Market penetration

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Market penetration is one of the four growth strategies of the Product-Market Growth Matrix
defined by Ansoff. Market penetration occurs when a company enters/penetrates a market with
current products. The best way to achieve this is by gaining competitors' customers (part of their
market share). Other ways include attracting non-users of your product or convincing current
clients to use more of your product/service (by advertising etc). Ansoff developed the Product-
Market Growth Matrix to help firms recognise if there was any advantage of entering a market....
Market penetration occurs when the product and market already exists
Other growth strategies include:
• Product development (existing markets, new products): McDonalds is always within the
fast-food industry, but frequently markets new burgers.
• Market development (new markets, existing products): Lucozade was first marketed for
sick children and then rebranded to target athletes.
• Diversification (new markets, new products): Mohen A.S, Bion Products, Selectron Ltd,
bk
The penetration that brands and products have can be recorded by companies such as ACNielsen
and TNS who offer panel measurement services to calculate this and other consumer measures.
In these cases penetration is given as a percentage of a country's households who have bought
that particular brand or product at least once within a defined period of time.
Retrieved from "http://en.wikipedia.org/wiki/Market_penetration"
Categories: Markets (customer bases)

Diversification is a form of corporate strategy for a company. It seeks to increase profitability

through greater sales volume obtained from new products and new markets. Diversification can
occur either at the business unit level or at the corporate level. At the business unit level, it is
most likely to expand into a new segment of an industry that the business is already in. At the
corporate level, it is generally very interesting[clarification needed] entering a promising business outside
of the scope of the existing business unit.
Diversification is part of the four main growth strategies defined by the Product/Market Ansoff
matrix:
Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The
first three strategies are usually pursued with the same technical, financial, and merchandising
resources used for the original product line, whereas diversification usually requires a company
to acquire new skills, new techniques and new facilities.
Note: The notion of diversification depends on the subjective interpretation of “new” market and
“new” product, which should reflect the perceptions of customers rather than managers. Indeed,
products tend to create or stimulate new markets; new markets promote product innovation.

Contents
[hide]
• 1 The different types of diversification strategies
○ 1.1 Concentric diversification
○ 1.2 Horizontal diversification
 1.2.1 Another interpretation
○ 1.3 Conglomerate diversification (or lateral
diversification)
• 2 Rationale of diversification
• 3 Risks
• 4 See also
• 5 References

[edit] The different types of diversification strategies

The strategies of diversification can include internal development of new products or markets,
acquisition of a firm, alliance with a complementary company, licensing of new technologies,
and distributing or importing a products line manufactured by another firm. Generally, the final
strategy involves a combination of these options. This combination is determined in function of
available opportunities and consistency with the objectives and the resources of the company.
There are three types of diversification: concentric, horizontal, and conglomerate.
[edit] Concentric diversification
This means that there is a technological similarity between the industries, which means that the
firm is able to leverage its technical know-how to gain some advantage. For example, a company
that manufactures industrial adhesives might decide to diversify into adhesives to be sold via
retailers. The technology would be the same but the marketing effort would need to change.
It also seems to increase its market share to launch a new product that helps the particular
company to earn profit. For instance, the addition of tomato ketchup and sauce to the existing
"Maggi" brand processed items of Food Specialities Ltd. is an example of technological-related
concentric diversification.
The company could seek new products that have technological or marketing synergies with existi
ng product lines appealing to a new group of customers.This also helps the company to tap that
part of the market which remains untapped, and which presents an opportunity to earn profits.
[edit] Horizontal diversification
The company adds new products or services that are often technologically or commercially
unrelated to current products but that may appeal to current customers. In a competitive
environment, this form of diversification is desirable if the present customers are loyal to the
current products and if the new products have a good quality and are well promoted and priced.
Moreover, the new products are marketed to the same economic environment as the existing
products, which may lead to rigidity and instability. In other words, this strategy tends to
increase the firm's dependence on certain market segments. For example, a company that was
making notebooks earlier may also enter the pen market with its new product.
[edit] Another interpretation
Horizontal integration occurs when a firm enters a new business (either related or unrelated) at
the same stage of production as its current operations. For example, Avon's move to market
jewelry through its door-to-door sales force involved marketing new products through existing
channels of distribution. An alternative form of that Avon has also undertaken is selling its
products by mail order (e.g., clothing, plastic products) and through retail stores (e.g., Tiffany's).
In both cases, Avon is still at the retail stage of the production process.
[edit] Conglomerate diversification (or lateral diversification)
The company markets new products or services that have no technological or commercial
synergies with current products but that may appeal to new groups of customers. The
conglomerate diversification has very little relationship with the firm's current business.
Therefore, the main reasons of adopting such a strategy are first to improve the profitability and
the flexibility of the company, and second to get a better reception in capital markets as the
company gets bigger. Even if this strategy is very risky, it could also, if successful, provide
increased growth and profitability.

