1. Hand In Midterm…
Please Place Your Group’s paper and Evaluations in the Envelopes in Front and Hand Them In to Me…

2. Guest Speaker Thoughts…
Open Floor
Midterm Discussion…
What Went Well?
What Was Difficult?
Suggestions/Questions?
Guest Speaker Thoughts…
Characteristics
Topics

3. Concept Evaluation (Chapters 8-12)
Preview…
Concept Evaluation (Chapters 8-12)
Concept Eval System
Concept Testing
Full Screen
Sales and Forecasting
Product Protocol
Group Concept Evaluation Discussion (Time Permitting)

4. PART THREE CONCEPT/PROJECT EVALUATION
McGraw-Hill/Irwin
Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved.

5. Concept/Project Evaluation
Figure III.1

6. CHAPTER 8 THE CONCEPT EVALUATION SYSTEM
McGraw-Hill/Irwin
Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved.

7. The Evaluation System
Figure 8.1

8. Cumulative Expenditures Curve
% of
expenditures
Figure 8.2
Many high-tech
products
Many consumer
products
Time
Launch

9. Risk/Payoff Matrix at Each Evaluation
Figure 8.3
Cells AA and BB are “correct” decisions.
Cells BA and AB are errors, but they have different cost and probability dimensions.

10. Planning the Evaluation System: Four Concepts
Rolling Evaluation (tentative nature of new products process)
Potholes
People
Surrogates

11. Rolling Evaluation (or, "Everything is Tentative")
Project is assessed continuously (rather than a single Go/No Go decision)
Financial analysis also needs to be built up continuously
Not enough data early on for complex financial analyses
Run risk of killing off too many good ideas early
Marketing begins early in the process
Key: new product participants avoid "good/bad" mindsets, avoid premature closure

12. Potholes
Know what the really damaging problems are for your firm and focus on them when evaluating concepts.
Example: Campbell Soup focuses on:
1. Manufacturing Cost
2. Taste

13. People
Proposal may be hard to stop once there is buy-in on the concept.
Need tough demanding hurdles, especially late in new products process.
Personal risk associated with new product development.
Need system that protects developers and offers reassurance (if warranted).

14. Surrogates Surrogate questions give clues to the real answer.
Real Question Surrogate Question
Will they prefer it? Did they keep the prototype product we gave them after the concept test?
Will cost be competitive? Does it match our manufacturing skills?
Will competition leap in? What did they do last time?
Will it sell? Did it do well in field testing?

15. An A-T-A-R Model of Innovation Diffusion
Figure 8.5
Profits = Units Sold x Profit Per Unit
Units Sold = Number of buying units
x % aware of product
x % who would try product if they can get it
x % to whom product is available
x % of triers who become repeat purchasers
x Number of units repeaters buy in a year
Profit Per Unit = Revenue per unit - cost per unit

16. The A-T-A-R Model: Definitions
Figure 8.6
Buying Unit: Purchase point (person or department/buying center).
Aware: Has heard about the new product with some characteristic that differentiates it.
Available: If the buyer wants to try the product, the effort to find it will be successful (expressed as a percentage).
Trial: Usually means a purchase or consumption of the product.
Repeat: The product is bought at least once more, or (for durables) recommended to others.

17. A-T-A-R Model Application
10 million Number of owners of video cellphones
x 40% Percent awareness after one year
x 20% Percent of aware owners who will try product
x 70% Percent availability at electronics retailers
x 20% Percent of triers who will buy a second unit
x $50 Price per unit minus trade margins and
discounts ($100) minus unit cost at the
intended volume ($50)
= $5,600,000 Profits

18. Points to Note About A-T-A-R Model
1. Each factor is subject to estimation.
Estimates improve with each step in the development phase.
2. Inadequate profit forecast can be improved by changing factors.
If profit forecast is inadequate, look at each factor and see which can be improved, and at what cost.

19. Getting the Estimates for A-T-A-R Model
Figure 8.7
xx: Best source for that item.
x: Some knowledge gained.

21. CHAPTER 9 CONCEPT TESTING
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Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved.

