the product. new product / service development process life cycle management market response...

The Product

New Product / Service Development Process

Life Cycle ManagementMarket response analysis

Competitive monitoring & defenseInnovation at maturity

IntroductionLaunch planning

Tracking the launch

TestingAdvertising & product testing

Pretest & pre-launch forecastingTest marketing

DesignCustomer needs Sales forecastProduct positioning EngineeringSegmentation Marketing mix

Opportunity IdentificationMarket definitionIdea generation

Reposition

The NewProd Scoring Model

Very Good(10)

Good(8)

Average(6)

Poor(4)

Very Poor(2)

Sub-factor Sub-factorWeight

EP EV EP EV EP EV EP EV EP EV TOTALEV

Sub-factorEvaluation

ProductSuperiority

1 .1 1 .2 1.6 .5 3.0 .2 0.8 - - 6.4 6.4

Uniquefeatures for

users

1 .1 1 .2 1.6 .4 2.4 .2 0.8 .1 0.2 6.0 6.0

Reducecustomer

costs

3 .3 3 .4 3.2 .2 1.2 .1 0.4 - - 7.8 23.4

Higherquality thancompetitors

1 .1 1 .2 1.6 .5 3.0 .2 0.8 - - 6.4 6.4

Does uniquetask for user

2 .5 5 .4 3.2 .1 0.6 - - - - 8.8 17.6

Priced lowerthan

competition

2 - - .2 1.6 .5 3.0 .3 1.2 - - 5.8 11.6

10 TOTAL 71.4

• To help evaluate ideas generated

Steps in the Design Process

OpportunityDefinition

Refinement

• Marketing• R&D

• Engineering• Production

Evaluation

Customer Measurement

1. Qualitative measurement to identify issues2. Quantitative measurement for input to models

Summary of Customer

Perception

Segments

Product Features

Preference

Choice

“What-if” Forecasts1. Aggregate Individuals2. Awareness & Availability

HONDA

Quality Function Deployment (QFD)

• A set of planning and communication routines

• Focuses on coordinating skills within an organization for:

1. Design

2. Manufacture and marketing of goods & services

• Foundation of the “House of Quality” is the belief that products should be designed to reflect customers’ needs - so marketing people, design engineers, and manufacturing staff must work closely together from the time a product is first conceived

• Conceptual map that provides the means for inter-functional planning and communications

Building the House of Quality

Q1: What do customers want?

Bundles Customer AttributesEasy to open Easy to close from outside

& close door Stays open on a hill

Isolation Does not leak in rain

No road noise

Q2: Are all attributes equally important?Bundles Customer Attributes ImportanceEasy to open Easy to close from outside 7

& close door Stays open on a hill 5

Isolation Does not leak in rain 3

No road noise 2

Building the House of Quality… ContinuedQ3: Will delivering on needs yield competitive advantage?

Bundles Customer Attributes Importance Customer PerceptionsEasy to open Easy to close from outside 7

& close door Stays open on a hill 5

Isolation Does not leak in rain 3

No road noise 2

Questions 1~3 are based on the customer responses. From this we can identify opportunities for improvement - Easy to close from outside which we are weak on, and Stays open on hill which all 3 cars are weak on. To improve these attributes, we now need to enter the engineering domain.

1 2 3 4 5Worst Best

O B A

BOA

ABO

BA O

O: Our Car; A: A’s Car; B: B’s Car

Building the House of Quality… Continued

Q4: How can we change the product?Open-Close

EffortSealing

Insulation

Isol

atio

nE

asy

to O

pen

& C

lose

Doo

r

Rel

ativ

e Im

por

tan

ce

75

3

2

CustomerAttributes

En

gin

eeri

ng

Ch

arac

teri

stic

s

Easy to close from out

Stays open on a hill

Doesn’t leak in rain

No road noise

O B A

BOA

ABO

BA O

- E

nerg

y to

clo

se d

oor

+ F

orce

on

leve

l gro

und

+ F

orce

on

10o s

lope

+ D

oor

seal

res

ista

nce

+ R

oad

nois

e re

duct

ion

Customer Perceptions

1 2 3 4 5

Building the House of Quality… ContinuedQ5: How much do engineers influence customer perceived qualities?

