Download MBA 860 - Adv. Mkt. Strategy

7
New Product
Development,
Management, and
Strategy
McGraw-Hill/Irwin
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Agenda
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Product Lines
Business New Product Development
Organization of the New Product Effort
Product Life-Cycle Analysis
Determinants of the Product Mix
The Product Adoption–Diffusion Process
Product Portfolio Classification, Analysis, and
Strategy
Product Deletion Strategy
Marketing of Business Services
7-2
Product Lines Defined
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Proprietary or catalog
• Standard products offered to many customers and
usually inventoried in anticipation of sales orders. For
example, the DoAll Company keeps a large inventory of
model No. C916A Band Saws to ensure quick delivery
to customers.
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Custom-built
• Different variations of accessories and options to
complement proprietary or catalog products offered. For
example, the DoAll company fills a request from a major
company for a custom, made-to-order saw with a larger
motor size, larger table size, and automatic indexing.
7-3
Product Lines Defined
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Custom-designed
• Products designed for (and usually only for) a particular
user. For example, DoAll designed a unique band saw
with a custom-fixtured table and remote-control operation
for U.S. Army to use to cut up live ammunition.
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Industrial services
• Intangibles, i.e., maintenance, machine repair, consulting.
For example, DoAll provides a saw and coolant specialist
who makes courtesy inspections at customers’ plants to
assist in using DoAll in product applications.
7-4
Custom Product Versus
Proprietary Standard Line Manufacturers
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Custom: BMW designs a windshield washer fluid container
for their new model and sends part prints to a custom
plastics component manufacturer. Manufacturer must build
production equipment but BMW owns molding dies and
rights to product. Supplier sales build relationship, work with
customer on design, finalize terms of sale.
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Proprietary standard line: BMW picks a standard wheel
bearing for its new model and orders it directly from
manufacturer. Manufacturer sells same wheel bearing to
others. Supplier sales build relationship, work with customer
on application, finalize terms of sale.
7-5
Business New Product
Development
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New Product Approaches
• Technology Push - When perceived value of
particular technology is great; firm has only a
vague notion of possible applications, and usually
not much more.
• Market Pull - Primarily the result of marketing
research methodologies of interviewing potential
users about their needs, then developing solutions
to those perceived market needs.
7-6
The New Product Development
Process
Idea and concept generation
Screening and evaluation
Business analysis
Product development
Product testing
Product commercialization and introduction
7-7
Marketing Activities at Each Phase
1. Idea and concept generation: involves the search for
product ideas and concepts that meet company
objectives
2. Screening and evaluation: involves analysis to
determine which ideas submitted are pertinent and
merit a more detailed study of potential feasibility and
market acceptance
3. Business analysis: return-on-investment criteria are
examined along with competition and the potential for
market entry
7-8
Marketing Activities at Each Phase
4. Product development: involves taking the product
from an idea generated during a brainstorming
session to a state of readiness for product and
market testing
5. Product testing: involves conducting commercial
experiments necessary to verify earlier business
judgments
6. Product commercialization and introduction: includes
launching the new product through full-scale
production and sales and committing the company's
reputation and resources to the product's success
7-9
Organization of the New Product Effort
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Product Manager
• Individuals responsible for marketing mix decisions for
specific product line as it travels through life cycle
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New Product Manager
• Plan, organize, implement, and control new product
development.
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New Product Committee
• Part-time interdisciplinary management group reviews new
product proposals; advantages outweigh disadvantages
because committee is most common form of organizational
structure for managing new products.
7-10
Organization of the New Product Effort
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New Product Department
• Specific department generates and evaluates new
product ideas, directs and coordinates
development work, and implements field testing
and pre-commercialization of new product; allows
for maximum effort in new product development,
but at expense of major overhead costs.
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New Product Venture Team
• Task force representing various departments
responsible for new product development and
implementation; normally dissolved once new
product is established in market.
7-11
Product Life-Cycle (PLC) Analysis
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Introduction
Market Growth
Market Maturity
Sales Decline
7-12
7-7
7-13
Product Life Cycle
Introduction Growth
Maturity Decline
A “PLC” diagram is a visual representation of a tendency. If an
inflection point is reached, you should know what is coming (even
though you only have actual life cycle to that point). In business,
PLC is often driven by experience curve, economies of scale,
competitive attraction to market opportunities, rate of
diffusion factors, and eventual market saturation. Planners
must adjust for actual impact of these factors on a particular
product.
7-14
Product Life Cycle
Introduction Growth
Maturity
Decline
Marketer’s objective is to adjust strategy to changing life
cycle situation to maximize the results. As maturity
approaches, marketer often decides to attempt a PLC
extension by (1) finding ways to increase current market’s
usage, (2) finding totally new uses, (3) finding new target
segments, (4) developing new distribution, or (5) perhaps
a major product improvement and repositioning.
(continued) 7-15
Product Life Cycle
Actual PLC curves can be any shape—from product that
doesn’t sell at all, to fad that grows fast but has short life, to
seasonal product, etc. Company depends on its marketers
to understand what factors determine success and to make
appropriate strategic decisions.
7-16
Determinants of the Product Mix
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Technology
Competition
Changes in Levels of Business Activity
Operating Capacity
Market Factors
7-17
The Product Adoption-Diffusion
Process
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Stages in the Adoption Process
• Awareness - Buyer learns of new product or
service, but lacks information.
