Chapter 20: Introducing New Market Offerings

1. What challenges does a company face in developing new products and

services?
Categories of New Products: New-to-the-world, New product lines, Additions, Improvements,
Repositionings, Cost reductions

Seven Notions of Innovation

• See the future through the eyes of your customer

• Intellectual property and brand power are key assets
• Use digital technology to create tools for customers
• Build a championship team
• Innovation is a state of mind
• Speed is critical, so push your organization
• Partner up if you’re not the best

New Product Success: Most established companies focus on incremental innovation: tweaking
products, use variations, newer companies create disruptive technologies that are cheaper and more
likely to alter the competitive space.

Factors That Limit New Product Development

• Shortage of ideas
• Fragmented markets
• Social and governmental constraints
• Cost of development
• Capital shortages
• Faster required development time
• Shorter product life cycles

2. What organizational structures and processes do managers use to

manage new-product development?
Many companies today use customer driven engineering to design new products. This strategy
attaches high importance to incorporating customer preferences in the final design.

 Budgeting for new product development

 Organizing new product development
A venture team is a cross-functional group charged with developing a specific product or business;
intrapreneurs are relieved of other duties and provided a budget and time frame.

Criteria for Staffing Venture Teams

• Desired team leadership style

• Desired level of leader expertise
• Team member skills and expertise
• Level of interest in concept
• Potential for personal reward
• Diversity of team members

3. What are the main stages in developing new products and services?
The New Product Development Decision Process

4. What is the best way to manage the new-product development

process?
1. Idea Generation

Ways to Find Great New Ideas

• Run informal sessions with customers

• Allow time off for technical people to putter on pet projects
• Make customer brainstorming a part of plant tours
 • Survey your customers
• Undertake “fly on the wall” research to customers
• Use iterative rounds with customers
• Set up a keyword search to scan trade publications
• Treat trade shows as intelligence missions
• Have employees visit supplier labs
• Set up an idea vault

Drawing Ideas from Customers

• Observe customers using product
• Ask customers about problems with products
• Ask customers about their dream products
• Use a customer advisory board or a brand community of enthusiasts to discuss product

Idea Generation: Creativity Techniques

• Attribute listing: List the attributes of a product and then try to modify each one
• Forced relationships: List several ideas and consider each in relation to each other
• Morphological analysis: Start with a problem and think of related dimensions
• Reverse assumption analysis: List all the normal assumptions about an entity & reverse
them
• New contexts: Take familiar processes and put them into a new context
• Mind mapping: Start with a thought, write it down, then the next thought and so on

Increasingly, new product ideas arise from lateral marketing that combines 2 products or concepts
to create a new offering. Eg: cereal bars = cereal + snacking, cyber cafes = cafeteria + Internet

Idea Screening
• Absolute product failure: loses all money
• Partial product failure: recovers some money
• Relative product failure: yields profit lower than target rate of return

2. Concept to Strategy

Concepts in Concept Development

• Product idea (idea of producing a powder to add to milk to increase nutritive value)
• Product concept (Concept should address target consumers, benefits)
• Category concept (defines the product’s competition)
• Brand concept
• Concept testing (ask consumers about communicability and believability, need level, gap
level, perceived value, purchase intention and user targets, purchase occasions & frequency)

Marketing Strategy
 • Target market’s size, structure, and behavior
• Planned price, distribution, and promotion for year one
• Long-run sales and profit goals and marketing-mix strategy over time

Business Analysis: Estimating total sales, estimating costs and profits

3. Development to Commercialization

Product Development

Prototype Testing: develop one or more physical versions of the product

• Alpha testing (testing product within the firm)

• Beta testing (with customers)
• Rank-order method (rank the options)
• Paired-comparison method (which one is preferred in each pair)
• Monadic-rating method (rate each product on a scale)
• Market testing

Consumer Goods Market Testing

• Sales-Wave Research: consumers who tried the product for free are reoffered at slightly
reduced prices. Offer made as many as 5 times (sales waves)
• Simulated Test Marketing: (select 30-40 qualified shoppers, question them, show them ads,
pay them to shop from a store which has the company’s product)
• Controlled Test Marketing (research firm manages a panel of stores that will carry the
product for a fee)
• Test Markets: choose few cities and market product fully. How many test cities? Which
cities? Length of test? What information to collect? What action to take?

Commercialization

WHEN: Timing of Market Entry: First entry, Parallel entry (with the competitor), Late entry (after
competitor), WHERE, TO WHOM, HOW

• Criteria for Choosing Rollout Markets: Market potential, Company’s local reputation, Cost
of filling pipeline, Cost of communication media

5. What factors affect the rate of diffusion and consumer adoption of

newly launched products and services?
Adoption is an individual’s decision to become a regular user of a product.

Stages in the adoption process: Awareness, interest, evaluation, trial, adoption

Factors influencing the adoption process
Readiness to try new products and personal influence: Innovators (technology enthusiasts), early
adopters (opinion leaders), early majority (deliberate pragmatists), late majority (skeptical
conservatives), laggards (tradition bound)

Characteristics of an Innovation
• Relative advantage: degree to which innovation appears superior to existing products
• Compatibility: degree to which it matches values and experiences of individuals
• Complexity: degree to which innovation is difficult to understand or use
• Divisibility: degree to which innovation can be tried on a limited basis
• Communicability: degree to which benefits of innovation are observable or describable to
others
Organization’s readiness to adopt new innovations