Open-Close Effort

SealingInsulation

Isol

atio

nE

asy

to O

pen

& C

lose

Doo

r

Rel

ativ

e Im

por

tan

ce

75

3

2

CustomerAttributes

En

gin

eeri

ng

Ch

arac

teri

stic

s




No road noise

O B A

BOA

ABO

BA O

- E

nerg

y to

clo

se d

oor

+ F

orce

on

leve

l gro

und

+ F

orce

on

10o s

lope

+ D

oor

seal

res

ista

nce

+ R

oad

nois

e re

duct

ion


1 2 3 4 5++

++ ++_

+++++

Relationships++ Strong Positive

+ Medium Positive_ Medium Negative

__ Strong Negative

Open-Close Effort

SealingInsulation

Isol

atio

nE

asy

to O

pen

& C

lose

Doo

r

Rel

ativ

e Im

por

tan

ce

75

3

2

CustomerAttributes

En

gin

eeri

ng

Ch

arac

teri

stic

s




No road noise

O B A

BOA

ABO

BA O

- E

nerg

y to

clo

se d

oor

+ F

orce

on

leve

l gro

und

+ F

orce

on

10o s

lope

+ D

oor

seal

res

ista

nce

+ R

oad

nois

e re

duct

ion


1 2 3 4 5++

++ ++_

+++++

Relationships++ Strong Positive

+ Medium Positive_ Medium Negative

__ Strong Negative

Obj

ecti

veM

easu

res Measurement Units ftlb lb lb lb/ft db

Our CarA’s CarB’s car

119

9.5

121211

667

3

22

956

Open-Close Effort

SealingInsulation

Isol

atio

nE

asy

to O

pen

& C

lose

Doo

r

Rel

ativ

e Im

port

ance

75

3

2

CustomerAttributes

En

gin

eeri

ng

Ch

arac

teri

stic

s

Easy to close from outStays open on a hill


No road noise

O B A

BOA

ABO

BA O

- E

nerg

y to

clo

se d

oor

+ F

orce

on

leve

l gro

und

+ F

orce

on

10o s

lope

+ D

oor

seal

res

ista

nce

+ R

oad

nois

e re

duct

ion


1 2 3 4 5

++++ ++

_

+++++

Relationships

++ Strong Positive+ Medium Positive_ Medium Negative

_ _ Strong Negative

Obj

ecti

veM

easu

res Measurement Units ftlb lb lb lb/ft db

Our CarA’s CarB’s car

119

9.5

1212

11

66

7

32

9562

_

__

++ ++

Roof Matrix

Q6: How does one engineering change affect other characteristics?

Open-Close Effort

SealingInsulatio

n

Isol

atio

nE

asy

to O

pen

& C

lose

Doo

r

Rel

ativ

e Im

por

tan

ce

75

3

2

CustomerAttributes

En

gin

eeri

ng

Ch

arac

teri

stic

sEasy to close from outStays open on a hill


No road noise

O B A

BOA

ABO

BA O

- E

nerg

y to

clo

se d

oor

+ F

orce

on

leve

l gro

und

+ F

orce

on

10o s

lope

+ D

oor

seal

res

ista

nce

+ R

oad

nois

e re

duct

ion


1 2 3 4 5

++++ ++

_

+++++

Relationships

++ Strong Positive+ Medium Positive_ Medium Negative

_ _ Strong Negative

Obj

ecti

veM

easu

res Measurement Units ftlb l

blb

lb/ft dbOur Car

A’s CarB’s car

119

9.5

121211

66

7

32

9562

_

__

++ ++

Roof Matrix

Technical DifficultyEstimated CostTargets

Q7: What are the technical limitations and costs associated with various changes

4-Approaches to Mass Customization

Transparent Collaborative

CosmeticAdaptive

Pro

du

ct

Representation

change

no change

no change change

Flexible Product Development

• Sensing the market

• Testing technical solution

• Integrating customer needs with technical solutions

Design

Testing

Integration

Stabilization/Ramp Up

Specs

Sensing the Market

Cyclical Workload “Mismatch”

marketing

engineering

brea

k

Time

lo

hi

Wor

kloa

d

Product Definition Product Development Product Launch





Tracking the launch





Reposition

Pre-Test & Pre-Launch Forecasting

• Used by firms introducing high-tech products; telecom products; consumer apparel; utilities; financial services; medical services; insurance; software; durable goods; entertainment products

• Based on primary data collection

Concept Exposure• Offering

• Price Key Measures• Seek Info?

