The Product
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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
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
Very Good (10) EP EV
Good (8) EP EV
Average (6) EP EV
Poor (4) EP EV
Very Poor (2) EP EV
.1
1
.2
1.6
.5
3.0
.2
0.8
-
-
TOTAL EV 6.4
1
.1
1
.2
1.6
.4
2.4
.2
0.8
.1
0.2
6.0
6.0
3
.3
3
.4
3.2
.2
1.2
.1
0.4
-
-
7.8
23.4
1
.1
1
.2
1.6
.5
3.0
.2
0.8
-
-
6.4
6.4
2
.5
5
.4
3.2
.1
0.6
-
-
-
-
8.8
17.6
2
-
-
.2
1.6
.5
3.0
.3
1.2
-
-
5.8
11.6
TOTAL
71.4
10
Sub-factor Evaluation 6.4
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
HONDA
Perception
Product Features
Preference
Segments
• Marketing • R&D • Engineering • Production
Choice
“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
Customer Attributes Easy to close from outside Stays open on a hill
Isolation
Does not leak in rain No road noise
Q2: Are all attributes equally important? Bundles Easy to open & close door
Customer Attributes Easy to close from outside Stays open on a hill
Isolation
Does not leak in rain No road noise
Importance 7 5 3 2
Building the House of Quality… Continued Q3: Will delivering on needs yield competitive advantage? Bundles Easy to open & close door
Customer Attributes Easy to close from outside Stays open on a hill
Isolation
Does not leak in rain No road noise
Importance 7 5
O
BA
BOA
3 2
ABO BA Worst
O: Our Car; A: A’s Car; B: B’s Car
Customer Perceptions
1
2
O
3
4
5
Best
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
Isolation
Easy to Open & Close Door
7 5
Doesn’t leak in rain
3 2
+ Road noise reduction
+ Door seal resistance
+ Force on 10o slope
+ Force on level ground
Engineering Characteristics
Easy to close from out Stays open on a hill
No road noise
Sealing Insulation
Open-Close Effort - Energy to close door
Customer Attributes
Relative Importance
Q4: How can we change the product?
Customer Perceptions 1
2
3
O
4 BA
5
BOA
ABO BA
O
Building the House of Quality… Continued
Isolation
Easy to Open & Close Door
7 5
Doesn’t leak in rain
3 2
+ Door seal resistance
+ Force on 10o slope
+ Road noise reduction
+
+ Force on level ground
Engineering Characteristics
Easy to close from out Stays open on a hill
No road noise
Sealing Insulation
Open-Close Effort - Energy to close door
Customer Attributes
Relative Importance
Q5: How much do engineers influence customer perceived qualities?
_
Relationships + Strong Positive + Medium Positive _ Medium Negative
_
Strong Negative
Customer Perceptions 1
2
3
O
+ +
4 BA
5
BOA
+ +
ABO
+
BA
O
Objective Measures
Isolation
Easy to Open & Close Door
Easy to close from out Stays open on a hill
7 5
Doesn’t leak in rain
3 2
No road noise Measurement Units Our Car A’s Car B’s car
+ Door seal resistance
+ Force on 10o slope
_
lb 6 6 7
_
Strong Negative
Customer Perceptions 1
2
3
4 BA
5
BOA
+ lb 12 12 11
Relationships + Strong Positive + Medium Positive _ Medium Negative
O
+ + +
ftlb 11 9 9.5
+ Road noise reduction
+
+ Force on level ground
- Energy to close door
Engineering Characteristics
Relative Importance
Customer Attributes
Sealing Insulation
Open-Close Effort
lb/ft 3 2 2
ABO
+ db 9 5 6
BA
O
_
Easy to Open Isolation & Close Door
+
+
+
Sealing Insulation + Door seal resistance
+ Force on 10o slope
+ Force on level ground
- Energy to close door
Customer Attributes
Objective Measures
Roof Matrix
Open-Close Effort Engineering Characteristics
Relative Importance
_
_
_
Easy to close from out Stays open on a hill
7 5
Doesn’t leak in rain
3
+
No road noise
2
+
Measurement Units Our Car A’s Car B’s car
+ +
ftlb
lb lb 11 12 6
9 9.5
12 11
6 7
+ Road noise reduction
Q6: How does one engineering change affect other characteristics?
