DEVELOPING NEW MARKET OFFERINGS CHAPTER 11 DEVELOPING NEW MARKET OFFERINGS

IMPORTANT TOPICS OF THIS CHAPTER What is a New Product? Challenges in New Product Development (NPD) Organizational Structure & NPD Stages & Management of NPD Diffusion & Adaption of New Products

NEW PRODUCTS New-to-the-World Products(10%) New Product Lines/Functions/Applications (20%) Additions to Existing Product Lines(26%) Improvements and Revisions of Existing Products(26%) Repositioning(7%) Cost Reductions(11%)

CAUSES OF NEW PRODUCT FAILURE Failure in Market Research Findings Overestimated Demand and Size of Market Design Failure Positioning Problem Ineffective Communication/Promotion High Development Cost/ Price Pressure from Competitors Poor Timing

CAUSES OF NEW PRODUCT SUCCESS Technological Superiority Easy of Market Entry Competitive Advantage Size and Speed in Market growth Identifying Needs/Wants and Good Timing Effective Promotion/Communication Uniqueness of the Concept/Product Marketing and Managerial Synergy/Team Effort

CHALLENGES IN NEW PRODUCT DEVELOPMENT Shortage in New Product Ideas Fragmented Markets Social and Governmental Constraints High Development Cost Shortage of Cash/Capital Faster Development Time Shorter Product Life Cycle

EFFECTIVE ORGANIZATIONAL ARRANGEMENTS Top Management: R&D Budget. Organization for New-Product Development: Product managers New Product Managers New Product Committee New Product Departments: R&D. New Product Venture Team

THE NEW-PRODUCT DEVELOPMENT PROCESS Idea Generation: Sources of new ideas: Customers’ needs and wants, scientists and engineers, competitors, sales force and channels, top management, universities and research firms. Idea Screening: Idea manager Idea committee: DROP-error GO-error

THE NEW-PRODUCT DEVELOPMENT PROCESS Concept Development and Testing: Concept development: Category concepts Product-positioning map Brand positioning map turns into brand concept Concept testing Virtual reality. Customer-driven engineering: Incorporating customer preferences into final engineering design.

Product & Brand Positioning (a) Product-positioning map (breakfast market) b) Brand-positioning map (instant breakfast market) Expensive Slow Inexpensive Quick High price/oz. Low in calories Low price/oz. High in calories Brand C Brand B Brand A Bacon and eggs Pancakes Instant breakfast Cold cereal Hot

THE NEW PRODUCT DEVELOPMENT PROCESS Marketing Strategy Development: Size of market, structure, behavior, market share and short-run profit goals Pricing and distribution strategy Long-run sales and profit goals. Business Analysis: Sales, cost and profit projections: Estimating total sales: First-time sales. Replacement sales. Repeat sales. Estimating costs and profits: Cost of goods sold, gross margin, gross contribution, net contribution, discounted contribution and pay back period, break-even analysis, risk analysis.

THE NEW PRODUCT DEVELOPMENT PROCESS Physical version of the product: Functional test (alpha testing) Customer test (beta testing) Measuring consumer preferences: Rank-order. Paired comparison. Monadic rating.

THE NEW PRODUCT DEVELOPMENT PROCESS Market Testing: Consumer-goods market testing: Trial, first repeat, adoption and purchase frequency: sales-wave research-trying with no cost to consumer. simulated test marketing. controlled test marketing. test markets- reliable forecasts, testing the marketing mix: how many cities. which cities. length of test. what information to learn. what action to take-trial and repurchase rate.

Consumer-Goods Market Testing Controlled Test Market A few stores that have agreed to carry new products for a fee. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Sales- Wave Research Test offering trail to a sample of consumers in successive periods. Standard Test Market Full marketing campaign in a small number of representative cities.

THE NEW PRODUCT DEVELOPMENT PROCESS Business goods market testing: Alpha testing Measure and improve product performance. Beta testing: Testing in customer’s site Trade shows Dealers’ showroom. Commercialization: Timing: First entry. Parallel entry. Late entry.

NEW PRODUCT DEVELOPMENT PROCESS Commercialization (cont.): Geographical strategy: Single locality Regional National Global Target-market prospects: Users Nonusers Opinion leaders Strategic model: Critical path.

THE CONSUMER ADOPTION PROCESS Early strategies: Mass-market approach, Heavy-user target market. Early adopter theory: Time laps between exposure and trials. Influence to early adopter: Media exposure. Early adopter as opinion leader. Stages in adoption: Awareness. Interest. Evaluation. Trial. Adoption.

THE CONSUMER ADOPTION PROCESS (CONT.) Factors influencing the adoption process: People’s readiness: Adopter Categories: Innovator(2.5%) Early Adopters(13.5%), Early Majority (34%), Late Majority(34%). Laggards(16%). Personal Influence: More important at the evaluation stage, and on late adopters than the early adopters.

Time of adoption innovations Adopter Categorization of the Basis of Relative Time of Adoption of Innovations 2 1/2% Innovators 13 1/2% Early adopters 34% Early majority 34% Late majority 16% Laggards Time of adoption innovations

INFLUENCING FACTORS TO ADOPTION PROCESS Characteristics of the Innovation affect rate: Relative advantage Compatibility Complexity Divisibility Communicability Organizations to Adopt Innovation: Environmental factors Organizational factors: Progressiveness. Size. Pressure.