• Intent• Liking

• Price / Value• Uniqueness

• Believability• Need fulfillment

Survey DataAdjustment

•Demographics• Price / Value

Perception• Absolute Price• Category Usage

Total Sales• 100% Aware

• 100% Available

Market Adjustment• Advertising• Distribution• Competition

Sales

• Further, companies like Vantis (division of Bases) have a database of 15000 new product introductions to benchmark success of new product. The product scores will be compared to a subset of the database of about 30-50 studies of related, similarly priced products

• The database is divided into thirds for comparison. Placement in the upper third of the database indicates that the test product scored higher than two-thirds of previous studies on that measure. An example:

Pre-Test & Pre-Launch Forecasting .. Continued

Purchase Intent

Liking

Price / Value

Uniqueness

Believability

Need fulfillment

LOWER MIDDLE UPPER

X

X

X

X

X

X

• In the above example, the new product scores high on several measures. However, its Premium positioning results in average purchase intent


• Forecasting the sales of a new frequently purchased product

Forecast sales, P for a new product depends upon Awareness of new brand (Aw)

Availability of new brand (Av)

Ultimate trial proportion conditional on awareness and availability (T) Long run share of purchases of new brand among those who try (R) Total category sales (C) P = C Aw Av T R

AdvertisingMedia Weight

BrandAwareness

TrialInitialRepeat

ContinuedRepeat

Sales &MarketShare

Distribution

Promotion

Predictions from Assessor

• 67% success rate in test market compared with 35.5% without

• Average share forecast 7.77% versus actual test market share of 7.16%. The difference is statistically significant - HBA, household, food products (n = 44 products.)

• If predicted share = target share for GO decision, P(Success in TM) = .38, if it exceeds by 2%, then .76, if it exceeds by 4%, then .96

• Durable goods, New Technology & New to World Products: Information Acceleration Systems

• Customer interacts with multimedia computer with full-motion video capabilities

• Computer simulates not just the product but also the “full” marketing environment including brochures, print ads, and TV ads. These are stored in the PC and consumers can call up the info as and when they desire

• In addition, WOM and personal selling in a showroom setting are also simulated. Videos for these are created using several different personality profiles. Consumers choose the profile they feel most comfortable with (e.g., one of the profiles resembles a close friend you can trust)

• Consumers can examine the product from all angles and, if appropriate, “open” the product for closer inspection

• As the consumer receives all this information at a pace more rapid than in an actual purchase environment, it is called an Information Acceleration system.


Click on the box containingthe person you would like tospeak to..

Forecasting the sales of a new durable: Bass Model

Time

Sal

es

1. Sales at any point in time comes frominnovators and imitators2. The number of people who can innovate is afraction of those who have not yet bought3. The number of imitators depends upon howthose who have already purchased influencethose who have not

St = (M - Yt-1) +(Yt-1/M) (M - Yt-1)

St = ( + (Yt-1/M)) (M - Yt-1)

Values for the unknown parameters, , andM are obtained using data for similar goods





Tracking the launch





Reposition

Cross-Functional Integration in New Product Strategy

Marketing

R&DEngineering

Finance

Production

Customer N

eeds

Product Desi

gn

Design for Manufacturing

Process Needs

Sales Forecast

Inventory

Fund Requests

Budgets Budgets

Fund Request

s

Budgets

Fund

Req

uest

s

New Product Development - Plan Vs. Reality

Idea GenerationIdea Generation

Screening & Refinement

Screening & Refinement

TestMarketing

TestMarketing

NationalLaunch

NationalLaunch

ExultationExultation

DisenchantmentDisenchantment

ConfusionConfusion

Search for guiltySearch for guilty

Punishment ofInnocent

Punishment ofInnocent

Distinction for theuninvolved

Distinction for theuninvolved

Measuring Brand Equity

• Excess-Price Approach– Observation of Prevailing Prices– Customer Research– Tradeoff / Conjoint Analysis

• Replacement Cost Approach– Cost of Introducing New, Comparable Product

• Stock-Price Approach• Market Value of Firm - Replacement Value of Tangible Assets = Intangible

Assets

• Intangible Assets = Brand Equity + Value of Patents, etc. + Value of Industry Factors that permit monopoly profits (imperfect competition)

• Brand Equity = F(Advertising, Age, Order of Entry..)

• Future -Earnings Approach

Measuring Brand Equity: Clout - Vulnerability Analysis

• There are several measures of brand equity. One such measure is a brand’s ability to take sales away from rival’s via a price reduction versus its competitor’s ability to take sales away via the competitor’s price reduction

• Based on segment-level price elasticities

• Compute the price elasticities for all the competing brands in the market

• Compute CLOUT which is the effect of my brand’s price reduction on the sales of all competing brands

• CLOUTi = j,j ne i [e2

ji]• Compute VULNERABILITY which is the effect on my sales of a

price reduction by all competing brands

• VULNERABILITYi = j,j ne i [e2

ij]

A Clout - Vulnerability MapC

LO

UT

VULNERABILITY

A

B

C

D

E

FG

Brand Management: 2 Dimensions, 4 Strategies

Relative Market Sharelow high

Val

ueC

ateg

ory

Pre

miu

mC

ateg

ory The Hitchhiker

ROS = 15% ~ 20%

InnovateNiche strategiesPrice follower

The High-RoadROS > 20%

InnovationJudicious PricingRaise Entry Barriers

The Low-RoadROS = 5% ~ 10%

Cut CostsLower PricesCategory Drifts Up?

