New product development process: six stages through … session.pdfSony, Canon, and other firms ....

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New Product Development Process

• New product development process: six stages through which new product ideas progress before being introduced to the overall market

• Idea Generation New product ideas come from many sources including: – Sales force, Customers, Employees, R&D

specialists, The competition, Suppliers, Retailers, Independent inventors

• Screening Screening separates ideas with commercial potential from those that cannot meet company objectives – Checklists of development standards can be

helpful at this stage

• Business Analysis The business analysis consists of assessing the new product’s market potential, growth rate, likely competitive strengths, and compatibility of the proposed product with organizational resources – Concept testing

• Development Converting an idea into a physical product – Requires interaction among many of the firm’s

departments – Prototypes may go through many changes

• Test Marketing Test marketing: Introduction of a trial version of a new product supported by a complete marketing campaign to a selected city of television coverage area – Some firms skip this stage, moving directly to full-

scale commercialization

• Commercialization

In this stage, the firm establishes marketing strategies, and funds outlays for production and marketing – The sales force, marketing intermediaries and

potential customers are acquainted with the new product

Product Safety and Liability

• Product Liability: responsibility of manufacturers and marketers for injuries and damages caused by their products

The New Product Development Process

• A new product is best developed through a series of six stages: – The first two stages provide a focus for

generating new-product ideas and a basis for evaluating them.

– The next three stages deal with ideas and are the least expensive.

– In their haste, some companies skip stages — the most common omission being market tests.

Criteria for New Products

• there must be adequate market demand: this is necessary but not sufficient for success

• must satisfy key financial criteria

• must be compatible with environmental standards

• must fit with the company’s marketing structure

• should also be compatible with production capabilities, satisfy legal requirements, and fit with corporate goals and objectives

New Product Planning

• As a firm’s offerings enter the maturity and decline stages of the product life cycle, it must add new items to continue to prosper – Alternative Product Development Strategies

• Product Development Strategies

– Product positioning: consumers’ perceptions of a product’s attributes, uses, quality, and advantages and disadvantages in relation to those of competing brands

– Cannibalization: a loss of sales of the current product due to competition from a new product in the same line

The Consumer Adoption Process

• Adoption process: Stages that consumers go through in learning about a new product, trying it, and deciding whether to purchase it again. – Awareness

– Interest

– Evaluation

– Trial

– Adoption or rejection

• Consumer innovator: People who purchase new products almost as soon as the products reach the market

• Diffusion process: Process by which new goods or services are accepted in the marketplace

– Categories of Adopters Based on Relative Times of Adoption

• Identifying Early Adopters

– Substantial benefits may be obtained by locating the likely first buyers of new products (innovators and early adopters)

– Suggestions for modifying the product may be obtained from these individuals

– Acceptance or rejection of the innovation by innovators and early adopters can help forecast sales

• Rate of Adoption Determinants

– Characteristics of a product innovation that influence its adoption rate include:

• Relative advantage

• Compatibility

• Complexity

• Possibility of trial use

• Observability

• Organizing for New Product Development

– New-Product Committees

– New-Product Departments

– Product Managers

– Venture Teams

• Task forces

Development of New Product Strategy

Company Goals

Product Strategy Examples

Defend market share

Introduce addition to

existing produce

line/ revise existing

product

Pizza Hut’s “Big

New Yorker” and

“Stuffed Crust”