Relationships Strong Positive + Medium Positive _ Medium Negative
+ _
Strong Negative
Customer Perceptions 1
2
O
3
4 BA
5
BOA ABO
+
lb/ft db 3 9 2 2
5 6
BA
O
_
+
+
+ Door seal resistance
+ Force on 10o slope
+ Force on level ground
Easy to close from out Stays open on a hill
7 5
Doesn’t leak in rain
3
+
No road noise
2
+
Measurement Units Our Car A’s Car B’s car
Technical Difficulty Estimated Cost Targets
+ +
ftlb l b 11 12 9 9.5
12 11
l b6 6 7
Relationships Strong Positive + Medium Positive _ Medium Negative
+ _
Strong Negative
Customer Perceptions 1
2
3
O
_
Easy to Open & Close Door
+
Sealing Insulatio n
Objective Measures Isolation
Customer Attributes
Roof Matrix
Open-Close Effort - Energy to close door
Engineering Characteristics
Relative Importance
_
_
+ Road noise reduction
Q7: What are the technical limitations and costs associated with various changes
4
5
BA
BOA ABO
+
lb/ft d 3 b9 2 2
5 6
BA
O
4-Approaches to Mass Customization Representation
Transparent
Collaborative
no change
Adaptive
Cosmetic
no change
change
Product
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
Product Development
break
Workload
marketing
engineering lo Time
Product Launch
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 Need fulfillment
MIDDLE X
UPPER X
X X X X
• 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
Distribution
Continued Repeat
Sales & Market Share
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
Sales
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
St = α (M - Yt-1) + β (Yt-1/M) (M - Yt-1) St = (α + β (Yt-1/M)) (M - Yt-1)
Time
Values for the unknown parameters, α, β, and M are obtained using data for similar goods
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
ign
De si Pro
gn
for
Ma
ces
sN eed
nd
c
u d o Pr
s e tD
Fu
us
C
sts
s d e e
Re que
N
r e tom
R&D Engineering
nu
fac t
uri
s
ng
Sales Forecast Production
Marketing
nd
Re
qu
dg
e ts
gets
Fu
Bud
Bu
Inventory ts e g
d u B
n Fu
es
ts
Finance
d
q e R
ts
s ue
New Product Development - Plan Vs. Reality Exultation
Idea Generation Disenchantment
Screening & Refinement Test Marketing National Launch
Confusion
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 brand’s ability to take sales away from rival’s via a price reduction versus its competitor’s ability to take sales away via the competitor’s 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 brand’s price reduction on the sales of all competing brands • CLOUTi = Σj,j ne i [e
2
ji
]
• Compute VULNERABILITY which is the effect on my sales of a price reduction by all competing brands • VULNERABILITYi = Σj,j ne i [e
2
]
ij
A Clout - Vulnerability Map
CLOUT
A
E B D
C G VULNERABILITY
F
Premium Category
Brand Management: 2 Dimensions, 4 Strategies The Hitchhiker ROS = 15% ~ 20%
The High-Road ROS > 20%
Innovate Niche strategies Price follower
Innovation Judicious Pricing Raise Entry Barriers
Value Category
The Dead-End Brand ROS < 5% Slash price/cost Move Right “Trump” category Move Up
low
The Low-Road ROS = 5% ~ 10% Cut Costs Lower Prices Category Drifts Up?
Relative Market Share
high
Your Brand’s 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 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 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 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
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
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
Very Good (10) EP EV
Good (8) EP EV
Average (6) EP EV
Poor (4) EP EV
Very Poor (2) EP EV
.1
1
.2
1.6
.5
3.0
.2
0.8
-
-
TOTAL EV 6.4
1
.1
1
.2
1.6
.4
2.4
.2
0.8
.1
0.2
6.0
6.0
3
.3
3
.4
3.2
.2
1.2
.1
0.4
-
-
7.8
23.4
1
.1
1
.2
1.6
.5
3.0
.2
0.8
-
-
6.4
6.4
2
.5
5
.4
3.2
.1
0.6
-
-
-
-
8.8
17.6
2
-
-
.2
1.6
.5
3.0
.3
1.2
-
-
5.8
11.6
TOTAL
71.4
10
Sub-factor Evaluation 6.4
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
HONDA
Perception
Product Features
Preference
Segments
• Marketing • R&D • Engineering • Production
Choice
“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
Customer Attributes Easy to close from outside Stays open on a hill
Isolation
Does not leak in rain No road noise
Q2: Are all attributes equally important? Bundles Easy to open & close door
Customer Attributes Easy to close from outside Stays open on a hill
Isolation
Does not leak in rain No road noise
Importance 7 5 3 2
Building the House of Quality… Continued Q3: Will delivering on needs yield competitive advantage? Bundles Easy to open & close door
Customer Attributes Easy to close from outside Stays open on a hill
Isolation
Does not leak in rain No road noise
Importance 7 5
O
BA
BOA
3 2
ABO BA Worst
O: Our Car; A: A’s Car; B: B’s Car
Customer Perceptions
1
2
O
3
4
5
Best
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
Isolation
Easy to Open & Close Door
7 5
Doesn’t leak in rain
3 2
+ Road noise reduction
+ Door seal resistance
+ Force on 10o slope
+ Force on level ground
Engineering Characteristics
Easy to close from out Stays open on a hill
No road noise
Sealing Insulation
Open-Close Effort - Energy to close door
Customer Attributes
Relative Importance
Q4: How can we change the product?