The Dead-End BrandROS < 5%

Slash price/cost Move Right“Trump” category Move Up

Your Brand’sBest StrategyVishwanath & MarkHBR 1997

Product Line Decisions

• Product Line Analysis

• % of Total Sales from Each Item in Line

• How is Line Positioned vis-a-vis Competition

– Major Attributes of Paper Board are: Paper Weight & Finish Quality

• Create a Product Line Map in Weight vs. Finish Quality Space and see how Your Line Compares with Competitors’

• Also Helps to Identify Gaps in Market Offerings

Product Line Decisions (Contd..)

• Product Line Length

– Optimal Number of Items in Line

• Line Stretching Decision

– Downward Stretch....Line Filling vs. Cannibalization

– Upward Stretch....Price/Quality Imputations

– Two-Way Stretch

Moving Upscale or Downscale

• Going Downscale

• Opening up of powerful new channel - Wal*Mart / Best Buy

• Protection against private label infringement

• To avoid negative spillover launch a new brand

• Problems - Lower Awareness; Lower Channel Clout

• Reposition entire brand

• Sub-brands

• Parent - Endorser

• Co-drivers

• Parent (driver) - Child (descriptor)

Moving Upscale or Downscale

• Going Upscale

• Problem with credibility

• Reposition entire brand - almost impossible

• Sub-brands

• Parent (driver) - Child (descriptor)

Strategies for Sub-Brands: Minimizing Risk

When moving down market

• Try to create a qualitatively different offering aimed at a distinct segment

• Think about elevating the parent brand when the value entry is launched

• Be cautious about price premiums

• Use the parent-child metaphor

When moving up market

• Make the vertical leap reasonable

• Differentiate the upscale entry

How do you manage ideas for new products & concepts

1. Ideas not solicited2. Ideas solicited from select group3. Ideas can be sold to management even if not

solicited4. New ideas are recognized even if results are

unclear5. People encouraged to generate new ideas

How do you manage innovation for product development

1. Innovation limited to the labs2. Innovation is in marginal improvements3. New features are added to existing products4. Innovation is the cornerstone of all new products5. Cross functional innovations catayze birth of

new products

How do you use new products as marketing weapons

1. Company often last to enter new categories2. The company follows the leader closely3. Company sometimes a pioneer by chance4. Company launches new products, with new

concepts, albeit occasionally5. Company usually launches new products with

new concepts

How frequently do you launch new products and brands

1. Company relies only on tried & trusted brands2. Rate of launches is below industry average3. Rate of launches is on par with average4. New products are launched when considered

necessary5. Company responds to every market change with

a launch

How do you work on product improvement & modification

1. No organized process in the company2. Products allowed to run through life cycle with

few changes3. Products improved in decline stage4. Products have periodic changes based on

customer feedback5. Products constantly changing based on feedback

& opportunities

How does your company test market new products

1. Occasional, non-institutionalized process2. Conducted regularly with small samples3. Marketing mix seldom modified after test

marketing4. Regular test marketing - only for products5. All elements of the marketing mix are test-

marketed and suitably modified

How closely is the customer involved in product testing

1. Feedback obtained after launch2. Customer involved in test-marketing stage3. Customer consulted in the beginning for product

ideas4. Customer involved from prototype to test

marketing5. Customer involved at every stage from idea

generation

How do you customize products for different buyers

1. Product offering is homogeneous2. Differentiation via external factors such as

package size3. Service envelope is customized4. Product-service combo is tailored to individual

buyer5. Customization is offered to every buyer

How do you familiarize channel with new products

1. Products are introduced into channel with little innovation

2. Channel members are told of the product after launch

3. Some advance notification is provided4. Informed but not involved in the planning5. Work closely with company on new products

How do you respond to new products from competitors

1. No serious attempt to develop new product2. Company checks whether a new product is

necessary3. Customer needs are re-examined before

developing a competing product4. New product launched with more benefits5. Response via counter-innovation with extra

benefits

Grade: A (40 - 50 points); B (30-40 points); C (20-30 points); D (10-20 points)

The Value Development Audit

the product. new product / service development process life cycle management market response...

Documents

close doorstays open

close door force

house of quality continuedq4

house of quality continuedq3

house of qualityq1

higher quality

hilldoesnt leak

rainno road noiseq2