Download 2: sample exam

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ZM11 Marketing and Innovation
Master Innovation Management
24 January 2013
14.00 to 17.00 hours
Prof. Dr. E.J. Nijssen
Dr. J. Wouters
Note: Students are not allowed to use any books or readers, except for a
dictionary. Attached to this exam is one appendix: “Philips Lighting and the art
of reduction”. This text was previously also made available to students via
OASE.
INTRODUCTION
This exam consists of 10 questions (counting sub questions) that cover a
range of topics addressed in the course. The total length is 16 pages
(including the appendix), and the last question is 4b.
Please read each question carefully before answering in the designated open
spaces. Please give brief but complete answers; quality not quantity should be
your objective.
Generally a question focuses on one or two articles included in the course
materials. Often you are first asked to reproduce a concept and then discuss
or use it. All (sub) questions are awarded 10 points max. A total of max. 100
points thus can be earned.
Good luck!!
On behalf of the chairperson of the 'Vaste Commissie voor de examens' we
inform you that only the exams or part of exams for which you have officially
registered will be assessed.
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Question 1a:
Moorman and Rust (1999) distinguish between the marketing function and
marketing orientation. Please define both concepts and briefly discuss the
difference(s) and relationship(s) between the two.
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Question 1b:
The authors stress the coordinating role of marketing and the need for
accountability. Please define and explain these two concepts briefly.
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Question 1c:
Please read the text in the appendix. Based on remarks by Mr. Pim Kemps in
this text regarding the special Formido lamp for fresh food products, can
marketing at Philips be considered accountable? Please explain.
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Question 2a:
Two articles on R&D-marketing interface were discussed: Workman (1993)
and DeClecq, Thongpapanl and Dimov (2011). What are the main similarities
and differences between both studies?
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Question 2b:
Based on the text in the appendix, how would you qualify, in general, the
relationship between R&D and marketing at Philips? Please explain your
answer.
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Question 3a:
Bonner and Walker jr (2004) in their article discuss customer involvement in
new product development. What is the main focus of their study and what are
their findings?
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Question 3b:
In the text in the appendix it is explained that Mr. Pim Kemps at Phlips
involved his main customer for food-light solutions by letting this customer
comment about their new product concept. Philips engineers and sales were
present and worked together. How does this relate to Bonner and Walker jr's
(2004) article?
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Question 3c:
Schreier and Prugle (2008) study lead users as defined by von Hippel (1986).
Can the customer Philips involves in the above example (question 3b) be
characterized as lead user? Please, explain your answer using the criteria that
von Hippel used for describing/defining lead users.
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Question 4a:
Guiltinan (1999) discussed product launch and adoption. Please define
adoption and identify the 5 key adoption characteristics listed in the article.
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Question 4b:
As described in the text in the appendix, Mr. Pim Kemps expected to sell
many new fresh food LED lamps (called: Fortimo DML). The new lamp is
better than the old lamp (whiteSON) although there are no retailer/shopfloor
tests to confirm this. After 1 year sales are somewhat disappointing. Rather
than taking the market by storm it has made small inroads in the marketplace.
Please explain this based on the adoption characteristics/adoption theory.
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Appendix 1:
Philips Lighting and the art of reduction
Original text: NRC 10 -11 November, Marc Hijink
Text has been changed and extended for educative purposes
Introduction: LED it be
The Pepsi test, it is called, the table with 4 lamps hidden behind white shades. One is
a energy saving lamp, one a halogenlamp, one a LED lamp and a traditional lightbulb.
“Which one do you like best --or don’t you like?” asks Fran van der Vloed director of
Philips Lighting Benelux. He is surprised when I dislike the LEDlamp the most.
“oeps, some one must have put an old LED in there.” “The old LEDS are too white
and thus get bad ratings. ”, he explains.
It proofs that the Dutch consumers love warm, almost candle-like light. It might have
something to do with the type of sunlight we have. The Netherlands may be the most
innovative and test market for Philips Lighting, but Dutch consumers spend very little
on LED lighting solutions. In fact they only spend 7% whereas consumers from
neighboring countries spend 12% on LED options. Van der Vloed: “We have no
explanation for this phenomenon, except that in 2009 the Postcode lottery offered 2.5
million people a free LEDlamp. The lamp came from a competitor (Lemnis, run by a
grandson of Frits Philips) and its light was very white. Consumers did not like it very
much. As a result consumers may have become more reluctant. Van der Vloed
remembers the introduction of energysaving lamps, which was also hard in the
Netherlands. The first lamps were too slow starting and their light too harsh to Dutch
liking. However, LED is getting support from Brussels; light bulbs have been banned
forcing a change to LED technology. Van der Vloed is convinced that the Dutch will
adopt LED completely. He wants to tickle Dutch sense for cheap and economical
options by printing on the packaging material of LEDs the costs for a regular bulb and
LED demonstrating the cost benefit involved. A new LED lamp will cost 10 to 20
euro (for the models with dim option) and this money can be earned back within 3
years due to energy saving. After year 3 consumers really begin to make money!
