1. 9-1

2. McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. 9 New Products

3. 9-3 Considerations in Adding or Dropping a Variant Customer based New customer attracted Old customer cannibalization Confusion and dilution of brand equity Operations based Loss of economies of scale Problems in gaining additional distribution Additional servicing needs Old customers lost Customer switching Signal of weakness Impaired efficiency Maintaining distribution Servicing old versions AddingDropping

4. 9-4 Product Stages 1.Idea generation 2.Concept development 3.Feasibility screening 4.Concept testing 5.Product development 6.Product testing 7.Market testing 8.Go-no-go decision

5. 9-5 Assessing the Impact of Product Redesign on Customers Reaction Response after Trial Impact on Sales/Profits 1. LoyalA. Try1) Prefer 2) Like 3) Not like Gain Neutral Loss B. Not tryLoss 2. OccasionalA. Try1) Prefer 2) Like 3) Not like Gain Trail sales gain Loss B. Not tryLoss 3. NoncustomersA. Try1) Prefer 2) Like 3) Not Like Gain Trail sales gain B. Not tryNeutral Current Customers

6. 9-6 Proactive Idea Generation 1.Customer analysis 2.Competitor analysis 3.Active search 4.Category analysis 5.Brainstorming

7. 9-7 Reactive Idea Sources 1.Customers 2.Employees 3.Suppliers 4.Distribution channels 5.Operations people 6.Internal and External R&D 7.Design 8.Entrepreneurs

8. 9-8 Common Formal Tests Concept testing Surveys Focus groups Demonstrations Product testing Product tests Discrimination and preference testing Market tests

9. 9-9 Decisions for a Market Test Action standards Where to test markets What to do How long Cost Information gathering

10. 9-10 Keys to Eventual Sales 1.Awareness 2.The eventual proportion of consumers who try the product (trial). 3.The proportion of triers who remain with the brand (repeat). 4.The usage rate of the product category among eventual users.

11. 9-11 Typical Penetration for New Brand Over Time Period Penetration (percent) 1 2 3 4 5 10 20 30 40 Ultimate penetration level (45%)

12. 9-12 Typical Repeat Rate for New Brand Over Time

13. 9-13 Repeat Rates and Product Performance

14. 9-14 Really New Products 1.Create or expand a new category, thereby making cross-category competition the key 2.Are new to customers for whom substantial learning is often required 3.Raise broad issues such as the appropriate channels of distribution and organizational responsibility 4.Create (sometimes) a need for infrastructure, software, and add-ons

15. 9-15 Examples of Really New Products Packaged Goods Bottled tea Light beer Frozen vegetables Sports drinks (Gatorade) Services Overnight air delivery ATMs Credit cards IRAs, annuities Internet Priceline.com Ariba LivePerson.com Durables Microwave ovens Room air conditioners Dishwashers Black-and-white TVs Industrial products Nylon Semiconductors Nuclear power reactors Printing presses

16. 9-16 Getting Ideas for Really New Products 1.Asking (or listening to) dissatisfied customers 2.Asking nonrepresentative customers 3.Using open-ended, qualitative (vs. structured survey) procedures 4.Involving customers as co-developers 5.Listening to scientists and newcomers rather than engineers and experts 6.Scanning the literature for interesting possibilities

17. 9-17 Evaluating Really New Products 1.Relative advantage 2.Compatibility 3.Risk 4.Complexity 5.Observability/communicability 6.Trialability/divisibility

18. 9-18 Evaluating New Products

19. 9-19 Evaluation Criteria for New Products Customer Level 1.Do customers like it? 2.Is it unique? 3.Will they buy it? 4.How soon/fast will they buy it?

20. 9-20 Evaluation Criteria for New Products (cont.) Firm Level 1.Does it add to our customer base through… Acquisition? Expansion? Loyalty/retention? Enhanced brand equity? 2.Does it detract from our customer base through… Cannibalization? Customer defections? Lowered brand equity? 3.Do we have the capabilities to… Develop it? Produce it? Distribute and sell it? Buy or partner to do a-c?

21. 9-21 Evaluation Criteria for New Products (cont.) Firm Level 4.Will it be profitable… On a stand-alone basis? Long-run impact on produce line? 5.Are there other benefits associated with it… Learning/capacity enhancement? PR? 6.Are there other costs associated with it… Legal liability? PR? 7.Can we control the market in the long run?