Uniqueness Believability Need fulfillment

Survey Data Adjustment Demographics Price / Value Perception Absolute Price Category Usage

Total Sales 100% Aware 100% Available Market Adjustment Advertising Distribution Competition Sales

Pre-Test & Pre-Launch Forecasting .. Continued

Further, companies like Vantis (division of Bases) have a database of 15000 new product introductions to benchmark success of new product. The product scores will be compared to a subset of the database of about 30-50 studies of related, similarly priced products The database is divided into thirds for comparison. Placement in the upper third of the database indicates that the test product scored higher than two-thirds of previous studies on that measure. An example: LOWER
Purchase Intent Liking Price / Value Uniqueness Believability

MIDDLE X

UPPER X

X X X X

Need fulfillment

In the above example, the new product scores high on several measures. However, its Premium positioning results in average purchase intent

Pre-Test & Pre-Launch Forecasting .. Continued

Forecasting the sales of a new frequently purchased product

Forecast sales, P for a new product depends upon Awareness of new brand (Aw) Availability of new brand (Av) Ultimate trial proportion conditional on awareness and availability (T) Long run share of purchases of new brand among those who try (R) Total category sales (C) P = C Aw Av T R
Promotion

Advertising Media Weight

Brand Awareness

Trial

Initial Repeat

Continued Repeat

Sales & Market Share

Distribution

Predictions from Assessor

67% success rate in test market compared with 35.5% without Average share forecast 7.77% versus actual test market share of 7.16%. The difference is statistically significant - HBA, household, food products (n = 44 products.) If predicted share = target share for GO decision, P(Success in TM) = .38, if it exceeds by 2%, then .76, if it exceeds by 4%, then .96

Pre-Test & Pre-Launch Forecasting .. Continued

Durable goods, New Technology & New to World Products: Information Acceleration Systems
Customer interacts with multimedia computer with full-motion video capabilities Computer simulates not just the product but also the full marketing environment including brochures, print ads, and TV ads. These are stored in the PC and consumers can call up the info as and when they desire In addition, WOM and personal selling in a showroom setting are also simulated. Videos for these are created using several different personality profiles. Consumers choose the profile they feel most comfortable with (e.g., one of the profiles resembles a close friend you can trust) Consumers can examine the product from all angles and, if appropriate, open the product for closer inspection As the consumer receives all this information at a pace more rapid than in an actual purchase environment, it is called an Information Acceleration system.

Click on the box containing the person you would like to speak to..

Forecasting the sales of a new durable: Bass Model

1. Sales at any point in time comes from innovators and imitators 2. The number of people who can innovate is a fraction of those who have not yet bought 3. The number of imitators depends upon how those who have already purchased influence those who have not

Sales

St = a (M - Yt-1) + b (Yt-1/M) (M - Yt-1) St = (a + b (Yt-1/M)) (M - Yt-1)

Values for the unknown parameters, a, b, and M are obtained using data for similar goods

Time

New Product / Service Development Process

Life Cycle Management
Market response analysis Competitive monitoring & defense Innovation at maturity

Introduction
Launch planning Tracking the launch

Testing
Advertising & product testing Pretest & pre-launch forecasting Test marketing

Design
Customer needs Sales forecast Product positioning Engineering Segmentation Marketing mix

Opportunity Identification
Market definition Idea generation

Reposition

Cross-Functional Integration in New Product Strategy

R&D Engineering

Sales Forecast Marketing Inventory Production

Finance

New Product Development - Plan Vs. Reality

Exultation

Idea Generation
Disenchantment

Screening & Refinement

Confusion

Test Marketing National Launch

Search for guilty

Punishment of Innocent Distinction for the uninvolved

Measuring Brand Equity

Excess-Price Approach Observation of Prevailing Prices Customer Research Tradeoff / Conjoint Analysis Replacement Cost Approach Cost of Introducing New, Comparable Product Stock-Price Approach
Market Value of Firm - Replacement Value of Tangible Assets = Intangible Assets Intangible Assets = Brand Equity + Value of Patents, etc. + Value of Industry Factors that permit monopoly profits (imperfect competition) Brand Equity = F(Advertising, Age, Order of Entry..)

