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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
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”
pies
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
Adoption Process • Product Adopter Categories
2.5% Innovators
13.5% Early Adopters
Adoption Process • Product Adopter Categories
2.5% Innovators
13.5% Early Adopters
34% Early Majority
Adoption Process • Product Adopter Categories
2.5% Innovators
13.5% Early Adopters
34% Early Majority 34% Late Majority
Adoption Process • Product Adopter Categories
2.5% Innovators
13.5% Early Adopters
34% Early Majority 34% Late Majority
16% Laggards
Adoption Process • Product Adopter Categories
Time
Profits
Sales
Introductory Stage
Growth Stage
Maturity Stage
Decline Stage
0
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
costs
Fall as result of
competition &
efficient produc-
tion.
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?
Pe
rce
nta
ge
of
Ad
op
ters
Time
Innovators 2.5%
Early Adopters
13.5%
Late Majority
34%
Early Majority
34%
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
ISK
Existing
MARKETS
New
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
Existing PRODUCTS New
INCREASING RISK INCREASING R
ISK
Existing
MARKETS
New
MARKET PENETRATION
Sell more in 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
Existing PRODUCTS New
INCREASING RISK INCREASING R
ISK
Existing
MARKETS
New
MARKET PENETRATION
Sell more in existing Markets
MARKET EXTENSION
Achieve higher sales/market share of existing products in new markets
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
Existing PRODUCTS New
INCREASING RISK
INCREASING R
ISK
Existing
MARKETS
New
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
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
Existing PRODUCTS New
INCREASING RISK
INCREASING R
ISK
Existing
MARKETS
New
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
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
© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
SBU
• 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
???
Stars
Dogs
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
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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
Buyer
• 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
User
• 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
Price
• 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.
