Market Driving Strategies Markstrat Introduction 2

Engineers’ View Prof. Markus Christen

Product Perceptions: Engineers vs. Customers Technical quality Brand A B C D Brand C A B D ? Consumers' perception of brands You, as a manufacturer, can easily classify your and competing brands based on objective data like their technical attributes and their price. When it comes to making a buying decision however, consumers are influenced by their 'perception' of the brands available on the market rather than by the actual features and properties of these brands. This perception is often based on subjective data and information and can easily be distorted from reality. The consumers' perception, for a given category of products, is primarily driven by their most important needs in this category. Once consumers are aware of a brand, they typically analyse to what extent this brand meets their needs better than the competing brands that they already know. Prof. Markus Christen

Customer Perceptions Perceptual map based on MDS study Key Need 2 +20 -20 SELF Pr Hi Bu Si Ot SEMI SONO SOLD SULI SAMA SUSI SALT SIBI SIRO Perceptual map based on MDS study Need 1 Key Perceptual positioning of brands Segment ideal point Ot Prof. Markus Christen

Two Ways to Reposition Perceived Performance Perceived R & D Economy Advertising Prof. Markus Christen

Advertising How do you do it? What is the effect? Enter perceptual objectives with advertising decisions, either in terms of MDS dimensions or semantic scale dimensions (actual target, not a change) What is the effect? Immediate effect on customer perceptions, magnitude depends on advertising spending and strength of prior customer perceptions There is a limit to changing customer perceptions with advertising Prof. Markus Christen

Marketing’s Problem For R&D Economy Performance Convenience Customer Needs SAMA Price Power Max. Freq. Design Volume Weight Technical Specifications Prof. Markus Christen

New Product Development Give project a name (internal use only) all projects start with a P then S for Sonite project or V for Vodite project remaining 3 characters can be freely chosen Set product characteristics (5 technical attributes) your call based on your objectives and interpretation of market research and market trends Set base cost based on your price/margin target and available R&D funds Provide R&D budget on-line query for immediate information (limited to 7 queries per period) proceed with limited budget (100K) to obtain perfect feedback from R&D department but takes 1 period to obtain Prof. Markus Christen

R&D Budget Depends On Technical specifications Base cost budget required increases with design, power, frequency, autonomy budget required decreases with volume, weight, diameter Base cost budget required increases with lower base cost Past experience of R&D department budget required decreases with number of completed projects budget required decreases with similarity to completed projects Prof. Markus Christen

R&D Budget and Base Cost Do an ‘on-line query’ to obtain immediate feedback R&D chief pads his estimates limited to 7 queries per period Submit project with limited R&D budget (minimum is $100K) to obtain perfect feedback takes 1 year to obtain Prof. Markus Christen

Outcomes of R&D Projects weight design volume max. freq. power 17 6 85 35 70 PSTOP Minimum base cost: $110 Requested base cost = $80 below minimum, R&D uses the minimum feasible base cost of $110 as target budget needed: $800K Budget provided = $1,000K project available at base cost of $110 Budget provided = $300K project unsuccessful, R&D says it would need an additional $500K Requested base cost = $130 above minimum, so R&D works with this target cost budget needed: $550K Budget provided = $1,000K project available at base cost of $130 Budget provided = $300K project unsuccessful, R&D says it would need an additional $250K Prof. Markus Christen

Cumulative production Base Cost Transfer cost A Base cost A current product (initial experience curve) A1 225 KU Current transfer cost A1 cost reduced product (new experience curve) 100 KU Cumulative production Prof. Markus Christen

Transfer Costs & Base Cost Experience Curve C = C0(Q/Q0)b, b = -.234 (85%) C0: Base Cost Q0: 100K units Q: Cumulative Production Volume C: Average Production (Transfer) Cost Prof. Markus Christen

Cost Reduction with R&D Transfer cost A Base cost A current product (initial experience curve) B Base cost B A1 225 KU Current transfer cost A1 cost reduced product (new experience curve) 100 KU Cumulative production Prof. Markus Christen

There is a beer on the line here! IMPORTANT NOTE When you enter the details of an R&D project, make sure that you click the box “Feasibility Study” only when you just want to learn how much it costs to complete. There is a beer on the line here! Prof. Markus Christen

Uses of an R&D Project Modify existing brand(s) Launch new brand keep customer awareness and perceptions associated with brand name but brand has features of new project Launch new brand target new segment(s) replace old brand introduce second brand in same segment … Shelf it for potential future use Prof. Markus Christen

IMPORTANT NOTE Whenever you change the project name associated with a particular brand, two things will happen: the production experience effect will be lost and changed to the new project existing inventory becomes obsolete – even in the case of cost reduction R&D Prof. Markus Christen

Obsolete Inventory obsolete inventory inventory disposal brand I'll buy any product at 75% of its transfer cost brand modification (name kept) SAMA obsolete inventory inventory disposal brand withdrawal TRADING COMPANY Prof. Markus Christen

Things To Remember New product development requires time Brand name think ahead an R&D project cannot be changed once it is partially completed, but you do not have to complete it if it has no longer any use Brand name advertising helps build brand awareness and image brand image may change slowly there is no overall corporate image Multiple brands same R&D project can be used to launch multiple brands these brands share production, but not inventory Prof. Markus Christen

Good Luck! Prof. Markus Christen