Mkt Mgt # Chap12

Chapter # 12 New product development strategy

New product development Causes of New Product Failures A high level executive push a favorable idea in spite of negative market research findings; Idea is good but market size is overestimated; Product is not well design. Product is incorrectly positioned. Not advertised effectively or over-priced. Product development cost is higher than expected Product fails to gain sufficient distribution coverage. Competitors fight back harder than expected.

New product development Several factors hinders new product development: Shortage of important idea in certain area. Fragmented markets Social and governmental constraints Cost of development Capital shortage Faster required development time To create successful newcycle products, the company must: Shorter product life Understand it’s customers, markets and competitors Develop products that deliver superior value to customers.

Y e s

The new product development decision process 1. Idea gene -ration

Is this idea worth consi dering?

No

2. Idea screening

Y Is the idea Y e compatible e s with s company objective, strategies and resources ?

No

3. Concept deve -lopment and testing Can we find a good concept That consumer say they would try ?

No

Y e s

4. Marketing strategy Deve -lopment

Can we find a costeffective, affordable marketing strategy ?

No

6. Product deve -lopment

5. Business analysis

Y e s

Y e s Will this product meet our profit goal?

No

7. Market testing

Y e s

Have we developed a technically & Commer -cially sound product?

No

Y e s

Are product sales meeting sales expec -tation

No

No Should we send the idea back for product development

No

Drop

8. Commercialization

Y e s Have product sales meeting expec -tation?

Lay future plan

Would it help to modify the product or marketing program

No

Step 1. Idea Generation Idea generation is the systematic search for new product ideas-the possible product the company might offer to the market. Ideas can be obtained from – customers scientists competitors employees (sales representatives) channel member top executives Other sources includes universities and commercial laboratories, trade magazines, industrial publications,seminars, gvt.agencies, advertising agencies, marketing research firms etc.

Step 2. Idea Screening Process to spot good ideas and drop poor ones as soon as possible. Proposed ideas can be sorted into three groups  Promising ideas  Marginal ideas  Rejects In screening idea, a company must avoid – Drop error Go error – can cause(a) An absolute product failure – (b) A partial product failure (c) A relative product failure

Step 2. Idea Screening

Many companies have systems for rating screening ideas which estimate:  Market size  Product price  Development time & costs  Manufacturing costs  Rate of return

The idea is evaluated against a set of general criteria  Does the product meet a need?  Would it offer superior value?  Can it be distinctively advertised?  Does the company have the necessary know-how and capital  Will the new product deliver the expected sales volume, sales growth and profit?

Step 2. Idea Screening The surviving idea can be rated using a weight- index method like – Relative Product Product weight score rating (a) (b) (c= a*b) Unique or superior product .40 .80 .32 High performance-to-cost ratio .30 .60 .18 High marketing dollar support .20 .70 .14 Lack of strong competition .10 .50 .05 Total 1.00 .69

Product success requirements

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

Step 2. Idea Screening

Overall profitability of success

=

Probability of technical completion

*

Probability of commercia lization given technical completion

= .50*.65*.74 = .24

*

Probability of economic success given commercial ization

Step 3. Concept Development & Testing Concept Development – A detailed version of the new product Ideas stated in meaningful consumer terms. Who will use this product ? What primary benefit should the product provide?

Step 3. Concept Development & Testing Concept Testing – involves presenting the product concept to appropriate target customers and getting their reaction. The following factors can help to test a concept. Communicability and believability Need level Gap level Perceived value Purchase intention User targets, purchase occasions, purchasing frequency

Step 3. Concept Development & Testing Conjoint analysis: a method for deriving the utility value that consumer attach to varying levels of a product’s attributes. Suppose, the product marketer is considering five design elements: Three package designs (A,B,C) Three brand names (K2R,Glory,Bissell) Three prices ($1.19, $1.39, $ 1.59) A possible good housekeeping seal (yes, no) A possible money back guarantee (yes, no)

1

1

1

Utility

Utility

Utility

Step 3. Concept Development & Testing

0

0

0

A

B

C

0

$1.19 $1.39 $1.59

1 Utility

Utility

1

K2R Glory Bissell

No

Yes

0

No

Yes

Step 4. Marketing Strategy Development Designing an initial marketing strategy for introducing the new product into the market.

