Product Development Strategy

Product Development Strategy Given the rapid changes in consumer tastes technology arid competition companies must develop a steady stream of new products and services A firm can obtain-new products m two ways. One is through acquisition by buying a whole company a patent or a license to produce someone else s product The other as through new-product development m the company s own research -and-development department By new products we mean original products product improvements product modifications and new brands that the firm develops through its own research-and-development efforts. When an organization introduces a product into a market they must ask themselves a number of questions. Who is the product aimed at? What benefit will they expect? How do they plan to position the product within the market? What differential advantage will the product offer over their competitors? New products continue to fail at a disturbing rate. One source estimates that more than 90 percent of all new products fail in within 2 years Another-study suggested that of the staggering 25,000 new consumer food, beverage, beauty, and healthcare products to hit the market each year, only 40 percent will be around 5 years later Moreover failure rates for new industrial products may be as high as 30 percent. Why do so many new products fail? There re several reasons Although an idea may be good the market size may have been overestimated Perhaps the actual product was not designed as well as it should have beer Or maybe it was incorrectly positioned in the market priced too high or advertised poorly A high-level executive might push a favorite idea despite poor marketing research findings- Sometimes the costs of product development are higher than expected, and sometimes Competitors fight back harder than Expected. However the reasons behind some new product failures seem pretty obvious Try the following on for size. Review of Literature Product strategies When an organization introduces a product into a market they must ask themselves a number of questions. Who is the product aimed at? What benefit will they expect? How do they plan to position the product within the market? What differential advantage will the product offer over their competitors? We must remember that Marketing is fundamentally about providing the correct bundle of benefits to the end user, hence the saying Marketing is not about providing products or services it is essentially about providing changing benefits to the changing needs and demands of the customer (P.Tailor 7/00) Philip Kotler in Principles of Marketing devised a very interesting concept of benefit building with a product For a analysis the book of Principles of Marketing by P.Kotler. Kotler suggested that a product should be viewed in three levels. Level 1: Core Product. What is the core benefit your product offers?. Customers who purchase a camera are buying more then just a camera they are purchasing memories. Level 2Actual Product: All cameras capture memories. The aim is to ensure that your potential customers purchase your one. The strategy at this level involves organizations branding, adding features and benefits to ensure that their product offers a differential advantage from their competitors. Level 3: Augmented product: What additional non-tangible benefits can you offer? Competition at this level is based around after sales service, warranties, delivery and so on. John Lewis a retail departmental store offers free five year guarantee on purchases of their Television sets, this gives their `customers the additional benefit of peace of mind over the five years should their purchase develop a fault. Idea generation New product development starts with idea generation the systematic search for new product ideas. A company typically has to generate many in order to find a few good once. According to one well-known management consultant, For every 1 000 ideas, only 100 will have enough commercial t0 promise to merits a small sca1e experiment only 10 of those will Warrant substantial financial commitment and of those a couple will turn out to be unqualified successes. His conclusion? If you want to find a few ideas with the power to enthrall customer, foil competition, and thrill investors you must first generate hundreds and potentially thousands of unconventional strategic ideas. Internal Idea Sources Using internal sources the company can find new ideas through formal research and development. It can pick the brains of its executives Scientists engineers manufacturing staff Sand sales people Some companies have-developed successful entrepreneurial programs that encourage employees to think up and develop new product ideas. For example 3M s well known 15-percent rule allow employees to spend 15 percent of their tine bootlegging -working on projects of personal interest whether or not those project directly benefit the company. Companies some times look for creative innovation approaches that overcome barriers to the free flow-of new product ideas For example firms like Eureka Ranch-a well known new product hatchery -employ both method and madness in helping companies to jumpstart their new product idea generation process. External Idea Sources Good new product idea also come from watching and listening to customers The company can analyze customer questions and complaints to find new products that better solve consumes problems Company engineers or salespeople can meet with and work. Alongside customers to get suggestions and ideas The Company can conduct surveys or focus groups to learn about Consumer needs and wants. Heinz did just that when its researchers approached children who consume more than half of the ketchup sold find out what would make ketchup more appealing to them The answer change the color So, Heinz developed and launc1iedEZ Squirt green ketchup that comes iii a squeezable bottle targeted at kids Blastin Green ketchup was a smash hit, so Heinz followed up with an entire rainbow of EZ Squirt colors, including Funky Purple Passion