1. The Product

2. New Product / Service Development Process Life Cycle Management Market response analysis Competitive monitoring & defense Innovation at maturity Introduction Launch planning Tracking the launch Testing Advertising & product testing Pretest & pre-launch forecasting Test marketing Design Customer needsSales forecast Product positioning Engineering SegmentationMarketing mix Opportunity Identification Market definition Idea generation Reposition

3. The NewProd Scoring Model To help evaluate ideas generated

4. Steps in the Design Process Opportunity Definition Refinement Marketing R&D Engineering Production Evaluation Customer Measurement 1. Qualitative measurement to identify issues 2. Quantitative measurement for input to models Summary of Customer Perception Segments Product Features Preference Choice “What-if” Forecasts 1. Aggregate Individuals 2. Awareness & Availability HONDA

5. 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

6. Building the House of Quality Q1: What do customers want? BundlesCustomer Attributes Easy to openEasy to close from outside & close doorStays open on a hill IsolationDoes not leak in rain No road noise Q2: Are all attributes equally important? BundlesCustomer AttributesImportance Easy to openEasy to close from outside 7 & close doorStays open on a hill 5 IsolationDoes not leak in rain 3 No road noise 2

7. Building the House of Quality… Continued Q3: Will delivering on needs yield competitive advantage? BundlesCustomer Attributes ImportanceCustomer Perceptions Easy to openEasy to close from outside 7 & close doorStays open on a hill 5 IsolationDoes 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 5 Worst Best OB A BOA ABO BA O O: Our Car; A: A’s Car; B: B’s Car

8. Building the House of Quality… Continued Q4: How can we change the product? Open-Close Effort Sealing Insulation Isolation Easy to Open & Close Door Relative Importance 7 5 3 2 Customer Attributes Engineering Characteristics Easy to close from out Stays open on a hill Doesn’t leak in rain No road noise OB A BOA ABO BA O - Energy to close door + Force on level ground + Force on 10 o slope + Door seal resistance + Road noise reduction Customer Perceptions 1 2 3 4 5

9. Building the House of Quality… Continued Q5: How much do engineers influence customer perceived qualities? Open-Close Effort Sealing Insulation Isolation Easy to Open & Close Door Relative Importance 7 5 3 2 Customer Attributes Engineering Characteristics Easy to close from out Stays open on a hill Doesn’t leak in rain No road noise OB A BOA ABO BA O - Energy to close door + Force on level ground + Force on 10 o slope + Door seal resistance + Road noise reduction Customer Perceptions 1 2 3 4 5 + ++ _ + + + Relationships + + Strong Positive + Medium Positive _ Medium Negative _ _ Strong Negative

10. Open-Close Effort Sealing Insulation Isolation Easy to Open & Close Door Relative Importance 7 5 3 2 Customer Attributes Engineering Characteristics Easy to close from out Stays open on a hill Doesn’t leak in rain No road noise OB A BOA ABO BA O - Energy to close door + Force on level ground + Force on 10 o slope + Door seal resistance + Road noise reduction Customer Perceptions 1 2 3 4 5 + ++ _ + + + Relationships + + Strong Positive + Medium Positive _ Medium Negative _ _ Strong Negative Objective Measures Measurement Units ftlblb lb/ftdb Our Car A’s Car B’s car 11 9 9.5 12 11 6 6 7 3 2 2 9 5 6

11. Open-Close Effort Sealing Insulation Isolation Easy to Open & Close Door Relative Importance 7 5 3 2 Customer Attributes Engineering Characteristics Easy to close from out Stays open on a hill Doesn’t leak in rain No road noise OB A BOA ABO BA O - Energy to close door + Force on level ground + Force on 10 o slope + Door seal resistance + Road noise reduction Customer Perceptions 1 2 3 4 5 + ++ _ + + + Relationships + + Strong Positive + Medium Positive _ Medium Negative _ _ Strong Negative Objective Measures Measurement Units ftlb lb lb/ft db Our Car A’s Car B’s car 11 9 9.5 12 11 6 6 7 3 2 9 5 6 2 _ _ _ + + Roof Matrix Q6: How does one engineering change affect other characteristics?

12. Open-Close Effort Sealing Insulation Isolation Easy to Open & Close Door Relative Importance 7 5 3 2 Customer Attributes Engineering Characteristics Easy to close from out Stays open on a hill Doesn’t leak in rain No road noise OB A BOA ABO BA O - Energy to close door + Force on level ground + Force on 10 o slope + Door seal resistance + Road noise reduction Customer Perceptions 1 2 3 4 5 + ++ _ + + + Relationships + + Strong Positive + Medium Positive _ Medium Negative _ _ Strong Negative Objective Measures Measurement Units ftlb lb lb/ft db Our Car A’s Car B’s car 11 9 9.5 12 11 6 6 7 3 2 9 5 6 2 _ _ _ + + Roof Matrix Technical Difficulty Estimated Cost Targets Q7: What are the technical limitations and costs associated with various changes

13. 4-Approaches to Mass Customization TransparentCollaborative CosmeticAdaptive Product Representation change no change change

14. 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

15. Cyclical Workload “Mismatch” marketing engineering break Time lo hi Workload Product DefinitionProduct DevelopmentProduct Launch

16. New Product / Service Development Process Life Cycle Management Market response analysis Competitive monitoring & defense Innovation at maturity Introduction Launch planning Tracking the launch Testing Advertising & product testing Pretest & pre-launch forecasting Test marketing Design Customer needsSales forecast Product positioning Engineering SegmentationMarketing mix Opportunity Identification Market definition Idea generation Reposition

