Introducing new market offerings

(Complied by: 6ankitj on behalf of NICHE Club)

Two ways of adding new products:

1. Acquisition
a) Patents from other companies
b) Buy a license
c) Franchise from other company
2. Development
a) In own laboratories
b) Contract with independent researchers

Six categories of new products

1. New-to-the-world products
2. New product lines – Adding existing products to the company’s line
3. Additions to existing product lines – Supplementing existing product lines
4. Improvements and revisions of existing products
5. Repositioning
6. Cost reductions
Less than 10% of all new products are truly innovative and new to the world. Very few companies innovate
continuously. New products continue to fail at a disturbing rate. Recent studies put the rate at 85% in US and 90% in
Europe. In India, the rate of success is currently at 36% nut is expected to fall as the competition in the liberalized
market increases.

Common reasons for failure of new products:

1. Shortage of important ideas in certain areas.
2. Fragmented markets
3. Social and governmental restrictions.
4. Cost of development
5. Capital shortages
6. Faster required development time
7. Capital shortages
8. Faster required development time
9. Shorter product life cycles

Success factors:
1. Unique, superior product
2. A well-defined product concept
3. Technological and marketing synergy - Customer driven engineering
4. Quality of execution in all stages.
5. Market attractiveness.
6. Definition of business domains, product categories and specific criteria by senior management.
 7. Practical and sufficient budgeting

Venture Team is a cross-functional group charged with developing a specific product or business. Skunkworks are
informal workplaces.

Types of processes for new product development:

1. Stage-gate system – Process is divided into stages, each having a check-point/gate. A set of known
deliverable must be satisfied at each stage to push the process into the next stage
2. Funnel system – A large number of initial new product ideas and concepts are narrowed down to a few high-
potential products that are ultimately launched.
3. Spiral development process – Recognizes the value of returning to the earlier stage to make improvements
before moving forward.

Stage-gate System
Failure at any stage results in a drop of the idea. The stages are as follows:
1. Idea generation – Is the idea worth considering?
2. Idea screening – Is the product idea compatible with company objectives, strategies, and resources?
3. Concept development and testing – Can we develop a good concept consumers say they would try?
4. Marketing strategy development – Can we find a cost effective, affordable marketing strategy?
5. Business Analysis – Will this product meet our profit goal?
6. Product Development – Have we got a technically and commercially sound product?
7. Market Testing – Have product sales met expectations?
8. Commercialization – Are product sales meeting expectations?

Managing the Development Process: Ideas

Idea Generation
1. Run informal with customers
2. Employees throughout the company can be a source of ideas.
3. Research competitors’ products and services.
4. Ideas from top management e.g. Andy Grove of Intel
5. From inventors, patents, universities, commercial labs, marker research firms etc.

Creativity Techniques
1. Attribute Listing – List the attributes of an object, say a screwdriver. Then modify each attributes, such as
replacing the wooden handle with plastic.
2. Forced Relationships - List several ideas and consider each one in relation to each other one. E.g. Consider a
desk, book case and filing cabinet as separate ideas. One can then imagine a desk with a built-in bookcase or
a desk with built-in files or a bookcase with built-in files.
3. Morphological Analysis – Take a problem (getting something from one place to another via a powered
vehicle). Now think of dimensions (cart, sling) and medium (air, electric motor, magnetic fields). Every
possible combination can generate a new solution.
 4. Reverse assumption analysis – List all the normal assumptions about an entity and then reverse them. E.g. a
restaurant charging for the time you sit there and not for food.
5. New contexts – Hotel guests checking-in at front desk. Instead, greet them at curb side and use a wireless
device to register them.

Idea Screening
1. Drop Error – Company dismisses an otherwise good idea.
2. Go Error – Permitting a poor idea to move into development.
3. Absolute product failure - Lose money, sales does not cover even variable costs.
4. Partial product failure – Lose money but sales cover variable costs and partially fixed costs.
5. Relative product failure – Yields a profit which is less than company’s target rate of return.

Managing the development process: Concept to Strategy

Product idea is a possible product the company may offer to the market.
Product concept is an elaborated version of the idea expressed in consumer terms.

Turning a product idea into a concept:

1. Who will use?
2. What primary benefits?
3. When will people consume?

Category concept defines the product’s competition products once the concept has been formalized.
Brand concept is a brand-positioning map showing the existing brands of the same product concept.