Pink, Awesome Orange, Totally Teal, and Stellar Blue. The EZ Squirt bottle s special nozzle also emits a thin ketchup stream, so tykes can autograph their burgers (or squirt someo ne across the table though Heinz neglects to mention that). In all the new line earned the Company a 5 percent increase in sales ii the first year after hitting the grocery shelf. Consumers often create new products and uses on their own and companies can benefit by putting them on the market. For example for years customers were spreading the word that Skin-so-soft bath oil and moisturizer was also a terrific bug repellent. Whereas some Consumers Were content simply to bathe an water scented with the fragrant oil others carried it in their backpacks to mosquito-infested campsites or kept a bottle on the deck of their beach houses Avon tuned the idea into a complete line of Skin-So-Soft Bug Guard PLUS lR335Â ® products including the Insect Repellent Gentle Breeze Moistures Sun block Lotion SPF 30 a combination moisturizer insect repellent and sunscreen. The search for new-product ideas should be systematic rather than haphazard. Otherwise few new ideas will surface and many good ideas will sputter and die Top management can avoid these problems by installing an idea management system that directs the flow of new ideas to a central point where they can be collected reviewed and evaluated hi setting up such a system the company can do any or all of the following. Appoint a respected senior person to be the company s idea manager. Create a cross-functional idea management committee consisting of people from RD, engineering purchasing operations finance and sales and marketing to meet regri1rly and evaluate proposed new product and service ideas. Set up a toll-free number or Web site for anyone who wants to send a new idea to the idea manager. Encourage all company stakeholders-employees suppliers, distributors, dealers-to send their ideas to the idea manager. Set up formal recognition programs to reward those who contribute the best new ideas. Idea Screening The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages is to reduce that number. The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as possible. Product development costs rise greatly in later Stages, so the company wants to go ahead only with the product ideas that will turn into profitable products. The object is to eliminate unsound concepts prior to devoting resources to them. The screeners must ask at least three questions: Will the customer in the target market benefit from the product? What is the size and growth forecasts of the market segment/target market? What is the current or expected competitive pressure for the product idea? What are the industry sales and market trends the product idea is based on? Is it technically feasible to manufacture the product? Will the product be profitable when manufactured and delivered to the customer at the target price? Many companies require their executives to write up new-product ideas on a standard form that can be reviewed by a new-product committee. The write-up describes the product, the target market, and the competition. It makes some rough estimates of market size, product price, development time and costs, manufacturing costs, and rate of return. The committee then evaluates the idea against a set of general criteria. For example, at Kao Company, the large Japanese consumer-products company, the committee asks questions such as these: Is the product truly useful to consumer and society? Is it good for our particular company? Does it mesh well with the companys objectives and strategies? Do we have the people, skills, and resources to make it succeed? Does it deliver more value to customers than do competing products? Is it easy to advertise and distribute? Many companies have well-designed systems for rating and screening new-product ideas. Concept development and testing An attractive idea must be developed into a product concept. It is important to distinguish between a product idea, a product concept, and a product image. A product idea is an idea for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual or potential product. Develop the marketing and engineering details Who is the target market and who is the decision maker in the purchasing process? What product features must the product incorporate? What benefits will the product provide? How will consumers react to the product? How will the product be produced most cost effectively? Prove feasibility through virtual computer aided rendering, and rapid prototyping What will it cost to produce it? Concept Development After 10 years of development, DaimlerChrysler is getting ready to commercialize its experimental fuel-cell-powered electric car. This cars nonpolluting fuel-cell system runs directly on methanol, which delivers hydrogen to the fuel cell with only water as a by-product. It is highly fuel efficient (75 percent more efficient than gasoline engines) and gives the new car an environmental advantage over standard internal combustion engine cars or even todays stupefacient gasoline-electric hybrid cars. Last year, DaimlerChrysler put 60 F-cell cars on the road in Japan, Germany, and the United states to test their worth in everyday operation. Based on the tiny Mercedes A-Class, the car accelerates quickly, reaches speeds of 90 miles per hour, and has a 280-mile driving range, giving it a huge edge over battery-powered electric cars that travel only about 80 miles before needing 3 to 12 hours off recharging. Fuel cell systems are also being tested in busses, trucks, and other vehicles. Now DimlerChryslers task is to develop this new product into alternative product concepts, find out how, attractive each concept is to customers, and choose the best one. It might create the following product concepts for the fuel-cell electric car: Concept 1 A moderately priced subcompact designed as a second family car to be used around town. The car is ideal for running errands and visiting friends. Concept 2 A medium-cost sporty compact appealing to young