17. 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 Data Adjustment Demographics Price / Value Perception Absolute Price Category Usage Total Sales 100% Aware 100% Available Market Adjustment Advertising Distribution Competition Sales

18. 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 MIDDLEUPPER 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

19. Pre-Test & Pre-Launch Forecasting.. Continued Forecasting the sales of a new frequently purchased product u Forecast sales, P for a new product depends upon u Awareness of new brand (A w ) u Availability of new brand (A v ) u Ultimate trial proportion conditional on awareness and availability (T) u Long run share of purchases of new brand among those who try (R) u Total category sales (C) u P = C A w A v T R Advertising Media Weight Brand Awareness Trial Initial Repeat Continued Repeat Sales & Market Share Distribution Promotion

20. 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

21. 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. Pre-Test & Pre-Launch Forecasting.. Continued

22. Click on the box containing the person you would like to speak to..

23. Forecasting the sales of a new durable: Bass Model Time Sales 1. Sales at any point in time comes from innovators and imitators 2. The number of people who can innovate is a fraction of those who have not yet bought 3. The number of imitators depends upon how those who have already purchased influence those who have not S t =  (M - Y t-1 ) +  (Y t-1 /M) (M - Y t-1 ) S t = (  +  (Y t-1 /M)) (M - Y t-1 ) Values for the unknown parameters, , and M are obtained using data for similar goods

24. New Product / Service Development Process Life Cycle Management Market response analysis Competitive monitoring & defense Innovation at maturity Introduction Launch planning Tracking the launch Testing Advertising & product testing Pretest & pre-launch forecasting Test marketing Design Customer needsSales forecast Product positioning Engineering SegmentationMarketing mix Opportunity Identification Market definition Idea generation Reposition

25. Cross-Functional Integration in New Product Strategy Marketing R&D Engineering Finance Production Customer Needs Product Design Design for Manufacturing Process Needs Sales Forecast Inventory Fund Requests Budgets Fund Requests Budgets Fund Requests

26. New Product Development - Plan Vs. Reality Idea Generation Screening & Refinement Screening & Refinement Test Marketing Test Marketing National Launch National Launch Exultation Disenchantment Confusion Search for guilty Punishment of Innocent Punishment of Innocent Distinction for the uninvolved Distinction for the uninvolved

27. 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

28. 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 CLOUT i =  j,j ne i [ e 2 ji ] Compute VULNERABILITY which is the effect on my sales of a price reduction by all competing brands VULNERABILITY i =  j,j ne i [ e 2 ij ]

29. A Clout - Vulnerability Map CLOUT VULNERABILITY A B C D E F G

30. Brand Management: 2 Dimensions, 4 Strategies Relative Market Share low high Value Category Premium Category The Hitchhiker ROS = 15% ~ 20% Innovate Niche strategies Price follower The High-Road ROS > 20% Innovation Judicious Pricing Raise Entry Barriers The Low-Road ROS = 5% ~ 10% Cut Costs Lower Prices Category Drifts Up? The Dead-End Brand ROS < 5% Slash price/cost Move Right “Trump” category Move Up Your Brand’s Best Strategy Vishwanath & Mark HBR 1997

31. 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

32. 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

33. 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)

34. Moving Upscale or Downscale Going Upscale Problem with credibility Reposition entire brand - almost impossible Sub-brands Parent (driver) - Child (descriptor)

35. 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

36. How do you manage ideas for new products & concepts 1. Ideas not solicited 2. Ideas solicited from select group 3. Ideas can be sold to management even if not solicited 4. New ideas are recognized even if results are unclear 5. People encouraged to generate new ideas How do you manage innovation for product development 1. Innovation limited to the labs 2. Innovation is in marginal improvements 3. New features are added to existing products 4. Innovation is the cornerstone of all new products 5. Cross functional innovations catayze birth of new products How do you use new products as marketing weapons 1. Company often last to enter new categories 2. The company follows the leader closely 3. Company sometimes a pioneer by chance 4. Company launches new products, with new concepts, albeit occasionally 5. Company usually launches new products with new concepts How frequently do you launch new products and brands 1. Company relies only on tried & trusted brands 2. Rate of launches is below industry average 3. Rate of launches is on par with average 4. New products are launched when considered necessary 5. Company responds to every market change with a launch How do you work on product improvement & modification 1. No organized process in the company 2. Products allowed to run through life cycle with few changes 3. Products improved in decline stage 4. Products have periodic changes based on customer feedback 5. Products constantly changing based on feedback & opportunities How does your company test market new products 1. Occasional, non-institutionalized process 2. Conducted regularly with small samples 3. Marketing mix seldom modified after test marketing 4. Regular test marketing - only for products 5. All elements of the marketing mix are test- marketed and suitably modified

37. How closely is the customer involved in product testing 1. Feedback obtained after launch 2. Customer involved in test-marketing stage 3. Customer consulted in the beginning for product ideas 4. Customer involved from prototype to test marketing 5. Customer involved at every stage from idea generation How do you customize products for different buyers 1. Product offering is homogeneous 2. Differentiation via external factors such as package size 3. Service envelope is customized 4. Product-service combo is tailored to individual buyer 5. 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 provided 4. Informed but not involved in the planning 5. Work closely with company on new products How do you respond to new products from competitors 1. No serious attempt to develop new product 2. Company checks whether a new product is necessary 3. Customer needs are re-examined before developing a competing product 4. New product launched with more benefits 5. 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