22. Many Ideas Are Eliminated Before Concept Testing
PIC eliminates most new product ideas even before they are developed into concepts.
Ideas of the following types are excluded:
Ideas requiring technologies the firm does not have.
Ideas to be sold to customers about whom the firm has no close knowledge.
Ideas that offer too much (or too little) innovativeness.
Ideas wrong on other dimensions: not low cost, too close to certain competitors, etc.

23. Market Analysis and Initial Reaction
Market analysis: in-depth study of market area that the PIC has selected for focus.
Conducted immediately after PIC approval.
Initial reaction: preliminary, inexpensive assessment of concepts, which may be flowing very quickly at this point.
Avoid “bazooka effect” (quickly blasting out concepts without forethought)
Do not include idea source in initial reaction.
Respect the “fragility of ideas” -- have more than a single person involved.
Use more than pure intuition -- keep records and stay objective.

24. Suggested Questions for the Initial Reaction
Market Worth: what is the attractiveness of the new product to the targeted customer population?
Firm Worth: Is the new product project viewed positively by management? Does this new product project enhance the firm’s competencies?
Competitive Insulation: Can the product’s advantage be maintained against competitive retaliation?

25. Concept Testing Cautions and Concerns
If the prime benefit is a personal sense (aroma, taste).
If the concept involves new art and entertainment.
If the concept embodies a new technology that users cannot visualize.
If concept testing is mishandled by management, then blamed for product failure.
If customers simply do not know what problems they have.

26. What Is a Product Concept Statement?
A statement about anticipated product features (form or technology) that will yield selected benefits relative to other products or problem solutions already available.
Example: “A new electric razor whose screen is so thin it can cut closer than any other electric razor on the market.”
Recall the importance of getting responses to product concepts and not simply ideas (Chapter 4).
Note: Discuss ACR Category Info Here…

27. Purposes of Concept Testing
To identify very poor concepts so that they can be eliminated.
To estimate (at least crudely) the sales or trial rate the product would enjoy (buying intentions, early projection of market share).
To help develop the idea (e.g. make tradeoffs among attributes).

28. Procedure for a Concept Test
Prepare concept statement
Clarify specific purposes
Decide format(s)
Select commercialization
Determine price(s)
Select respondent type(s)
Select response situation
Define the interview
Conduct trial interviews
Interview, tabulate, analyze

29. Some Key Issues in Concept Testing
Concept statement: narrative, drawing, model?
Respondent group: Lead users? Large users?
Response situation: Where? How?
Interviewing sequence: Believable? Important? Interesting? Would it work? What problems do they see? Would they buy?
Test procedure, change and implement, study findings.

30. Mail Concept Test -- Verbal Description
Figure 9.1
Here is a tasty, sparkling beverage that quenches thirst, refreshes, and makes the mouth tingle with a delightful flavor blend of orange, mint, and lime.
It helps adults (and kids too) control weight by reducing the craving for sweets and between-meal snacks. And, best of all, it contains absolutely no calories.
Comes in 12-ounce cans or bottles and costs 60 cents each.
1. How different, if at all, do you think this diet soft drink would be from other available products now on the market that might be compared with it?
Very different ( ) ( ) ( ) ( ) Not at all different
2. Assuming you tried the product described above and liked it, about how often do you think you would buy it?
More than once a week ( ) ( ) ( ) ( ) ( ) ( ) Would never buy it

31. Mail Concept Test -- Sketch
Figure 9.2

32. Benefit Segmentation in Swimsuit Market
Figure 9.3
Comfort
Fashion
Segment 2
Segment 3
Segment 1 x

33. Joint Space Map Showing Ideal Points
Figure 9.4 3 2
Aqualine
Comfort
Molokai 1
Islands
Fashion
Splash
Sunflare

34. Joint Space Map Showing Ideal Vectors
Figure 9.5
Benefit Segment 1
Comfort
Aqualine X
Overall
Molokai
Islands
Benefit Segment 2
Fashion
Sunflare
Splash

36. CHAPTER 10 THE FULL SCREEN
McGraw-Hill/Irwin
Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved.

37. The Full Screen
A step often seen as a necessary evil, yet very powerful and with long-lasting effects.
Forces pre-technical evaluation, and summarizes what must be done.
Methods range from simple checklists to complex mathematical models.