people. Concept 3 A inexpensive subcompact green car appealing to environmentally conscious people who want practical transportation and low pollution. Concept 4 A high-end SUV appealing to those who love the space SUVs provide but lament the poor gas mileage. Concept Testing Concept testing calls for testing new-product concepts with groups of target consumers. The concepts may be presented to consumers symbolically or physically. Here; in words, is concept 3: An efficient fun-to drive fuel cell-powered electric subcompact car that seats four. This methanol powered high-tech wonder provides practical and reliable trans potation with virtually o pollution It goes up to 90 miles per hour and unlike battery-powered electric cars, it never needs recharging It s priced, fully equipped at $20000. For some concept tests a word or picture description might be sufficient. However a more concrete and physical presentation of the concept will increase the reliability of the concept test Today some marketers are finding innovative ways to make product concepts more real to consumer subjects For example some are using virtual reality to test product concepts. Virtual reality programs use computers and sensory devices (such as gloves or goggles) to simulate reality A designer of kitchen cabinets might use a virtual reality program to help a customer see how his or her kitschier would look and work if remodeled with the companys products. After being exposed to the concept consumers then may be asked to react to at by answering questions such as those. The answers will help the company decide which concept has the strongest appeal For example the last question asks about the consumers intention to buy Suppose 10 percent of the consumers said they definitely would buy and another 5 pe rcent said obab1y The company could project these figures to the full population in this target group to estimate sales volume Even then the estimate is uncertain because people do not always carry out their stated intentions. Marketing Strategy development Suppose DaimlerChrysler finds that concept 3 for the fuel cell powered electric car tests is best The next step is marketing strategy development designing an initial marketing strategy for introducing this car to the market. The marketing strategy statement consists of three parts. The first part describes the tar get market the planned product positioning; and the sates, market share, and profit goals for the first few years. Thus: The target market is younger well educated moderate to high income individuals couples or small families seeking practical environmentally responsible transportation The car will be positioned as more economical to operate, more fun to drive, and less polluting than today s internal combustion engine or hybrid cars It is also less restricting than battery powered electric cars which must be recharged regularly. The company will aim to sell 100 000 cars in the first year at a loss of not more than $15 million In the second year the company wall aim for sales of 120,000 cars and a profit of $25 million. The second part of the marking strategy statement outlines the product s planned price distribution and marketing budget for the first year: The fuel cell powered electric car will be offered an three colors-red white and blue-and will have optional air-conditioning and power drive features It will sell at a retail price of $20,000-with 15 percent off the list price to dealers. Dealers who sell more than 10 cars per month will get an additional discount of5 percent on each car sold that month An advertising budget of$5Q million will be split 50-50 between a national media campaign and local advertising. Advertising will emphasize the cars fun spirit and low emissions. During the first year, $100,000 will be spent on marketing research to find out who is buying the car and their satisfaction levels. Business analysis Once management has decided on its product concept and marketing strategy it can evaluate the business- attractiveness of the proposal. Business analysis involves a review of the sales costs, and profit projections for anew product to find out whether they satisfy the companys objectives. If they do the-product can move to-the product development stage. To estimate sales, the company might look at the sales history of similar products and conduct surveys of market opinion. It can then estimate minimum and maximum sales to assess the range of risk. After preparing the sales forecast, management can estimate the expected costs and profits for the product including marketing RD operations accounting and finance costs. The company then uses the sales and costs figures to analyze the new products financial attractiveness. Estimate likely selling price based upon competition and customer feedback Estimate sales volume based upon size of market and such tools as the Fourt-Woodlock equation Estimate profitability and breakeven point Product development So far for many new product concepts the product may have existed only as a word a thawing or perhaps a crude mock-up If the product concept passes the business test it moves into product development Here RD or engineering develops the product concept into a physical product. The product development step however now calls for a large jump in investment It will show whether the product idea can be turned into a work able product. The RD department will develop and test one or more physical versions of the product concept RD hopes to design a prototype that will satisfy and excite consumers and that can be produced quickly aid at budgeted costs. Developing a successful prototype can take days, weeks, months, or even years. Often products under go rigorous tests to make sure that they perform safely and effectively, or that consumers will find value in them. Here are some examples of such product tests: Procter Gamb1e (PG)spends $150 million on 4,000 to 5 0O studies a year test in everything from the ergonomics of picking up a shampoo bottle to how long women can keep their hands in sudsy water. On any