Todays Session

Todays SessionProduct Strategy & New Product DevelopmentThe Funnel

DEFINITION AND MEANING OF A PRODUCT

Definition :It is a physical thing as well as aComplex set of economic, technical, legal andpersonal relationship between a buyer and a sellerMeaning of a Total Product Package : It includes Basic properties (with fundamental benefits)Enhanced properties (with tangible benefits), andAugmented properties (with intangible benefits)Inacompetitivemarket,Business marketers must understand target customers perceptions of atotal product package and offer thesame better than competitors

CHANGES IN PRODUCT STRATEGYBusiness marketers must understand that a product strategy is dynamic and flexibleIt changes due to changes in(i)Customerneeds(ii)Technology(iii)GovernmentPolicies/Laws(iv)ProductLifeCycle(v) CompetitionPRODUCT STRATEGIES FOR EXISTING PRODUCTSBusiness marketers should take the following steps :1. Evaluate theperformanceof existingproducts internal assessment 2. Examine the relative strengths and weaknesses of the companys products- external assessment 3. Decide the product strategies, based on above analysisDECIDE PRODUCT STRATEGIES(i)Maintain/continuetheproductandits marketing strategy (ii) Maintain/continue the product but change its marketing strategy(iii)Modifythe product &changemarketing strategy(iv)Drop/eliminatetheproduct(v)Addnewproduct

IMPACT OF TECHNOLOGYTechnological innovations create new products/ services that are new tothe world. Examples of these innovations, called breakthrough technology are :(i)Technologicalinventionsof1940s amplifiercircuit and vacuum tube creatednewproducts/serviceslike radio, wireless telegraphy, and telephoneservice.(ii)Technological inventions of1950s & 70s oftransistor,integratedcircuit(IC),microprocessorshave applicationsinnewproductslikeTVsets,movieCameras, Computers,Calculators,Mobilephones,Printersetc.,(iii)Digitalrevolution of information technology and the internethaveimprovedcompanyandconsumercapabilities

Causes of New Product FailuresOverestimation of Market SizeProduct Design ProblemsProduct Incorrectly Positioned, Priced or AdvertisedCosts of Product DevelopmentCompetitive ActionsInadequate resources