Future -Earnings Approach

Measuring Brand Equity: Clout - Vulnerability Analysis

There are several measures of brand equity. One such measure is a brands ability to take sales away from rivals via a price reduction versus its competitors ability to take sales away via the competitors price reduction Based on segment-level price elasticities Compute the price elasticities for all the competing brands in the market Compute CLOUT which is the effect of my brands price reduction on the sales of all competing brands CLOUTi = Sj,j ne i [e ji] Compute VULNERABILITY which is the effect on my sales of a price reduction by all competing brands
2

VULNERABILITYi = Sj,j ne i [e ij]

2

A Clout - Vulnerability Map

A CLOUT B D

C G

VULNERABILITY

Brand Management: 2 Dimensions, 4 Strategies

The Hitchhiker ROS = 15% ~ 20% Innovate Niche strategies Price follower

The High-Road ROS > 20% Innovation Judicious Pricing Raise Entry Barriers

The Dead-End Brand ROS < 5%

Value Category

The Low-Road ROS = 5% ~ 10%

Cut Costs Lower Prices Category Drifts Up?

Slash price/cost Move Right Trump category Move Up

low Relative Market Share

high

Your Brands Best Strategy Vishwanath & Mark HBR 1997

Product Line Decisions

Product Line Analysis % of Total Sales from Each Item in Line

How is Line Positioned vis-a-vis Competition Major Attributes of Paper Board are: Paper Weight & Finish Quality Create a Product Line Map in Weight vs. Finish Quality Space and see how Your Line Compares with Competitors Also Helps to Identify Gaps in Market Offerings

Product Line Decisions (Contd..)

Product Line Length Optimal Number of Items in Line Line Stretching Decision Downward Stretch....Line Filling vs. Cannibalization Upward Stretch....Price/Quality Imputations Two-Way Stretch

Moving Upscale or Downscale

Going Downscale Opening up of powerful new channel - Wal*Mart / Best Buy Protection against private label infringement To avoid negative spillover launch a new brand Problems - Lower Awareness; Lower Channel Clout Reposition entire brand Sub-brands Parent - Endorser Co-drivers Parent (driver) - Child (descriptor)

Moving Upscale or Downscale

Going Upscale Problem with credibility Reposition entire brand - almost impossible Sub-brands Parent (driver) - Child (descriptor)

Strategies for Sub-Brands: Minimizing Risk

When moving down market Try to create a qualitatively different offering aimed at a distinct segment Think about elevating the parent brand when the value entry is launched Be cautious about price premiums Use the parent-child metaphor

When moving up market Make the vertical leap reasonable Differentiate the upscale entry

How do you manage ideas for new products & concepts 1. Ideas not solicited 2. Ideas solicited from select group 3. Ideas can be sold to management even if not solicited 4. New ideas are recognized even if results are unclear 5. People encouraged to generate new ideas

How do you manage innovation for product development 1. Innovation limited to the labs 2. Innovation is in marginal improvements 3. New features are added to existing products 4. Innovation is the cornerstone of all new products 5. Cross functional innovations catayze birth of new products

How do you use new products as marketing weapons 1. Company often last to enter new categories 2. The company follows the leader closely 3. Company sometimes a pioneer by chance 4. Company launches new products, with new concepts, albeit occasionally 5. Company usually launches new products with new concepts How do you work on product improvement & modification 1. No organized process in the company 2. Products allowed to run through life cycle with few changes 3. Products improved in decline stage 4. Products have periodic changes based on customer feedback 5. Products constantly changing based on feedback & opportunities

How frequently do you launch new products and brands 1. Company relies only on tried & trusted brands 2. Rate of launches is below industry average 3. Rate of launches is on par with average 4. New products are launched when considered necessary 5. Company responds to every market change with a launch

How does your company test market new products 1. Occasional, non-institutionalized process 2. Conducted regularly with small samples 3. Marketing mix seldom modified after test marketing 4. Regular test marketing - only for products 5. All elements of the marketing mix are testmarketed and suitably modified

How closely is the customer involved in product testing 1. Feedback obtained after launch 2. Customer involved in test-marketing stage 3. Customer consulted in the beginning for product ideas 4. Customer involved from prototype to test marketing 5. Customer involved at every stage from idea generation How do you familiarize channel with new products 1. Products are introduced into channel with little innovation 2. Channel members are told of the product after launch 3. Some advance notification is provided 4. Informed but not involved in the planning 5. Work closely with company on new products

How do you customize products for different buyers 1. Product offering is homogeneous 2. Differentiation via external factors such as package size 3. Service envelope is customized 4. Product-service combo is tailored to individual buyer 5. Customization is offered to every buyer

How do you respond to new products from competitors 1. No serious attempt to develop new product 2. Company checks whether a new product is necessary 3. Customer needs are re-examined before developing a competing product 4. New product launched with more benefits 5. Response via counter-innovation with extra benefits

Grade: A (40 - 50 points); B (30-40 points); C (20-30 points); D (10-20 points)

The Value Development Audit