given day subjects meet an focus groups e11 their dirty laundry to researchers put prototype diapers on their babies bottoms and rub mysterious creams on their faces Last year one elementary school raised $17000 by having students and parents take part in PG product tests Students tested toothpaste and shampoo and ate brownies while their mothers watched advertising for Tempo tissue PG s paper wipes packaged to fit in a car. At Gillette almost everyone gets involved in new product testing. Every working day at Gillette, 200 volunteers from various departments come to work unshaven troop to the second floor of the companys gritty South Boston plant and enter small booths with a sink and mirror. There they take instructions from technicians on the other side of a small window as to which razor, shaving cream or after shave to use The volunteers evaluate razors for sharpness of blade, smoothness of glide and ease of handling In a nearby shower room women perform the same ritual on their legs, underarms and what the company delicately refers to as the bikini area. We bleed so you. 11 get a good shave at home says one Gillette employee. Test marketing If the product passes functional and consumer tests, the next step is test marketing the stage at which the product and marketing program are introduced into more realistic market settings. Test marketing gives the marketer experience with marketing the product before going to the great expense of full introduction. It lets the company test the product and its entire marketing program-positioning strategy advertising distribution pricing branding and packaging and budget levels. The amount of test marketing needed varies with each new product Test marketing costs can be high, and it takes time that may allow competitors to gain advantages. Produce a physical prototype or mock-up Test the product (and its packaging) in typical usage situations Conduct focus group customer interviews or introduce at trade show Make adjustments where necessary Produce an initial run of the product and sell it in a test market area to determine customer acceptance When the costs of developing and introducing the product are low or when management as already confident about the new product the company may do little or no test marketing In fact test marketing by consumer package-goods firms has been declining in recent years Companies often do not test market simple line extensions or copies of successful competitor products For example. PG introduced its Folgerss decaffeinated coffee crystals without test marketing and Pillsbury rolled out Chewy granola bars and chocolate covered Granola Dips with no standard test market. However when introducing a new product requires a big investment or when management is not sure of the product or marketing program a company may do a lot of test marketing. For instance Lever USA spent 2 years testing its highly successful Lever 2000 bar soap in Atlanta before introducing it internationally. Frito-Lay did 18 months of testing in three markets on at least five formulations before introducing its Baked Lays lin e of low fat snacks. And Nokia test-marketed its N-Gage cell phone/mobile game player extensively in London before introducing it worldwide. Standard test Marketing Using standard test markets, the company finds a small number of representative test cities conducts a full marketing campaign in these cities and uses store audits consumer and distributor surveys, and other measures to gauge product performance. The results are used to forecast national sales and profits discover potential product problems and fine tune the marketing program. Standard test markets have some drawbacks. They can be very costly and they may take a long time-some last as long as 3 to 5 years Moreover competitors can monitor test market results or even interfere with them by cutting their prices in test cities increasing their pro motion or even buying up the product being tested. Finally test market give competitors a look at the companys new product well before it is introduced nationally Thus competitors may have tune to develop defensive strategies and may even beat the company s product to the market For example while CLOROXÂ ® was still test marketing its new detergent with bleach in selected markets PG launched Tide with Bleach nationally Tide with Bleach quickly became the segment leader GLOROXÂ ® later withdrew its detergent Despite these disadvantages standard test markets are still the most widely used approach for major in-market testing However many companies today are shifting toward quicker and cheaper controlled and simulated test marketing methods. Control Test Marketing Several research firms keep controlled panels of stores that have agreed to carry new products for a fee Controlled test marketing systems like ACNielsens Scan track and Information Resources Inc s (IRI) Behavior Scan track individual consumer behavior for new products from the television set to the checkout counter. In each Behavior Scan market WI maintains a panel of shoppers who report all of their purchases by showing an identification card at check-out in participating stores and by using a handheld scanner at home to record purchases at nonparticipating stores. With in test stores, IRI controls such factors as shelf placement price and ia-store promotions for the product being tested IRI also measures TV viewing in each panel household and sends special commercials to panel member television sets Direct mail promotions can also be tested. Commercialization Commercialization is the process or cycle of introducing a new product into the market. The actual launch of a new product is the final stage of new product development, and the one where the most money will have to be spent for advertising, sales promotion, and other marketing efforts. In the case of a new consumer packaged good, costs will be at least $ 10 million, but can reach up to $ 200 million. In general one can say that it will cost about a dollar for each dollar of sales turnover achieved. Commercialization is