38. Purposes of the Full Screen
To decide whether technical resources should be devoted to the project.
Feasibility of technical accomplishment -- can we do it?
Feasibility of commercial accomplishment -- do we want to do it?
To help manage the process.
Recycle and rework concepts
Rank order good concepts
Track appraisals of failed concepts
To encourage cross-functional communication.

39. Screening Alternatives
Judgment/Managerial Opinion
Concept Test followed by Sales Forecast
(if only issue is whether consumers will like it)
Scoring Models

40. A Simple Scoring Model Answer: Go boating. Figure 10.2
Note: Look at “cars” Excel spreadsheet

41. Source of Scoring Factor Models
Figure 10.3

42. A Scoring Model for Full Screen
Note: this model only shows a few sample screening factors.
Factor Score (1-5) Weight Weighted Score
Technical Accomplishment:
Technical task difficulty
Research skills required
Rate of technological change
Design superiority assurance
Manufacturing equipment...
Commercial Accomplishment:
Market volatility
Probable market share
Sales force requirements
Competition to be faced
Degree of unmet need...
Figure 10.4

43. The Scorers Scoring Team: Problems with Scorers: New Products Managers
Major Functions (marketing, technical, operations, finance)
New Products Managers
Staff Specialists (IT, distribution, procurement, PR, HR)
Problems with Scorers:
May be always optimistic/pessimistic
May be "moody" (alternately optimistic and pessimistic)
May always score neutral
May be less reliable or accurate
May be easily swayed by the group
May be erratic

44. IRI Scoring Model Technical success factors: Proprietary Position
Figure 10.5
Technical success factors:
Proprietary Position
Competencies/Skills
Technical Complexity
Access to and Effective Use of External Technology
Manufacturing Capability
Commercial success factors:
Customer/Market Need
Market/Brand Recognition
Channels to Market
Customer Strength
Raw Materials/Components Supply
Safety, Health and Environmental Risks
Source: John Davis, Alan Fusfield, Eric Scriven, and Gary Tritle, “Determining a Project’s Probability of Success,” Research-Technology Management, May-June 2001, pp

45. Alternatives to the Full Screen
Profile Sheet
Empirical Model
Expert Systems
Analytic Hierarchy Process

46. A Profile Sheet
Figure 10.6

47. Criteria Based on the NewProd Studies
Figure 10.7
Must-Meet Criteria (rated yes/no):
Strategic alignment
Existence of market need
Likelihood of technical feasibility
Product advantage
Environmental health and safety policies
Return versus risk
Show stoppers (“killer” variables)

48. Criteria Based on the NewProd Studies (continued)
Should-Meet Criteria (rated on scales):
Strategic (alignment and importance)
Product advantage (unique benefits, meets customer needs, provides value for money)
Market attractiveness (size, growth rate)
Synergies (marketing, distribution, technical, manufacturing expertise)
Technical feasibility (complexity, uncertainty)
Risk vs. return (NPV, IRR, ROI, payback)
Figure 10.7
(cont’d.)

49. Analytic Hierarchy Process (AHP)
Figure 10.9

50. Abbreviated Output from AHP
Figure 10.9

52. CHAPTER 11 SALES FORECASTING AND FINANCIAL ANALYSIS
McGraw-Hill/Irwin
Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved.

53. Why Financial Analysis for New Products is Difficult
Target users don’t know.
If they know they might not tell us.
Poor execution of market research.
Market dynamics.
Uncertainties about marketing support.
Biased internal attitudes.
Poor accounting.
Rushing products to market.
Basing forecasts on history.
Technology revolutions.

54. Forecasters Are Often Right
Figure 11.1
In 1967 they said we would have:
Artificial organs in humans by 1982.
Human organ transplants by 1987.
Credit cards almost eliminating currency by 1986.
Automation throughout industry including some managerial decision making by 1987.
Landing on moon by 1970.
Three of four Americans living in cities or towns by 1986.
Expenditures for recreation and entertainment doubled by 1986.

55. Forecasters Can Be Very Wrong
Figure 11.1
(cont’d.)
They also said we would have:
Permanent base on moon by 1987.
Manned planetary landings by 1980.
Most urbanites living in high-rises by 1986.
Private cars barred from city cores by 1986.
Primitive life forms created in laboratory by 1989.
Full color 3D TV globally available.
Note: about two-thirds of the forecasts were correct!
Source: a 1967 forecast by The Futurist journal.