In the meantime Philips tried to be creative in satisfying the Dutch preference for
warm, candle-like light. Different from light bulbs, LEDs still offering harsh white
rather than soft light, even when dimmed. To address the problem Philips invented the
DimTone-technology, which is also applied to new low hanging luminars (e.g. for
over your dining table). LEDs get a yellowish glow when turned down to the lowest
setting. It matches the color of a traditional light bulb. One snag: The dimmer will
cost you 120 euro extra…. Really cosy does come at a price when it comes to LED
technology.
LED technology is a blessing in disguise for Philips. The option to have multicolor
LED light offers new opportunities to create extra atmosphere in stores, schools,
offices, hospitals and livingrooms. However, the sales of single lamps is decreasing;
the replacement market for LED is much smaller as LEDs will last forever (several
decades is the prediction). The prices are under pressure due to new competition from
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Asian competitors that also produce LEDs. Philips follows the competition in the
market closely studying for instance their production and product strategies.
In response Philips has decided to focus on luminars --the LED plus its fitting/house.
Luminars are already common in business markets, but consumers are still more used
to replacing single bulbs, which they buy at a Do It Yourself maretk or supermarket.
Yet, a LED has a life expectancy of the luminar/house. So, it requires a different
business model that is independent on the times of replacement of a bulb or LED.
Philips is the biggest lighting manufacturer worldwide and the transition to digital
lighting demands its toll. Serious reorganizations have been implemented and are still
scheduled. A few months ago the firm announced another loss of 170 jobs at
Lighting’s headquarters, and 218 jobs in factories in Roosendaal, Winterswijk and
Winschoten (all in the Netherlands). On top of this heavy cost cuttings. CEO Frans
van Houten recently announced the Accelerate program. A cost reduction of 800
million euro which was increasd to 1.1 billion euro soon after. Philips reported huge
losses in 2009 and 2011 when the lighting division was hit by the economic crises,
particularly recessions and sharp decreases in the car and construction industries.
With most sales coming from business to business customers Philips enjoyed mega
losses of billions of euros.
Van Houten replaced the Lighting’s division’s boss, the Belgian Rudy Provoost by the
Italian Eric Rondolat. Rondolat has major plans. First, American subsidiary Lumileds,
who produces led-chips, should sharply increase its efficiency. Second, the same
applies to Philips Kontich which includes the Belgian based luminar manufacturer
Massive that was acquired in 2006 and fitted the new strategy to move from LEDs to
designing, manufacturing and selling integrated luminars. However, Massive is still
recovering from the takeover and subsequent changes. It was forced to adopt a new
ICT system, move production and implement Philips distribution philosophy and
method. It paralyzed the organization; although the worst seems over now. The
forecast is that Lumileds and Kontich will be profitable again in the last quarter of
2012.
Accelerate program
The accelerate program is more than just a cost saving operations, says van der Vloed.
It is aimed at improving the link between R&D and the market. While Philips has
always been very successful in basic research (the firm has a huge patent portfolio) it
has been less effective in leveraging these efforts. The problem is a disconnect
between the researchers and the downstream marketers and sales people. A decade
ago the firm’s top management tried to repair this by hiring marketing staff from
firms like P&G and Unilever. But this proofed unsuccessful as they lacked affinity
with the technical core of the organization. Accelerate uses a different approach.
Many of the previous hires from outside have been laid off and now a more
fundamental cultural change is planned. Van der Vloed is one of 150 top managers
that were involved and trained to facilitate in this process. The aim is to remain the
market leader in LED technology, and create successful new products. As the market
leader in this technology Philips has much to lose, as new competitors move in. Today
Philips has to fight for every new order.
The corridors of Philips Lighting Benelux are full of posters encouraging employees
to “Putt the customer first” and with pledges of employees promising “to positively
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surprise the customer with personal attention”. Even in the restroom I notice a slogan
“mirror, mirror on the wall, how can I make my customer the happiest of them all”.
How does this benefit consumers?” I ask van der Vloed. Van der Vloed: “Well as a
result it has become easier for customers to contact us. Philips is a complex
organization. If a lamp breaks down and you call us we won’t hassle you for a receipt
but simply replace your lamp.”
High on the list of priorities of Philips’top management is the improvement of
delivery times. The catalogue from Philips is very complex. The firm is has many,
many product-market combinations. It makes lamps that fit your bicycle but also help
illuminate football fields and the Eifel tower.
The new Hue lamp
An interesting latest development is Philips Hue. Hue is a personal lighting system
using LED technology. Hue looks like LivingColors (Philips gaget lamp for which
you can change the color across a large spectrum from white, to red, green for
instance) and WakeUp light. These were true hits for the company. Hue means
“glow” and can be used to color your house. You operate it remotely, via an App on
your smartphone or tablet. It could become a mega hit too. However, for now its
availability is limited. To ensure an innovative image and amphasize the fact that it
can be controlled via an iPhone, Philips decided to limit distribution and only make
the product available via Apple stores and thus focus on Apple customers.