often confused with sales, marketing or business development. The Commercialization process has three key aspects: The funnel. It is essential to look at many ideas to get one or two products or business that can be sustained long-term It is a stage-wise process and each stage has its own key goals and milestones It is vital to involve key stakeholders early, including customers Commercialization of a product will only take place, if the following four questions can be answered: When? The company has to decide on the introduction timing. When facing the danger of cannibalizing the sales of the companys other products, if the product can be improved further, or if the economy is down, the launch should be delayed. Every single bank in Nigeria today has been commercialized. But its sad enough to know that most of these banks are not straight forward in their various dealings with their clines/customers. Where? The company has to decide where to launch its products. It can be in a single location, one or several regions, a national or the international market. This decision will be strongly influenced by the companys resources, in terms of capital, managerial confidence and operational capacities. Smaller companies usually launch in attractive cities or regions, while larger companies enter a national market at once. Global roll outs are generally only undertaken by multinational conglomerates, since they have the necessary size and make use of international distribution systems (e.g., Unilever, Procter Gamble). Other multinationals use the lead-country strategy: introducing the new product in one country/region at a time (e.g. Colgate-Palmolive). To Whom? The primary target consumer group will have been identified earlier by research and test marketing. These primary consumer groups should consist of innovators, early adopters, heavy users and/or opinion leaders. This will ensure adoption by other buyers in the market place during the product growth period. How? The company has to decide on an action plan for introducing the product by implementing the above decisions. It has to develop a viable marketing mix and create a respective marketing budget. Test marketing gives management the information needed to make a final decision about whether to launch the new product. If the company goes ahead with commercialization- introducing the new product into the market-it will face high costs The company may have to build or rent a manufacturing facility. And it may have to spend in the case of a new consumer packaged good between $10 million and $200 million for advertising sales promotion, and other marketing efforts in the first year. The company launching a new product must first decide on introduction timing. If DaimlerChrysler s new fuel cell electric car will eat into the sales of the company s other cars its introduction may be delayed If the car can be improved further, or if the economy is down, the company may wait until the following year to launch it. Next, the company must decide where to launch the new product-in a single location, a region the national market or the international market. Few companies have the confidence capital and capacity to launch new products into full national or international distribution. They will develop a planned market rollout over time. In particular small companies may enter attractive cities or regions one at a time Larger companies, however may quickly intro- 1uce new models into several regions or into the full national market. There are the following step of commercialization. Launch the product Produce and place advertisements and other promotions Fill the distribution pipeline with product Critical path analysis is most useful at this stage Organizing for new product Development Many companies organize their new product development process into the orderly sequence of starting-with idea generation and ending with commercialization Under this sequential product development approach one company department works individually to complete its stage of the process before passing the new product along to the development next department and stage. This orderly step-by step process can help bring control to complex and risky projects. But it also can be dangerously slow. In fast changing highly competitive works markets such slow but sure product development can result in pro4uct failures lost sales arid profits and crumbling market positions Speed to market and reducing new product development cycle time have become pressing concerns to companies in all industries. In order to get their new products to market more quickly many companies are adopting a faster team-oriented approach called simultaneous product development (or team bad or collaborative product-development) Under this approach company departments work closely together through cross functional teams overlapping the steps in the product development process to save time and increase effectiveness Instead of passing the new product from department to department the company assembles a team -of people from various departments that Stays with the new product from start to finish. Such teams usually include people from the marketing finance design, manufacturing and legal departments and even supplier and customer companies. top management gives the product development team general strategic direction but no clear cut product idea or work plan It challenges the team with stiff and seemingly contradictory goals- turn out carefully planned and superior new products but do it quickly -and then givers the team whatever freedom and resources it needs to meet the challenge In the sequential process a bottleneck at one phase can seriously slow the entire protect In the simultaneous approach, if one functional area hits snags it works to resolve them while the team moves on. The Data Collection Primary Data BOOKS Principal of Marketing (Eleventh Edition) Part III Chapter# 9 Page # 274,276,280,282 Web site www.learnmarketing.net www.wikipedia.org www.infotrends.com Secondary Data Organization PG Pakistan Private (Ltd