Concept Testing
It involves presenting the product concept to target consumers and getting their reactions. Rapid prototyping and virtual
reality using computer aided tools is helping in doing this quickly as compared to tedious task of creating physical
prototypes.

Need-Gap score
It is a measure of whether the product currently meets the need and satisfies the customer.

Conjoint Analysis
It is a method of deriving utility values consumers attach to varying levels of a product’s attributes. This helps in
measuring consumer preferences for alternative product concepts.

Marketing Strategy
The strategy plan consists of three parts:
1. First part – Describes the targets market’s size, structure and behavior; the planned product positioning; and sales,
market share, and profit goals sought in the first few years.
2. Second part – Outlines the planned price, distribution strategy and marketing budget for the first year.
3. Third part – Describes the long run sales and profit goals and the marketing-mix strategy over time.

Estimating Total Sales

Total estimated sales are the sum of estimated first-time sales, replacement sales and repeat sales.
One-time purchase – Sales rise at the beginning, peak, and later reach zero as the number of potential buyers is
exhausted.
Infrequently purchased products – exhibit replacement cycles dictated by physical wearing out or obsolescence.
Frequently purchased items – The number of first time buyers initially increases and then decreases as fewer buyers
are left (assuming a fixed population). Repeat purchases occur soon, providing that the product satisfies some buyers.
The sales curve eventually falls to a plateau repeating a level of steady repeat-purchase volume; by this time the
product is no longer a new product.

Product Development
The job of translating target customer requirements into a working prototype is helped by a set of methods known as
quality function deployment (QFD). The methodology takes the list of desired customer attributes (CAs) generated by
market research and turns them into a list of engineering attributes (EAs).

Customer Tests
Alpha Testing is the name given to testing the product within the company. Beta testing is done with customers.

Measuring consumer preferences

There are 3 ways to do this:
1. Rank-order method: Asks the consumer to rank three items in order of preference.
2. Paired comparison method: It calls for presenting pairs of items and asking the consumer which one is
preferred in each pair.
3. Monadic rating: It asks the consumer to rate the liking of each product on a scale.

Market Testing
Not all companies do market testing. The amount of market testing undertaken is influenced by the investment cost on
the one hand, and the time pressure and research cost on the other.
Consumer goods market testing estimates four variables: trial, first repeat, adoption and purchase frequency.
Business goods are tested by doing alpha and beta testing. A common method is to introduce the new product at trade
shows.

Commercialization
This stage faces the largest cost in the process of new product development. The company will have to contract for
manufacture or build or rent a full-scale manufacturing facility. Another major cost is marketing. Timing the entry is
critical:
1. First Entry: Enjoy the first mover’s advantage
2. Parallel Entry: Try to coincide with the competitor’s entry.
3. Late Entry: Delay the launch until the competitor has entered. The competitor bears the cost of educating the
market, and its product may reveal faults the late entrant can avoid.

The company must decide whether to launch the product in a single locality, several regions, the national market, or the
international market. In choosing rollout markets, the major criteria are market potential. With the Web connecting far-
flung parts of the globe, competition is more likely to cross the national borders.

The Consumer Adoption Process

Innovation diffusion process is the spread of a new idea from its source of creation or invention to its ultimate users or
adopters. Adopters of new product move through 5 stages:
1. Awareness
2. Interest
3. Evaluation – Deciding whether to try the innovation
4. Trial
5. Adoption

Adopter Groups
5 adopter groups differ in their value orientations and their motives for adopting and testing the new product:
1. Innovators – Technology enthusiasts
2. Early adopters – Opinion leaders who carefully search for new technologies
3. Early majority – Deliberate pragmatists who adopt the new technology once the benefits are proven
4. Late majority – Skeptical conservatives who are risk averse, technology shy and/or price sensitive.
5. Laggards – Tradition bound and resist the innovation until they find the status-quo is no longer defensible.

Characteristics of Innovation
Some products catch on immediately. They have the following properties:
1. Relative advantage
2. Compatibility
3. Complexity – small learning curve
4. Divisibility – The degree to which the innovation can be tries on a limited basis.
5. Communicability – The degree to which the beneficial results are observable or describable to others.