[edit] Rationale of diversification

According to Calori and Harvatopoulos (1988), there are two dimensions of rationale for
diversification. The first one relates to the nature of the strategic objective: Diversification may
be defensive or offensive.
Defensive reasons may be spreading the risk of market contraction, or being forced to diversify
when current product or current market orientation seems to provide no further opportunities for
growth. Offensive reasons may be conquering new positions, taking opportunities that promise
greater profitability than expansion opportunities, or using retained cash that exceeds total
expansion needs.
The second dimension involves the expected outcomes of diversification: Management may
expect great economic value (growth, profitability) or first and foremost great coherence and
complementary to their current activities (exploitation of know-how, more efficient use of
available resources and capacities). In addition, companies may also explore diversification just
to get a valuable comparison between this strategy and expansion.

[edit] Risks
Diversification is the riskiest of the four strategies presented in the Ansoff matrix and requires
the most careful investigation. Going into an unknown market with an unfamiliar product
offering means a lack of experience in the new skills and techniques required. Therefore, the
company puts itself in a great uncertainty. Moreover, diversification might necessitate significant
expanding of human and financial resources, which may detracts focus, commitment, and
sustained investments in the core industries. Therefore, a firm should choose this option only
when the current product or current market orientation does not offer further opportunities for
growth. In order to measure the chances of success, different tests can be done:
• The attractiveness test: the industry that has been chosen has to be either
attractive or capable of being made attractive.
• The cost-of-entry test: the cost of entry must not capitalize all future profits.
• The better-off test: the new unit must either gain competitive advantage from
its link with the corporation or vice versa.
Because of the high risks explained above, many companies attempting to diversify have led to
failure. However, there are a few good examples of successful diversification:
• Virgin Media moved from music producing to travels and mobile phones
• Walt Disney moved from producing animated movies to theme parks and
vacation properties
• Canon diversified from a camera-making company into producing an entirely
new range of office equipment.

[edit] See also

• Market development
• Market penetration
• Product development
• Product proliferation
• Pure play (ant.)

[edit] References
• Chisnall, Peter: Strategic Business Marketing, 1995
• Day, Georges: Strategic Marketing Planning
• Jain, Subhash C.:International Marketing Management, 1993
• Jain, Subhash C.: Marketing Planning & Strategy, 1997
• Lambin, Jean-Jacques: Strategic Marketing Management, 1996
• Murray, Johan & O'Driscoll, Aidan: Strategy and Process in Marketing, 1996
• Weitz, Barton A. & Wensley, Robin: Readings in Strategic Marketing
 • Wilson, Richard & Gilligan, Colin: Strategic Marketing Management, 1992
• Prafull, GBU , 2010

From Wikipedia, the free encyclopedia

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In business and engineering, new product development (NPD) is the term used to describe the
complete process of bringing a new product or service to market. There are two parallel paths
involved in the NPD process: one involves the idea generation, product design and detail
engineering; the other involves market research and marketing analysis. Companies typically see
new product development as the first stage in generating and commercializing new products
within the overall strategic process of product life cycle management used to maintain or grow
their market share.