Strengthen

reputation as

an innovator

Introduce a really

new product - not

just an extension of

an existing product

Digital cameras

introduced by

Sony, Canon,

and other firms

Adoption Process

• Awareness

• Interest

• Evaluation

• Trial

• Adoption

Adoption Process • Product Adopter Categories

100% of eventual adopters

2.5% Innovators

13.5% Early Adopters

2.5% Innovators

34% Early Majority

2.5% Innovators

34% Early Majority 34% Late Majority

2.5% Innovators

34% Early Majority 34% Late Majority

16% Laggards

Profits

Introductory Stage

Growth Stage

Maturity Stage

Decline Stage

Product Life Cycle

Dollars

Introductory Stage

Full-Scale Launch of New Products

• High failure rates

• Little competition

• Frequent product modification

• Limited distribution

• High marketing and production costs

• Negative profits

• Promotion focuses on awareness and information

• Intensive personal selling to channels

• Increasing rate of sales

• Entrance of competitors

• Market consolidation

• Initial healthy profits

• Promotion emphasizes brand ads

• Goal is wider distribution

• Prices normally fall

• Development costs are recovered

Offered in more sizes,

flavors, options

Growth stage

• Declining sales growth

• Saturated markets

• Extending product line

• Stylistic product changes

• Heavy promotions to dealers and consumers

• Marginal competitors drop out

• Prices and profits fall

• Niche marketers emerge

Many consumer products are in Maturity Stage

Maturity Stage

• Long-run drop in sales

• Large inventories of unsold items

• Elimination of all nonessential marketing expenses

Rate of decline depends on change in tastes or

adoption of substitute products

Decline Stage

How stages of the product life cycle relate to firm’s

marketing objectives & marketing mix actions

INTRODUCTION GROWTH MATURITY DECLINE

Product Strategy

Distribution Strategy

Promotion Strategy

Pricing Strategy

Limited models

Frequent

changes

More models

Frequent

changes.

Large number

of models.

Eliminate

unprofitable

models

Limited

Wholesale/

retail distributors

Expanded

dealers. Long-

term relations

Extensive.

Margins drop.

Shelf space

Phase out

unprofitable

outlets

Awareness.

Stimulate

demand.Sampling

Aggressive ads.

Stimulate

demand

Advertise.

Promote

heavily

Phase out

promotion

Higher/recoup

development

Fall as result of

competition &

efficient produc-

Prices fall

(usually).

Prices

stabilize at

low level.

MANAGING THE PRODUCT LIFE CYCLE

Alter product quality

Enhance performance

Change appearance

• Modifying the Product

• Modifying the Market

Finding New Users

Increase use

Create new use situations

EXTENDING THE PRODUCT LIFE CYCLE-

Repositioning

• Trading Up-add bells & whistles to raise price

• Trading Down- remove bells & whistles to lower price

• Downsizing-reduce contents but maintain price

Reacting to a Competitor’s Position-never compete

head on

Catching a Rising Trend-baby aspirin is now low dose

aspirin to reduce heart attacks

Changing the Value Offered

FIGURE 11-3 Alternative product life cycles

Why the different shapes?

Innovators 2.5%

Early Adopters

Late Majority

Early Majority

Laggards 16%

Five categories of product adopters

Ansoff Matrix

Background

• Long-term business strategy is dependant on planning for their introduction

• Ansoff Matrix represents the different options open to a marketing manager when considering new opportunities for sales growth

Variables in the matrix

Two variables in Strategic marketing

Decisions: – The market in which the firm was going to operate

– The product intended for sale

In terms of the market, managers had two options: – Remain in the existing market

– Enter new ones

In terms of the product, the two options are:

– selling existing products

– developing new ones

Existing PRODUCTS New

INCREASING RISK

INCREASING R

Existing

MARKETS

MARKET PENETRATION

Sell more in existing Markets

MARKET EXTENSION

Achieve higher sales/market share of existing products in new markets

PRODUCT DEVELOPMENT

Sell new products in existing markets

DIVERSIFICATION

Sell new products in new markets

INCREASING RISK INCREASING R

Existing

MARKETS

MARKET PENETRATION

• This is the objective of higher market share in existing markets

– E.g. in 2000, Mitsubishi announced a 10% reduction in prices in the UK in order to encourage purchases

INCREASING RISK INCREASING R

Existing

MARKETS

MARKET PENETRATION

MARKET EXTENSION

• This is the strategy of selling an existing product to new markets. This could involve selling to an overseas market, or a new market segment

– Nintendo are making hand held games consoles (e.g. DS) appeal to the adult market by introducing games such as Brain Train

INCREASING RISK

INCREASING R

Existing

MARKETS

MARKET PENETRATION

MARKET EXTENSION

PRODUCT DEVELOPMENT

• Least risky of all four strategies

• This involves taking an existing product and developing it in existing markets – E.g. Coca-Cola. This has been developed to have

vanilla, lime, cherry and diet varieties (amongst others) in the SOFT DRINKS market

INCREASING RISK

INCREASING R

Existing

MARKETS

MARKET PENETRATION

MARKET EXTENSION

PRODUCT DEVELOPMENT

DIVERSIFICATION

Sell new products in new markets

DIVERSIFICATION

• This is the process of selling different, unrelated goods or services in unrelated markets