Customer Perceptions 1
2
3
O
4 BA
5
BOA
ABO BA
O
Building the House of Quality… Continued
Isolation
Easy to Open & Close Door
7 5
Doesn’t leak in rain
3 2
+ Door seal resistance
+ Force on 10o slope
+ Road noise reduction
+
+ Force on level ground
Engineering Characteristics
Easy to close from out Stays open on a hill
No road noise
Sealing Insulation
Open-Close Effort - Energy to close door
Customer Attributes
Relative Importance
Q5: How much do engineers influence customer perceived qualities?
_
Relationships + Strong Positive + Medium Positive _ Medium Negative
_
Strong Negative
Customer Perceptions 1
2
3
O
+ +
4 BA
5
BOA
+ +
ABO
+
BA
O
Objective Measures
Isolation
Easy to Open & Close Door
Easy to close from out Stays open on a hill
7 5
Doesn’t leak in rain
3 2
No road noise Measurement Units Our Car A’s Car B’s car
+ Door seal resistance
+ Force on 10o slope
_
lb 6 6 7
_
Strong Negative
Customer Perceptions 1
2
3
4 BA
5
BOA
+ lb 12 12 11
Relationships + Strong Positive + Medium Positive _ Medium Negative
O
+ + +
ftlb 11 9 9.5
+ Road noise reduction
+
+ Force on level ground
- Energy to close door
Engineering Characteristics
Relative Importance
Customer Attributes
Sealing Insulation
Open-Close Effort
lb/ft 3 2 2
ABO
+ db 9 5 6
BA
O
_
Easy to Open Isolation & Close Door
+
+
+
Sealing Insulation + Door seal resistance
+ Force on 10o slope
+ Force on level ground
- Energy to close door
Customer Attributes
Objective Measures
Roof Matrix
Open-Close Effort Engineering Characteristics
Relative Importance
_
_
_
Easy to close from out Stays open on a hill
7 5
Doesn’t leak in rain
3
+
No road noise
2
+
Measurement Units Our Car A’s Car B’s car
+ +
ftlb
lb lb 11 12 6
9 9.5
12 11
6 7
+ Road noise reduction
Q6: How does one engineering change affect other characteristics?
Relationships Strong Positive + Medium Positive _ Medium Negative
+ _
Strong Negative
Customer Perceptions 1
2
O
3
4 BA
5
BOA ABO
+
lb/ft db 3 9 2 2
5 6
BA
O
_
+
+
+ Door seal resistance
+ Force on 10o slope
+ Force on level ground
Easy to close from out Stays open on a hill
7 5
Doesn’t leak in rain
3
+
No road noise
2
+
Measurement Units Our Car A’s Car B’s car
Technical Difficulty Estimated Cost Targets
+ +
ftlb l b 11 12 9 9.5
12 11
l b6 6 7
Relationships Strong Positive + Medium Positive _ Medium Negative
+ _
Strong Negative
Customer Perceptions 1
2
3
O
_
Easy to Open & Close Door
+
Sealing Insulatio n
Objective Measures Isolation
Customer Attributes
Roof Matrix
Open-Close Effort - Energy to close door
Engineering Characteristics
Relative Importance
_
_
+ Road noise reduction
Q7: What are the technical limitations and costs associated with various changes
4
5
BA
BOA ABO
+
lb/ft d 3 b9 2 2
5 6
BA
O
4-Approaches to Mass Customization Representation
Transparent
Collaborative
no change
Adaptive
Cosmetic
no change
change
Product
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
Product Development
break
Workload
marketing
engineering lo Time
Product Launch
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 Need fulfillment
MIDDLE X
UPPER X
X X X X
• 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
Distribution
Continued Repeat
Sales & Market Share
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
Sales
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
St = α (M - Yt-1) + β (Yt-1/M) (M - Yt-1) St = (α + β (Yt-1/M)) (M - Yt-1)
Time
Values for the unknown parameters, α, β, and M are obtained using data for similar goods
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
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Sales Forecast Production
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New Product Development - Plan Vs. Reality Exultation
Idea Generation Disenchantment
Screening & Refinement Test Marketing National Launch
Confusion
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 brand’s ability to take sales away from rival’s via a price reduction versus its competitor’s ability to take sales away via the competitor’s 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 brand’s price reduction on the sales of all competing brands • CLOUTi = Σj,j ne i [e
2
ji
]
• Compute VULNERABILITY which is the effect on my sales of a price reduction by all competing brands • VULNERABILITYi = Σj,j ne i [e
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]
ij
A Clout - Vulnerability Map
CLOUT
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F
Premium Category
Brand Management: 2 Dimensions, 4 Strategies The Hitchhiker ROS = 15% ~ 20%
The High-Road ROS > 20%
Innovate Niche strategies Price follower
Innovation Judicious Pricing Raise Entry Barriers
Value Category
The Dead-End Brand ROS < 5% Slash price/cost Move Right “Trump” category Move Up
low
The Low-Road ROS = 5% ~ 10% Cut Costs Lower Prices Category Drifts Up?
Relative Market Share
high
Your Brand’s 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 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 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 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