56. Commonly Used Forecasting Techniques
Figure 11.2

57. Handling Problems in Financial Analysis
Improve your existing new products process.
Use the life cycle concept of financial analysis.
Reduce dependence on poor forecasts.
Forecast what you know.
Approve situations, not numbers (recall Campbell Soup example)
Commit to low-cost development and marketing.
Be prepared to handle the risks.
Don’t use one standard format for financial analysis.
Improve current financial forecasting methods.

58. Forecasting Sales Using Purchase Intentions
Use top-two-boxes scores obtained in concept testing, appropriately adjusted or calibrated.
Example: Recall for hand cleanser from Chapter 9:
Definitely buy = 5%
Probably buy = 36%
Based on history, calibrate as follows:
80% of “definitelies” actually buy
33% of “probablies” actually buy
Forecasted market share = (0.8)(5%) + (0.33)(36%) = 16%.

59. Forecasting Sales Using Purchase Intentions (continued)
The 16% forecast assumes 100% awareness and availability.
Adjust downwards to account for incomplete awareness and availability.
If 60% of the market is aware of the product and has it available, market share is recalculated to (0.6) (16%) = 9.6%.

60. Forecasting Sales Using A-T-A-R Model
Assume awareness = 90% and availability =67%.
Trial rate = 16% (16% of the market that is aware of the product and has it available tries it at least once).
RS = proportion who switch to new product = 70%.
Rr = proportion who repeat purchase the new product = 60%.
Rt = Long-run repeat purchase = RS /(1+Rs-Rr) = 63.6%.
Market Share = T x Rt x Awareness x Availability = 16% x 63.6% x 90% x 67% = 6.14%.
The following bar chart shows this procedure graphically.

61. A-T-A-R Model Results: Bar Chart Format
Figure 11.3

62. Bass Model Forecast of Product Diffusion
Figure 11.4

63. The Life Cycle of Assessment
Figure 11.5

64. Calculating New Product’s Required Rate of Return
Figure 11.6
% Return
Reqd. Rate
of Return
Cost of
Capital
Risk
Avg. Risk
of Firm
Risk on
Proposed
Product

65. Hurdle Rates on Returns and Other Measures
Figure 11.8
Explanation: the hurdles should reflect a product’s purpose,
or assignment. Example: we might accept a very low
share increase for an item that simply capitalized on our
existing market position.

66. Hoechst-U.S. Scoring Model
Figure 11.9

67. Specialty Minerals Scoring Model
Management interest
Customer interest
Sustainability of competitive advantage
Technical feasibility
Business case strength
Fit with core competencies
Profitability and impact

68. Manufacturing Firm Scoring Model (disguised)
Net Present Value
Internal Rate of Return
Strategic Importance of Project (how well it aligns with business strategy)
Probability of Technical Success
Note: how in each of these examples, the model contains financial as well as strategic criteria.

70. CHAPTER 12 PRODUCT PROTOCOL
McGraw-Hill/Irwin
Copyright ©2006 The McGraw-Hill Companies, Inc. All right reserved.

71. A Marketing-R&D Conversation
MKTG: We’re going to be needing a solar-powered version of our standard garage door opener, soon.
R&D: How reliable should it be? Should it be controllable from inside the house? Should we use new electronics technology? Should it be separate from the collector system already installed?
MKTG: Well, you’re the technical people, make some recommendations.
R&D: In other words, you don’t know what you want.
MKTG: Cripes, do we have to tell you everything? What do you do for a living? How should we know where the collectors should be located?
R&D: If we go electronic, you’ll say it’s too expensive. If we go electric, you’ll say we’re living in the 1930s. Wherever we put the collectors you will say we are wrong. If we guess, you second-guess.
MKTG: OK. Put the collectors on the garage roof.
R&D: That probably can’t be done.
Figure 12.1

72. Why Have A Protocol?
Also known as product requirements, product definition, etc.
Doesn’t it seem obvious and simple?
Actually is one of the top success factors distinguishing winning from losing projects.
Maybe because it involves more than technical aspects.