• This is the most risky of all four strategies

– E.g. the Tata group

Summary

• Risks involved differ substantially

• The matrix identifies different strategic areas in which a business COULD expand

• Managers need to then asses the costs, potential gains and risks associated with the other options

The Boston Consulting Group (BCG) Matrix

• It is a company within a company

• The business is differentiated from the rest of the company

• It has its own set of competitors

• It is a separate profit centre

The BCG Matrix

Cash Cows

Mkt Share

BCG Matrix-HUL

Hair Care Skin Care

Premium Soaps & Laundry

Deodorants Water (PureIt)

Mass Soaps Beverages Oral care Laundry

Processed foods Colour

Cosmetics

Sea-food exports

Consumer Behavior - II

Need Recognition

Information Search

Evaluation of Alternatives

Purchase Decision

Postpurchase Behavior

The Buyer Decision Process

B2B Defined

• The management process responsible for the facilitation of exchange between producers of goods and services and their organisational customers.

• B2B marketing and purchasing is a complex and risky business involving a number of different parties.

Flows within a B2B market

B2B customers

• Commercial enterprises - profit making organisations that produce and/or resell goods and services for a profit. Can be subdivided into users, original equipment manufacturers (OEMs), resellers.

• Government bodies.

• Institutions - largely non-profit making organisations, e.g. universities, churches, etc.

Characteristics of B2B markets

• Nature of demand - derived, joint, inelastic.

• Structure of demand - industrial and geographic concentration.

• Buying process complexity.

• Buyer-seller relationships.

Influences on a B2B purchasing chain

Roles in the buying process

• Purchasing - handle relationships with suppliers.

• Production/operations - meeting targets for the end product in both quantity and quality terms.

• Engineering - the specification and design.

• R&D.

• Finance - devolve budgets to appropriate managers.

• Marketing - outputs of the production process.

Consumer vs. Organizational buying behavior

• Decisions made by consumers are quite simple

• Organizational buying processes are more complicated, there are several phases and steps

• Different buying behavior for different products and target groups

• Simple consumer goods like food and beverages are bought very spontaneously – influenced by advertising and product presentation

• For premium consumer goods (expensive clothes, computers) – buying behavior is getting more rational – comparison

• Private investment goods – price bargaining

B2B products – organizational procurement starts

• More than one person involved

• Buying process follows certain rules

• Price comparison, standardisation, tenders, qoutations etc)

B2B systems

• involve more capabilities and greater workloads

• From the buyer‘s and the supplier‘s side decision has more extensive consequences

B2B facilities

• Industrial plants

• Manufacturing installations

• Office buildings

Main types of buying situations in B2B

• Straigtht rebuy – routine decision, repetitive process (energy, office supplies, raw materials, wood), component suppliers for the automotive industry – little or no new information

• Modified rebuy – more complicated but less sophisticated: cars, trucks, computers, consulting – modified rebuys are often treated too uncautious

• New task – calls for thorough research – industrial plant – highest level of uncertainty. Strategic new tasks are of extreme strategic and financial importance (aircrafts, military equipment, infrastructure) – re-evaluation of alternatives and search for new information and new alternatives

Buying phases

• Problem recognition

• General need description

• Product specification

• Supplier search

• Proposal solicitation

• Supplier selection

• Order routine specification

• Performance review

Stages of decision in B2B procurement

• Backhaus developed a widely usable model to distinguish between 5 phases of procurement

• Preliminary application (initiation phase)

• Tender proposal

• Negotiation

• Processing of order

• Warranty and services

Preliminary application

• Recognition of a problem (need) and a general solution

• Released by top management = operating department or external consultants

• Result request for an offer addressed to a number of potential suppliers

Tender preparation phase

• Determination of characteristics and quantity of needed items

• Search for and qualification of potential sources

• Supplier has to provide an offer

• Tries to be incomparable with his competitors

• Customer tries to make the offer best comparable

Negotiation phase

• = core selling process

• Comprises acquisition and analysis of proposals, evaluation of proposals and selection of suppliers

Processing phase/warranty/ service phase

• Contains selection of an order routine

• Realisation of the transaction along with the fixation of after sales service tasks

Roles in B2B procurement – buying center concept

• Group of people involved in the buying process – buying center

• This causes problem in identifying and targeting the right people within the decision process