To create successful new products, the company must:know its strengths and weaknesses understand its customers, markets and competitors develop products that deliver superior value to customersNew Product Development ProcessIdea Generation and ScreeningConcept Development and TestingMarketing StrategyBusiness AnalysisProduct DevelopmentTest MarketingCommercializationNew Product Development ProcessThis CTR corresponds to Figure 9-1 on p. 275 and relates to the discussion on pp. 275-286.Stages in New Product DevelopmentIdea Generation. This stage is the systematic search for new product ideas. Sources for new product ideas include internal sources, customers, competitor's products, distributors & suppliers, and other sources.Screening. This stage focuses on reducing the number of ideas by dropping poor ideas as soon as possible. This helps reduce costs and focus attention more productively.Concept Development and Testing. This stage involves translating ideas into product concepts or detailed versions of the ideas stated in meaningful consumer terms. Concepts are then tested on target consumers.Marketing Strategy. This stage consists of three parts. The first part describes the target market, the second part outlines the product's projected price, distribution, and budget for the first year, the third part describes long-term sales, profit goals, and marketing mix strategy.Business Analysis. This stage reviews the sales, costs, and profit projections for the product to find out if they satisfy overall company objectives.Product Development. This stage involves bringing the product concept into existence as a physical product to ensure that the idea is a workable product.Test Marketing. This is the stage at which the product and marketing program are implemented in one or more realistic market settings.Commercialization. This stage involves actually introducing the new product into the competitive marketplace. In this stage, the company must make decisions involving when to introduce, where, to whom, and how.Open InnovationIdea GenerationSelectionExecutionCommercializationOpen InnovationIdea GenerationSelectionExecutionCommercializationCurrentMarketOrganisationOpen InnovationIdea GenerationSelectionExecutionCommercializationOpen InnovationIdea GenerationSelectionExecutionCommercializationDevelopNew ideasOpen InnovationIdea GenerationSelectionExecutionCommercializationIdeas and innovations from inside the organisationpatents and innovations from outside the organisationDevelopNew ideasOpen InnovationIdea GenerationSelectionExecutionCommercializationIdeas and innovations from inside the organisationpatents and innovations from outside the organisationDevelopNew ideasOpen InnovationIdea GenerationSelectionExecutionCommercializationIdeas and innovations from inside the organisationpatents and innovations from outside the organisationSelectSuccessfulIdeasDevelopNew ideasOpen InnovationIdea GenerationSelectionExecutionCommercializationIdeas and innovations from inside the organisationpatents and innovations from outside the organisationSelectSuccessfulIdeasDevelopNew ideasTechnology LicensingINOpen InnovationIdea GenerationSelectionExecutionCommercializationIdeas and innovations from inside the organisationpatents and innovations from outside the organisationSelectSuccessfulIdeasDevelopNew ideasTechnology LicensingINOpen InnovationIdea GenerationSelectionExecutionCommercializationIdeas and innovations from inside the organisationpatents and innovations from outside the organisationSelectSuccessfulIdeasPrototypes andProductionDevelopNew ideasTechnology LicensingINOpen InnovationIdea GenerationSelectionExecutionCommercializationIdeas and innovations from inside the organisationpatents and innovations from outside the organisationSelectSuccessfulIdeasPrototypes andProductionIP LicensingINIPLicensingOUTDevelopNew ideasTechnology LicensingINOpen InnovationIdea GenerationSelectionExecutionCommercializationIdeas and innovations from inside the organisationpatents and innovations from outside the organisationSelectSuccessfulIdeasPrototypes andProductionIP LicensingINIPLicensingOUTProduct broughtto marketDevelopNew ideasCurrentMarketTechnology LicensingIN21Open InnovationIdea GenerationSelectionExecutionCommercializationIdeas and innovations from inside the organisationpatents and innovations from outside the organisationSelectSuccessfulIdeasPrototypes andProductionIP LicensingINIPLicensingOUTProduct broughtto marketTechnologySpin-offsDevelopNew ideasCurrentMarketNewMarketsTechnology LicensingINSystematic Search for New Product IdeasInternal sourcesCustomers CompetitorsDistributorsSuppliersStep 1: Idea GenerationStep 2- Idea ScreeningProcess to spot good ideas and drop poor onesCriteria Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return

Step 3. Concept Development & Testing1. Develop Product Ideas into AlternativeProduct Concepts2. Concept Testing - Test theProduct Concepts with Groupsof Target Customers3. Choose the Best OnePart Two - Short-Term:Products Planned PriceDistributionMarketing BudgetPart Three - Long-Term:Sales & Profit GoalsMarketing Mix Strategy

Part One - Overall:Target MarketPlanned Product PositioningSales & Profit Goals Market Share

Step 4- Marketing Strategy DevelopmentBusiness Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If Yes, Move to Product Development If No, Eliminate Product ConceptStep 5. Business AnalysisStep 6. Product Development

Step 7- Test MarketingStandardTest Market

Full marketing campaignin a small number of representative cities.

SimulatedTest Market

Test in a simulated shopping environmentto a sample of consumers.Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.Test MarketingThis CTR relates to the discussion on pp. 282-284.Test MarketingStandard Test Markets. Under this approach, the company finds a small number of representative test cities, conducts a full marketing campaign in those cities, and then measures and evaluates performance. This provides a real world picture of how the product performs. But there are drawbacks. Standard testing is expensive, long, and tips competitors to company strategy. Controlled Test Markets. This approach uses a research firm that has designated store placement space for their clients. Participating stores receive a fee. Some services like Scantrack (Nielsen) and BehaviorScan (IRI) offer computerized monitoring of individual consumer panels whose television viewing is cross-tabulated with store purchases. Controlled testing is quicker and less expensive than standard testing. Concerns revolve around representativeness of the test markets (small size) and tipping off competitors.Simulated Test Markets. This approach creates a simulated shopping environment by the company or research firm. Consumers are exposed to promotions and then given money to shop with. Purchase patterns are observed and consumers are interviewed afterward by researchers. Simulated test marketing is inexpensive and quick. Representativeness and demand characteristics are concerns and this approach might be used as a pretest for a go-no go decision on further testing.Product Life CycleTimeProductDevelop-ment