Contents
[hide]
• 1 The process
• 2 Fuzzy Front End
• 3 NPD
organizations
• 4 NPD strategies
• 5 Related fields
• 6 See also
• 7 References

[edit] The process

1. Idea Generation is often called the "fuzzy front end" of the NPD process
 ○ Ideas for new products can be obtained from basic research using a
SWOT analysis (Strengths, Weaknesses, Opportunities & Threats),
Market and consumer trends, company's R&D department,
competitors, focus groups, employees, salespeople, corporate spies,
trade shows, or Ethnographic discovery methods (searching for user
patterns and habits) may also be used to get an insight into new
product lines or product features.
○ Idea Generation or Brainstorming of new product, service, or store
concepts - idea generation techniques can begin when you have done
your OPPORTUNITY ANALYSIS to support your ideas in the Idea
Screening Phase (shown in the next development step).
2. Idea Screening
○ The object is to eliminate unsound concepts prior to devoting
resources to them.
○ The screeners should ask several questions:
 Will the customer in the target market benefit from the product?
 What is the size and growth forecasts of the market
segment/target market?
 What is the current or expected competitive pressure for the
product idea?
 What are the industry sales and market trends the product idea
is based on?
 Is it technically feasible to manufacture the product?
 Will the product be profitable when manufactured and delivered
to the customer at the target price?
3. Concept Development and Testing
○ Develop the marketing and engineering details
 Investigate intellectual property issues and search patent data
bases
 Who is the target market and who is the decision maker in the
purchasing process?
 What product features must the product incorporate?
 What benefits will the product provide?
 How will consumers react to the product?
 How will the product be produced most cost effectively?
 Prove feasibility through virtual computer aided rendering, and
rapid prototyping
 What will it cost to produce it?
○ Testing the Concept by asking a sample of prospective customers what
they think of the idea. Usually via Choice Modelling.
4. Business Analysis
 ○ Estimate likely selling price based upon competition and customer
feedback
○ Estimate sales volume based upon size of market and such tools as the
Fourt-Woodlock equation
○ Estimate profitability and break-even point
5. Beta Testing and Market Testing
○ Produce a physical prototype or mock-up
○ Test the product (and its packaging) in typical usage situations
○ Conduct focus group customer interviews or introduce at trade show
○ Make adjustments where necessary
○ Produce an initial run of the product and sell it in a test market area to
determine customer acceptance
6. Technical Implementation
○ New program initiation
○ Finalize Quality management system
○ Resource estimation
○ Requirement publication
○ Publish technical communications such as data sheets
○ Engineering operations planning
○ Department scheduling
○ Supplier collaboration
○ Logistics plan
○ Resource plan publication
○ Program review and monitoring
○ Contingencies - what-if planning
7. Commercialization (often considered post-NPD)
○ Launch the product
○ Produce and place advertisements and other promotions
○ Fill the distribution pipeline with product
○ Critical path analysis is most useful at this stage
8. New Product Pricing
○ Impact of new product on the entire product portfolio
○ Value Analysis (internal & external)
○ Competition and alternative competitive technologies
○ Differing value segments (price, value, and need)
○ Product Costs (fixed & variable)
 ○ Forecast of unit volumes, revenue, and profit
These steps may be iterated as needed. Some steps may be eliminated. To reduce the time that
the NPD process takes, many companies are completing several steps at the same time (referred
to as concurrent engineering or time to market). Most industry leaders see new product
development as a proactive process where resources are allocated to identify market changes and
seize upon new product opportunities before they occur (in contrast to a reactive strategy in
which nothing is done until problems occur or the competitor introduces an innovation). Many
industry leaders see new product development as an ongoing process (referred to as continuous
development) in which the entire organization is always looking for opportunities.
For the more innovative products indicated on the diagram above, great amounts of uncertainty
and change may exist, which makes it difficult or impossible to plan the complete project before
starting it. In this case, a more flexible approach may be advisable.
Because the NPD process typically requires both engineering and marketing expertise, cross-
functional teams are a common way of organizing projects. The team is responsible for all
aspects of the project, from initial idea generation to final commercialization, and they usually
report to senior management (often to a vice president or Program Manager). In those industries
where products are technically complex, development research is typically expensive, and
product life cycles are relatively short, strategic alliances among several organizations helps to
spread the costs, provide access to a wider skill set, and speeds the overall process.
Also, notice that because engineering and marketing expertise are usually both critical to the
process, choosing an appropriate blend of the two is important. Observe (for example, by looking
at the See also or References sections below) that this article is slanted more toward the
marketing side. For more of an engineering slant, see the Ulrich and Eppinger, Ullman
references below.[1][2]
People respond to new products in different ways. The adoption of a new technology can be
analyzed using a variety of diffusion theories such as the Diffusion of innovations theory.
A new product pricing process is important to reduce risk and increase confidence in the pricing
and marketing decisions to be made. Bernstein and Macias describe an integrated process that
breaks down the complex task of new product pricing into manageable elements.[3]