• Interest - Buyer seeks out or requests additional
information.
• Evaluation - Buyer (or member of buying team)
considers/evaluates usefulness of product/service;
consideration might be given to value-analysis
project or make-buy situation.
7-18
The Product Adoption-Diffusion
Process
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Stages in the Adoption Process
• Trial - Buyer adopts product or service on limited
basis.
• Adoption - If trial purchase worked, then buyer
decides to make regular use of product/service.
• Diffusion Process – goes beyond the adoption
process and represents the spread of a new
product, innovation, or service throughout an
industry over time.
7-19
The Product Adoption-Diffusion
Process
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Factors Influencing the Rate of AdoptionDiffusion
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Perceived risk
Perceived advantage
Incompatibility with existing products/behavior
Uncertainty
Diffusion speed varies among industries—
fast in electronics, slow in domestic steel.
7-20
Product Portfolio Classification,
Analysis, and Strategy
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What is a Product Portfolio?
Diagnosing the Product Portfolio
Product Portfolio Strategies
7-21
BCG SBU Portfolio Business Strategy
High
Business
strength,
Growth rate,
Cash use
Low
High
Low
Industry attractiveness,
Market share,
Cash generation
(continued) 7-22
BCG Business SBU Portfolio Strategy
High
Business
strength,
Growth rate,
Cash use
Low
Use cash
to make
into star
Defend
position
Nurture
to feed
cash to?
Fix or abandon
High
Low
Industry attractiveness,
Market share,
Cash generation
(continued) 7-23
BCG Business SBU Portfolio Strategy
(as might appear in your strategic planning documents)
High
Growth rate
Cash use
Low
Computers
Printers
Modems
Telephones
High
Low
Market share
Cash generation
Note: Size typically indicates amount of sales.
(continued) 7-24
GE Strategic Planning Grid
High
Medium
Low
High
Business strength axis
Medium
Low
High
Medium
Low
Self-defined as a
function of: size,
growth, share,
profitability, image,
position, people, and
other factors of
business strength or
weakness
Industry attractiveness axis
Self-defined as a function of: size, market growth, strength of
competitors, industry profitability, technical strength, and
positive acting market environmental factors.
(continued)
7-25
Problem #1:
SBUs Can Be Repositioned by
Redefining Axes
High
Medium
Low
High
Medium
Business strength
axis
Low
High
Medium
Low
Industry attractiveness axis
Coca-Cola* as a
part of the cola
market
*Coca-Cola does not sell
directly to consumers
(continued)
7-26
Problem #1:
SBUs Can Be Repositioned by
Redefining Axes
High
Medium
Low
High
Business strength
axis
Medium
Low
High
Medium
Low
Coca-Cola as a
part of the soft
drink market
Industry attractiveness axis
(continued)
7-27
Problem #1:
SBUs Can Be Repositioned by
Redefining Axes
High
Medium
Low
High
Medium
Business strength
axis
Low
High
Medium
Low
Coca-Cola as a
part of the all
types of drinks
market
Industry attractiveness axis
(continued)
7-28
Problem #1:
SBUs Can Be Repositioned by
Redefining Axes
Bottom line: SBU market share and market
strength change as market is redefined;
also possible that industry attractiveness
changes.
Note: Coca-Cola slides are for the purpose of demonstrating the
concept of SBU position shifting as axes are redefined; they do not
represent actual strategic position of Coca-Cola.
7-29
Problem #2:
Doing What the Grid Position Indicates
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When portfolio models were first introduced, marketers
did what the grid position indicated rather than using
them as a tool to help visualize company’s mix of SBUs,
interrelationships, relative strengths, etc.
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If a larger percentage of business is in products in which
company is not strong, margins are low, and market is
not attractive, they may still be providing important
coverage of fixed overhead. Don’t automatically get rid of
“dog”-quadrant products.
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Bottom line: Two-factor portfolio models are not decision
models; they are tools to help marketers with their
thinking. Even with multiple-factor computer decision
support systems, the decision is still the marketer’s.
7-30
Product Deletion Strategy
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Harvesting
Line Simplification
Divestment
7-31
Important Characteristics of Business
Services
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Intangibility
• Freight forwarding, consulting, repair, etc. can
seldom be tried out/tested in advance of purchase;
instead, buyers must view advertising copy, listen to
sales presentation, or consult current users to gain
insight into expected performance.
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Perishability and fluctuating demand
• Services cannot be stored and markets fluctuate by
day, week, or season; idle service capacity is
business that is lost forever—no inventory buffer.
7-32
Important Characteristics of Business
Services
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Simultaneity
• Production and consumption of services are
inseparable; this typically puts marketer in
very close contact with customer, requiring
them to be highly professional.
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Heterogeneity
• A service is an experience and thus cannot
be duplicated; difficult to standardize and
thus output quality may vary.
7-33
Business Service Marketing –
Challenges and Opportunities
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Service Marketing vs. Product Marketing
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Positioning Strategy
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Bundling of Services
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Service Strategy and the Marketing Mix
•
•
•
•
Product
Price
Place (Distribution)
Promotion
7-34
Business Service Marketing –
Challenges and Opportunities
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New Service Development
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•
•
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Share Building
Market Extension
Line Extension
New Business
7-35