Apple managers liked the product as soon as it was presented to them. The product is
unique and enhances Apple’s innovative reputation. The choice for exclusive
distribution via Apple stores (including Apple’s online store!) has helped to solve the
problem of limited initial production capacity at Philips. However, after 2013 the
account manager of the HUE expects that capacity will be no issue anymore. Then, a
broader distribution may be sought. From 2014 on prices may also be lowered slightly
to fight off the competition that by then may have developed similar products.
A beginners set will cost you 199 euro and includes 3 lamps with a regular fitting and
a capacity of 600 lumen --comparable to a 50 Watt traditional light bulb. Each extra
lamp will cost you 59 euro, a steep margin and price over a regular LED lamp. The
price premium is for a LED lamp that has a multitude of colors and includes a chip for
wireless control (to set color and dim the lights), but for now fits well the exclusive
distribution option selected.
Philips is really happy that it managed to get the Hue out in time, just before the
holidays. Products like Living colors and Wake up light make great gifts. While it
might have made sense to promote Hue heavily the firm decided against a large
campaign and fully count on free publicity and Apple in-store promotions and
Apple’s magazine. Yet, consistent with the quality image Philips is looking for with
Hue, a beautiful and promotion film has been made for the Internet; it has been
complemented with several other little films specifically made for Youtube among
others. Anyone who searches for Hue and goes to the Philips website
(http://www.lighting.philips.nl/nl_nl/lightcommunity/trends/led/meet_hue.wpd) can
easily find it and order the product via the Apple store. The product manager of Hue is
really pleased with the end result: “The communications, but also other decisions we
made, completely align with the positioning and image we aim for!”.
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Hue addresses the growing desire for more domotica; applications and machines that
can be automated and controlled via the Internet. Every lamp/light source has its own
Internet address and is operated via an intelligent ‘bridge’ that is connected to your
router/home network. With this ‘bridge’ you can control up to 50 lamps! Connecting a
Hue lamp is simple. In one click you can change the color of the light in a room. Also
changing the color to match that of a photograph is possible, just as turning on the
light through the Internet --even when you are not at home. It is the easiest color
lighting system Philips produced to date and can accommodate reading, warm
atmosphere but also quickly help create a disco-like or party feel (with different colors
in every room). A pity Hue lamps come with a normal fitting and do not yet fit
halogen fittings.
Fresh food lighting
Another interesting example involved our guest lecturer Pim Kemps, from Philips
professional Lighting division (see Appendix A). He who showed the special food
LED lamp --Fortimo LED DML Food-- that Philips professional lighting division
developed. The Fortimo LED DLM Food is an LED-based module that offers
significant energy saving and eliminates the need of continues re-lamping (as life
expectancy of LEDs is several decades). It also enables new applications due to that
the light beam contains no UV or IR radiation, and LED hardly produces any heat.
Because the Formido LED DML food covers the full spectrum, but is less saturated, a
red tomato has a fuller and more attractive color than under any regular lamp. The
result is similar or even better than that of the reference product: Philip’s WhiteSON
lamp which currently is the market leader in this market segment.
Involving its main customer, German market leader in food lighting solutions Barr in
its new product development process, Kemps was able to optimize the product and
make it also suitable for lighting meat products. Kemps organized several meetings
with Philips’ engineers, sales/product managers and employees from Barr. A first
prototype that was shown with proud managed to make juicy-red look more attractive,
but Barr’s people also noted a discoloring of the originally white fat trim --it had
colored pink. Working together with employees from Barr this defect was identified
and resolved. Under the new lamp meat looks juicy red without obscuring the white
fat trim in/of the meat. In hindsight Kemps was really pleased with himself for
bringing together the R&D people from the project with the customer. With a
background in Chemistry and thus an engineer himself, but now working as a sales/
product manager, he was in the ideal situation to link the product development to the
customer. It fostered a better understanding between the two parties and paved the
path for this new, exciting new product.
Customer advantages of the new Fortimo lamp include: Increase the attractiveness of
the fresh food, op to 30% energy saving, no re-lamping / maintenance free, minimum
heating of illuminated merchandize, and reduced discoloring of fresh food.
Based on these customer advantages and its price (appox. 1.5-2 x that of the old
leading product WhiteSON) Kemps estimated that the new Fortimo would take the
fresh food market by storm.
However, after one year 25 customer have adopted it but only one customer has really
embraced it fully. As a result sales are much slower than expected, currently 1 mio
15
euro per year (year #1). While customers agree that the spectrum is perfect the fact
that the lamp is not useful for spot lighting limits its application. Further, the sales
process needs to be improved. “We used power point slides and brochures to get our
message across, but it clearly takes more to convince large retailers. We make
progress much faster when we demonstrate our product and offer retailers a trial.
Another issue is the fittings. Only if stores get refurbished customers may decide to
replace fittings which allow for switching from WhiteSON to Formido.” Regarding
the question how much marketing budget was spend Kemps answers: “I really don’t
know. I involve the marketing department and based on the market potential and goals
they see what they can do. Mainly they developed support materials and off and
online communications. Fortunately Philips has decided to really push LED
technology and products and as a result Formido gets much more support than the old
product ranges that we carry. I am happy about that.” “I think the future for Formido
still looks very bright!”.
Screen shot of Philips Lighting professional customer site
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