IntroductionProfitsSalesGrowthMaturityDeclineLosses/Investments (Rs)Sales andProfits (Rs)The Product Life-CycleThis CTR corresponds to Figure 9-2 on p. 288 and relates to the material on pp. 287-293.Instructors Note: This CTR can be used to overview the life cycle concept. Strategies appropriate for each stage are discussed on the following CTRs.Product Life Cycle StagesProduct Development. Development begins when the company finds and develops a new product idea. During development the product has costs but no sales. Development costs must be strategically weighed against the projected length of the product's PLC.Introduction. During the introduction of new products initial sales growth is slow as the market is just becoming aware of the product. Profits are usually nonexistent at this stage due to heavy promotional spending.Growth. This stage is characterized by rapid market acceptance of the product and increasing profits.Maturity. In maturity there is a slowdown in sales growth as the product has achieved acceptance by most potential customers. Profits may level off or decline as marketing costs increase to defend existing market share.Decline. In this period sales begin to fall off and profits decline dramatically.

Introduction Stage of the PLCSalesCostsProfitsMarketing ObjectivesProductPriceLow sales High cost per customerNegativeCreate product awareness and trialOffer a basic productUse cost-plus DistributionBuild selective distributionAdvertisingBuild product awareness among early adopters and dealersIntroduction. In this stage marketers spend heavily on promotions to inform the target market about the new product's benefits. Low or negative profits may encourage the company to price the product high to help offset expenses. companies can concentrate on skimming strategies to generate high profits now or on penetration strategies to build market share and dominant the market for larger profits once the market stabilizes.

Product Life Cycle StrategiesProduct Life-Cycle StrategiesThis CTR relates to the material on pp. 289 and 293.Growth Stage of the PLCSalesCostsProfitsMarketing ObjectivesProductPriceRapidly rising sales Average cost per customerRising profitsMaximize market shareOffer product extensions, service, warrantyPrice to penetrate marketDistributionBuild intensive distributionAdvertisingBuild awareness and interest in the mass marketProduct Life-Cycle StrategiesThis CTR relates to the material on pp. 289-290 and 293.Product Life-Cycle StrategiesGrowth. In this stage the company experiences both increasing sales and competition. Promotion costs are spread over larger volume and strategic decisions focus on growth strategies. Strategies include adding new features, improving quality, increasing distribution, and entering new market segments.

Maturity Stage of the PLCSalesCostsProfitsMarketing ObjectivesProductPricePeak salesLow cost per customerHigh profitsMaximize profit while defending market shareDiversify brand and modelsPrice to match or best competitorsDistributionBuild more intensive distributionAdvertisingStress brand differences and benefitsProduct Life Cycle StrategiesMaturity. In this stage the company must manage slower growth over a longer period of time. Strategic decisions made in the growth stage may limit choices now. Marketing managers must proactively seek advantage by either market modification to increase consumption, product modification to attract new users (quality, feature, and style improvements), or marketing mix modification in an attempt to improve competitive position.