73. Purposes of Protocol
To determine what marketing and R&D groups need to do their work.
Think concept life cycle: this is more than a simple concept statement, yet less than we will have when the first prototype is available.
Try to identify the key deliverables at this point.
To communicate essential to all players and integrate their actions, directing outcomes consistent with the full screen and financials.
To set boundaries on development process or cycle time.
To permit the development process to be managed (i.e., what needs to be done, when, why, how, by whom, whether).

74. Contents of a Product Protocol
Target market
Product positioning
Product attributes (benefits)
Competitive comparison
Augmentation dimensions
Timing
Marketing requirements
Financial requirements
Production requirements
Regulatory requirements
Corporate strategy requirements
Potholes

75. Narrow Version of Protocol: End-User “I Want” List
This is the “I Want” list for a new lawn leaf blower /vacuum. These are benefits -- how they are achieved is determined during development.
Manufacturer stands behind product -- two year full warranty.
Electrically and mechanically safe. Good value and lasts a long time -- top quality component parts, state-of-the-art manufacturing.
Makes yard clean-up easier -- most powerful blower you can buy.
Converts from blower to vacuum without tools.
Electrical cord does not come loose.
Can be used with existing extension cord.
Easy to maneuver.
Clog-free vacuuming.
Tubes go together and stay together.

76. A Sample Protocol: Trash Disposal System
Figure 12.3
Must automate trash disposal at factory cost not to exceed $800.
Clean, ventilated, odor-free, no chance of combustion.
Must be safe enough to be operated by children; outside storage safeguards against children and animals.
Size must be small enough to work as kitchen appliance, to provide easy access and eliminate need for double handling of trash.
Simple installation
Decor adaptable to different user tastes.
If design requires opening of exterior walls, structural integrity and insulation against elements must be maintained.
User-friendly, automatic operation, easy to maintain by technical servicepeople.

77. Quality Function Deployment (QFD)
A technique designed to insure that customer needs are focused on throughout the new product project.
First step is the House of Quality (HOQ): gathers desired attributes from customers and translates them to engineering characteristics.
Requires inputs from marketing and technical personnel; encourages communication and cooperation across the functional areas.

78. Benefits in QFD Example
Compatibility
Print quality
Ease of use
Productivity

79. Technologies in QFD Example
Postscript compatible
Resolution
Edge sharpness
Duplex printing
Hours training required
Speed (text)
Speed (graphics)

80. QFD and Its House of Quality
Figure 12.4

81. Tradeoffs in QFD Example
Improving resolution slows down text printing and really slows down graphics printing.
Increasing edge sharpness slows down both text and graphics printing.
Duplex printing speeds up text and graphics printing.
Postscript compatibility improves resolution and edge sharpness.

82. Moving to Later Stages of QFD
Figure 12.5
House of Quality:
Customer Attributes
Engineering Characteristics
Parts Characteristics
Process Operations
Production Requirements
Parts Deployment:
Process Planning:
Production Planning:
Converted to:
Source: Adapted from John R. Hauser and Don Clausing, “The House of Quality,” Harvard Business Review, May-June, 1988.

83. QFD Realities Substantial cost and time commitment.
Only mixed results in some applications.
Requires top management support and commitment.
Must be viewed internally as an investment.
Requires good functional integration.
May work better if the team members have a successful track record of working together before.

84. Improving QFD Efficiency
Concentrate on only some of the Engineering Characteristics: the most critical, or the ones where improvements are easy to accomplish.
Organize the Engineering Characteristics into groups, and designate responsibility to functional areas.
Do cost-benefit analysis on each Engineering Characteristic to determine which provide the greatest benefit relative to cost of improvement.

85. Concept Evaluation (Chapters 8-12)
Review…
Concept Evaluation (Chapters 8-12)
Concept Eval System
Concept Testing
Full Screen
Sales and Forecasting
Product Protocol

86. Development (Chapters 8-12)
Preview…
Development (Chapters 8-12)
Design
Development Team Mgmt
Product Use Testing
Next Week Midterm II…
Concept Eval/Development

87. Concept Evaluation for Our Group…
Discussion…
Concept Evaluation for Our Group…
Direction/Customer
Questions
Possible Potholes