Buying center

• Role keepers have different tasks – not mandatory

• Buyer

• User

• Initiator

• Gatekeeper

• Influencer

• Formal authority to sign contracts

• Member of purchasing department

• Influences the vendor selection

• Not in technical details

• Main criteria: price + terms and conditions of the contract

• Person working with the product

• Interested in benefits and unobstructed function of the product to buy

• Large knowhow and preconceived opinion

Influencer

• A person with high technical knowledge and practical experience

definition of minimum requirements on technical or company standards

Gatekeeper

• Controls the flow of information within the buying center

• Assistant of decision maker

• Influence by preparing the decision and the relevant documents

Decider

• Right to say yes or no

• Mightiest person

Initiator

• Person who brings new ideas and solutions into the company

Specific marketing considerations in the industrial facilities business

• Long decision taking process

• High risk

• Complex buying center

• The specific competitive situation

Product policy

• Focuses on innovation

• Has to care for high flexibility in research and development

• And manufacturing and assembling

• Strict bid and tender rules

• High transparency

• Add value with service offering to achieve a differentiating position

• Another aspect: financing and sourcing models

Distribution policy

• Focus on negotiation phase

• Provide excellent people in the selling center

• High technical knowledge

Communication

• Problem solver!

• Proving success with comparable tasks

• Reference projects!

Customer Relationship Management (CRM)

What is CRM?

• CRM “is a business strategy that aims to understand, anticipate and manage the needs of an organisation’s current and potential customers”

• It is a “comprehensive approach which provides seamless integration of every area of business that touches the customer- namely marketing, sales, customer services and field support through the integration of people, process and technology”

• CRM is a shift from traditional marketing as it focuses on the retention of customers in addition to the acquisition of new customers

• “The expression Customer Relationship Management (CRM) is becoming standard terminology, replacing what is widely perceived to be a misleadingly narrow term, relationship marketing (RM)”

Definition of CRM

“CRM is concerned with the creation, development and enhancement of individualised customer relationships with carefully targeted customers and customer groups resulting in maximizing their total customer life-time value”

The purpose of CRM

• “The focus *of CRM+ is on creating value for the customer and the company over the longer term”

• When customers value the customer service that they receive from suppliers, they are less likely to look to alternative suppliers for their needs

• CRM enables organisations to gain ‘competitive advantage’ over competitors that supply similar products or services

Why is CRM important?

• “Today’s businesses compete with multi-product offerings created and delivered by networks, alliances and partnerships of many kinds. Both retaining customers and building relationships with other value-adding allies is critical to corporate performance”

• “The adoption of C.R.M. is being fuelled by a recognition that long-term relationships with customers are one of the most important assets of an organisation”

Why did CRM develop?

CRM developed for a number of reasons:

• The 1980’s onwards saw rapid shifts in business that changed customer power

• Supply exceeded demands for most products

• Sellers had little pricing power

• The only protection available to suppliers of goods and services was in their relationships with customers

What does CRM involve?

CRM involves the following :

• Organisations must become customer focused

• Organisations must be prepared to adapt so that it take customer needs into account and delivers them

• Market research must be undertaken to assess customer needs and satisfaction

“Strategically significant customers”

• “Customer relationship management focuses on strategically significant markets. Not all customers are equally important”

• Therefore, relationships should be built with customers that are likely to provide value for services

• Building relationships with customers that will provide little value could result in a loss of time, staff and financial resources

Markers of strategically significant customers

• Strategically significant customers need to satisfy at least one of three conditions :

1. Customers with high life-time values (i.e. customers that will repeatedly use the service in the long-term)

2. Customers who serve as benchmarks for other customers

3. Customers who inspire change in the supplier

Information Technology and CRM

• Technology plays a pivotal role in CRM • Technological approaches involving the use of databases, data

mining and one-to-one marketing can assist organisations to increase customer value and their own profitability

• This type of technology can be used to keep a record of customers names and contact details in addition to their history of buying products or using services

• This information can be used to target customers in a personalised way and offer them services to meet their specific needs

• This personalised communication provides value for the customer and increases customers loyalty to the provider

Face-to-face CRM

• CRM can also be carried out in face-to-face interactions without the use of technology

• Staff members often remember the names and favourite services/products of regular customers and use this information to create a personalised service for them.

• For example, in a hospital library you will know the name of nurses that come in often and probably remember the area that they work in.

• However, face-to-face CRM could prove less useful when organisations have a large number of customers as it would be more difficult to remember details about each of them.

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