McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter Eight Planning for New Products McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

Planning for New Products The Innovation Mandate

PLANNING FOR NEW PRODUCTS Importance of New Products Customer Driven Process Steps in New Product Planning Idea Generation Screening/Evaluating/and Business Analysis Product and Process Development Marketing Strategy and Market Testing Commercialization Variation in the Generic Planning Process

Importance of New Products Innovation at top of potential value drivers (Ernst & Young) Innovation initiatives extend beyond new goods and services to include ideas, processes, and business practices Organizations must build a culture of innovation

New Product Planning as a Customer Driven Process New product classifications: Newness to market Newness to company New product types: Transformational innovations New product category Product line extensions Incremental improvements

High High Low Newness to company Newness to market New-to-world products 10% New product lines 20% Newness to company Improvements/ revisions to existing products 26% Additions to existing product lines 26% Cost reductions 11% Repositionings 7% High Low Newness to market Size of circle denotes number of introductions relative to total. Source: New Product Management for the 1980s, Booz Allen & Hamilton Inc. 1982.

Finding Customer Value Opportunities Customer value analysis Objective is to identify needs for: New products Improvements to existing products Improvements in production processes Improvements in supporting services TM 5-1

Matching Capabilities to Customer Value Opportunities Fit between capabilities and product offering Transformational Innovations “new-to-the-world” ideas Customers not always the best guides TM 5-1

OPPORTUNITIES Customer Expectations Customer Satisfaction Gap Actual (1) New Products (2) Improvements (3) New and Improved Processes Actual Product Performance

Characteristics of Successful Innovations Creating an Innovative Culture Selecting the Right Innovation Strategy Leveraging Capabilities STRATEGIC INITIATIVES Making Resource Commitments Developing and Implementing Effective New Product Processes

Developing an Innovation Culture Innovation Workshop for top executives to develop an innovation plan. Innovation Statement highlighting objectives and senior management’s role and responsibilities. Training programs for employees and managers. Communicate the priority of innovation. Speakers to expose employees to innovation authorities. Source: Thomas D. Kuczmarski et al., “The Breakthrough Mindset,” Marketing Management, March/April 2003, 43.

The Innovation Strategy Spells Out Management’s Priorities for New Product Opportunities Set specific New Product Objectives. Communicate the role of New Products throughout the organization. Define the areas of strategic focus: Product Scope Markets Technologies Include longer term discontinuous projects in the portfolio along with incremental projects. Source: Robert Cooper, “Benchmarking New Product Performance,” European Management Journal, Feb. 1998, 1-7.

NEW PRODUCT PLANNING PROCESS Customer Needs Analysis Idea Generation Screening and Evaluation Business Analysis Marketing Strategy Development Product Development Testing Commercialization

Achieving Cross-Functional Interaction and Coordination Operations Marketing Finance

Responsibility for New Product Planning Coordination of new product activities by a high-level general manager Inter-functional coordination by a team of new product planning representatives Creation of a project task force responsible for new product planning Designation of a new products manager to coordinate planning between departments Formation of matrix structure for integration new product planning with business functions Creation of a permanent design center

IDEA GENERATION Idea search: targeted or open-ended? How extensive and aggressive? What specific sources are best for generating a regular flow of new product ideas? How can new ideas be obtained from customers? Where will responsibility for the new product ideas search be placed? What are potential threats from alternative (or disruptive) technologies?

BENETTON’S STRATEGY TO REVIVE APPAREL IDEA GENERATION “We didn’t take advantage of the [industry’s] quick transformation,” says Silvana Cassano, the ex-Fiat manager who assumed the post of chief executive of Benetton Group on May 5. The transformation saw the best retailers turn into cutting-edge users of digital technology. Benetton’s competitors-notably Spain’s Zara and Sweden’s H&M Hennes & Mauritz-have raised the bar for the entire industry. These retailers can beam new styles from the catwalk to the shop floor in less than a month-and at bargain prices. Both deploy sophisticated technology to track which items are selling and which aren’t, so winners can be speedily restocked and slow movers yanked down from the racks. They’ve got the look down, too-cool and minimal for the working women who love Zara, and over-the-top trendy for H&M’s teen fans. And Benetton’s look? Blan. “The Benetton brand is out of fashion,” says Sagra Maceira de Rosen, retail analyst at J.P. Morgan Chase & Co. in London.

Benetton’s Strategy (continued) Cassano is out to change that. The message he delivered in his first encounter with shareholders was short and powerful: Benetton is going to refocus on the apparel business, which encompasses the Sisley and Benetton brands. It’s no secret that Benetton’s core casual wear business has suffered neglect. In 1994, founder Luciano Benetton launched an ill-fated diversification into sports equipment, snapping up trophy brands such as Prince (tennis rackets), Rollerblade (in-line skates), and Killer Loop (snowboards). But the strategy foundered and last year, Benetton sold the entire equipment division, booking $190 million in write-offs. The company posted its first annual loss-$10.5 million, on revenues of $2.3 million. Source: “Has Benetton Stopped Unraveling?” Business Week, June 30, 2003, 76.

METHODS OF GENERATING IDEAS Direct Search Linking Marketing and Technology Facilitating Lead User Analysis Creative Methods National Policy Exploratory Customer Studies Alliances/ Acquisition/ Licensing Technological Innovation

SCREENING, EVALUATING, AND BUSINESS ANALYSIS IDEA GENERATION SCREENING (fit/feasibility) CONCEPT EVALUATION BUSINESS ANALYSIS

Business Analysis Revenue Forecasts Preliminary Marketing Plan Cost Estimation Profit Projections Other Considerations

PRODUCT AND PROCESS DEVELOPMENT NEW PRODUCT CONCEPT PRODUCT DEVELOPMENT AND USE TESTING MARKETING STRATEGY DEVELOPMENT MARKET TESTING LAUNCH

Product and Process Development Development of the new product includes: Product design Packaging design Decisions to make or purchase product components Product Development Process: Product Specifications Industrial Design Prototype Use Tests Process Development Collaborative Development

Does it have the required attributes? Verify claims PURPOSE OF USE TESTS Ideas for improvements Identify use situations

MARKETING STRATEGY AND MARKET TESTING Marketing Strategy Decisions Market Targeting Positioning Strategy Market Testing Options Simulated Test Marketing Scanner – Based Test Marketing Conventional Test Marketing Testing Industrial Products Selecting Test Sites Length of the Test External Influences

Scanner-based Test Marketing Less artificial than simulated testing Costs less than full-scale market test Test is controlled by using IRI’s 2300 panel members in each test city Cable TV enables use of controlled ad testing Tests take about 12 months Costs are $250,000+

COMMERCIALIZATION The Marketing Plan Monitoring and Control Complete marketing strategy Responsibilities for execution Cross – functional approach Monitoring and Control Real – time tracking Role of the Internet Include product performance metrics with performance targets

Marketing Strategy Market Target(s) Marketing Program(s) Objectives

VARIATIONS IN THE GENERIC NEW PRODUCT PLANNING Technology Push Processes Platform Products Process – Intensive Products Customized Products