Part one describes: Target market size, planned product positioning & the sales, market share & profit goals for the first few years.

Part two describes: Short term product’s planned price, distribution strategy, marketing budget for the first year.

Part Three Describes: Long-term sales, profit goals & marketing mix strategy

Step 5. Business Analysis Business Analysis - Review of product sales, costs, and profits projections to see if they meet company objectives. • Estimating total sales: the sum of estimated first time sales, replacement sale, and repeat sales. Repeat purchase sales

Time (a) One-time purchased product

Sales

Sales

Sales

Replacement sales

Time (b) Infrequent purchased product

Time (C) Frequently purchased product

Step 5. Business Analysis Estimating cost and profit Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

$ 00

$11,889

$15,381

$19,654

$ 28,253

$ 32,491

Cost of goods sold

00

3,981

5,150

6,581

9,461

10,880

Gross margin

00

7,908

10,231

13,073

18,792

21,611

- 3,500

00

00

00

00

00

Marketing costs

00

8,000

6,460

8,255

11,866

13,646

Allocated overhead

00

1,189

1,538

1,965

2,825

3,249

-3,500

-1,281

2,233

2,853

4,101

4,716

00

00

00

00

00

00

-3,500

-1,281

2,233

2,853

4,101

4,716

-3,500

-1,113

1,691

1,877

2,343

2,346

-3500

-4,613

-2,922

-1,045

1,298

3,644

Sales revenue

Development cost

Gross contribution Supplementary contribution Net contribution Discounted contribution @15% Cumulative discounted cash flow

Projected five years cash-flow statement (in thousand dollars)

Step 6.

Product development

Product development – developing the concept into a technically and commercially feasible product – helped by a set of methods known as quality function deployed (QFD). • The methodology takes a list of desired customer attributes (CAs) into a list of engineering attributes (EAs) that a engineer can use. • QFD – improves communication between marketers, engineers and the manufacturing people.

Step 6.

Product development

The working prototypes must be put through functional tests and customer tests. Alpha testing Beta testing Customer preferences can be measured in several ways: The rank -order method – Intensity & many objects The paired -comparison method The monadic- rating method

Step 7.

Market testing

Consumer- goods marketing testing:company hopes to find the four variables at high level: trial, first repeat, adaptation and purchase frequency. Four major methods of consumer market goods testing: • Sales wave research • Simulated test marketing • Controlled test marketing • Tests markets

Step 7. •

•

Market testing

Sales wave research - Product might be offered as many as three to five times (sales waves) - Noting how many customer selected the product and their reported level of satisfaction. - Including exposing advertising to see it’s impact on repeat purchase. Simulated test marketing – - Finding 30 to 40 qualified shoppers & questioning them about brand familiarity and preference. - These people are then invited to a brief screening of both well known and new product ads. - Consumer receive a small amount of money and are invited into a store to purchase any item.

Step 7. •

Market testing

Simulated test marketing – - The company notes how many consumer purchase new brands and competing brands - Then consumer are asked the reason of their purchase & not purchase. - The company provide free sample for those who do not buy the new brand. - they are re-interviewed some week later by phone to determine product attitude, usages, satisfaction and repurchase intention. - this method gives fairly accurate result on advertising effectiveness and trial rates.

Step 7. •

Market testing

Controlled test marketing – - A research firm manages a panel of stores selected by company with it geographic location that carry new product for a fee - Research firm control shelf position, display , point of purchase & pricing - Sales result can be measured through electronic scanner at the checkout - Company also evaluate the impact of local advertisement and promotion during the test.

Step 7. •

Market testing

Tests markets- management faces several decision • How many test cities? (2 to 6) • Which cities? - good media coverage, average competitive activity. • Length of test? – 9 to12 month - depending on the average purchase period. • What information? – about consumer attitude, usage and satisfaction • What action to take?-

Step 7.

•

Market testing

What action to take?- if shows high trial and repurchase rate, product launched nationally, if shows a high trial but low repurchase rate, product should be redesign or dropped, if shows a low trial and a high repurchase rate, product launched nationally – increase advertise and sales promotion if shows a low trial and a low repurchase rate,the product should be abandoned.

Step 8. Commercialization Commercialization - the Introduction of the new product into the marketplace. When (timing) First entry Parallel entry Late entry Where (geographic strategy) To whom (target market prospect) How (introductory market strategy)