Product Life-Cycle StrategiesThis CTR relates to the material on pp. 290-292 and 293.Decline Stage of the PLCSalesCostsProfitsMarketing ObjectivesProductPriceDeclining salesLow cost per customerDeclining profitsReduce expenditure and milk the brandPhase out weak itemsCut priceDistributionGo selective: phase out unprofitable outletsAdvertisingReduce to level needed to retain hard-core loyal customers Product Life-Cycle StrategiesThis CTR relates to the material on pp. 292-293.Product Life Cycle StrategiesDecline. In this stage the costs of managing the product may eventually exceed profits. Rate of decline is a major factor in setting strategy. Management may maintain the brand as competitors drop out, harvest the brand by reducing costs of support for short term profit increases, or drop the product (divest) altogether.3MFormerly known as the Minnesota Mining and Manufacturing CompanyFounded on the North Shore of Lake Superior at Two Harbors, Minnesota in 1902With over 76,000 employees they produce over 55,000 products, including: adhesives, abrasives, laminates, passive fire protection, dental products, electrical materials, electronic circuits and optical films

Masking TapeIn 1923 3M employee Richard Drew visited an auto-repair shop in St. Paul, Minnesota. 3M produced and sold sandpaper and Drew was in the shop to test out a new batch.

Masking TapeWhen he entered the shop employees were expressing disappointment at a failed attempt to paint a car in the two-tone style that was becoming popular at the time.

Masking TapeTypically how the effect was achieved was by painting part of the car in one colour while covering the other parts with butcher paperThe butcher paper was usually held in place with a heavy adhesive tape. Unfortunately, removing the adhesive tape peeled away part of the paint job.

THE IMPORTANT BIT:

Rather than just sympathise with his customers and move on, Drew decided to do something about it.Masking TapeHis company 3M had a lot of know-how in creating adhesives from making sand paper, so Drew figured he would try to make a paper tape to help solve his customers problems.Drew began experimenting with a range of materials and manufacturing processes to solve this problem.William McKnight11 November 1887 4 March 1978Businessman who served his entire career in the 3M corporation.McKnight encouraged 3M management to delegate responsibility

Masking TapeEventually the then-president of 3M, William McKnight, noticed that Drew was spending time on money on this unofficial project.McKnight asked Drew to return to his actual job, improving sandpaperBut Drew persisted, diverting funds and time to work on abrasivesMcKnight eventually realised this, but did nothing

Masking TapeIn 1925 Drew managed to create Masking Tape.This product has sold in the millions for 3M since thenAnd this was just the start of creating an innovation culture in 3MWilliam McKnight learned his lesson from Richard Drew

Spenser SilverBorn 1941co-creator of the Post-it noteIn 1966, earned a doctorate in organic chemistry from the University of Colorado in 1966, before taking a position as a Senior Chemist in 3M's Central Research Labs.

Arthur FryBorn 1931co-creator of the Post-it noteIn 1953, while still enrolled in undergraduate school, Fry took a job at 3M (then it was still called Minnesota Mining and Manufacturing Company) as a new product development researcher. He worked in new product development throughout his career at 3M until his retirement in the early 1990s.

Post-It NoteIn 1968, Spencer Silver (with the help of Jesse Kops) accidentally developed a "low-tack", reusable pressure sensitive adhesive. For five years, Silver promoted his invention within 3M, both informally and through seminars, but without much success. He was unable to find a marketable use for his invention.

Post-It NoteIn 1974, Arthur Fry attended a seminar given by Silver asking for ideas for his adhesive.Fry sang in his church choir on weekends, and he used slips of paper to mark the pages of his hymnal. When the book was opened, however, the makeshift bookmarks often moved around or fell out altogether. It occurred to him that Silver's adhesive could be put to use to create a better bookmark. If it could be coated on paper, Silver's adhesive would hold a bookmark in place without damaging the page on which it was placed.

Post-It NoteUntil the 1990s, when the patent expired, Post-it Brand notes were exclusively produced by 3M.Now other companies produce sticky or repositionable notes, but the term "Post-it" and the canary yellow color are trademarks of 3M. Accepted generic terms for competitors include "sticky notes" or "repositionable notes" or "repositional notes.

The Philosophy15% of all employees time is allowed to be on their pet projects (the 3M Way).The work of outstanding technical employees is recognised by the 3M Carlton Society, this is voted on by peers.Employees that create products which sell $4 million or more are awarded the prestigious Golden Step AwardEmployees have a choice to work on a management or laboratory career ladder, no employee is forced to take a management role if the dont wish it.