[edit] Fuzzy Front End

The Fuzzy Front End is the messy "getting started" period of new product development
processes. It is in the front end where the organization formulates a concept of the product to be
developed and decides whether or not to invest resources in the further development of an idea.
It is the phase between first consideration of an opportunity and when it is judged ready to enter
the structured development process (Kim and Wilemon , 2002;[4] Koen et al., 2001).[5] It includes
all activities from the search for new opportunities through the formation of a germ of an idea to
the development of a precise concept. The Fuzzy Front End ends when an organization approves
and begins formal development of the concept.
Although the Fuzzy Front End may not be an expensive part of product development, it can
consume 50% of development time (see Chapter 3 of the Smith and Reinertsen reference below),
[6]
and it is where major commitments are typically made involving time, money, and the
product’s nature, thus setting the course for the entire project and final end product.
Consequently, this phase should be considered as an essential part of development rather than
something that happens “before development,” and its cycle time should be included in the total
development cycle time.
Koen et al. (2001, pp. 47–51)[5] distinguish five different front-end elements (not necessarily in a
particular order):
1. Opportunity Identification
2. Opportunity Analysis
3. Idea Genesis
4. Idea Selection
5. Concept and Technology Development
The first element is the opportunity identification. In this element, large or incremental business
and technological chances are identified in a more or less structured way. Using the guidelines
established here, resources will eventually be allocated to new projects.... which then lead to a
structured NPPD (New Product & Process Development)strategy. The second element is the
opportunity analysis. It is done to translate the identified opportunities into implications for the
business and technology specific context of the company. Here extensive efforts may be made to
align ideas to target customer groups and do market studies and/or technical trials and research.
The third element is the idea genesis, which is described as evolutionary and iterative process
progressing from birth to maturation of the opportunity into a tangible idea. The process of the
idea genesis can be made internally or come from outside inputs, e.g. a supplier offering a new
material/technology, or from a customer with an unusual request. The fourth element is the idea
selection. Its purpose is to choose whether to pursue an idea by analyzing its potential business
value. The fifth element is the concept and technology development. During this part of the
front-end, the business case is developed based on estimates of the total available market,
customer needs, investment requirements, competition analysis and project uncertainty. Some
organizations consider this to be the first stage of the NPPD process (i.e., Stage 0).
The Fuzzy Front End is also described in literature as "Front End of Innovation", "Phase 0",
"Stage 0" or "Pre-Project-Activities".
A universally acceptable definition for Fuzzy Front End or a dominant framework has not been
developed so far.[7] In a glossary of PDMA[8], it is mentioned that the Fuzzy Front End generally
consists of three tasks: strategic planning, concept generation, and, especially, pre-technical
evaluation. These activities are often chaotic, unpredictible, and unstructured. In comparison, the
subsequent new product development process is typically structured, predictable, and formal.
The term Fuzzy Front End was first popularized by Smith and Reinertsen (1991)[9] R.G.Cooper
(1988)[10] describes the early stages of NPPD as a four step process in which ideas are generated
(I),subjected to a preliminary technical and market assessment(II) and merged to coherent
product concepts(III) which are finally judged for their fit with existing product strategies and
portfolios (IV). In a more recent paper, Cooper and Edgett (2008) [11] affirm that vital
predevelopment activities include:
1. Preliminary market assessment.
2. Technical assessment.
3. Source-of-supply-assessment:suppliers and partners or alliances.
4. Market research : market size and segmentation analysis,VoC (voice of the
customer) research.
 5. Product concept testing
6. Value-to-the customer assessment
7. Product definition
8. Business and financial analysis.
These activities yield vital information to make a Go/No-Go to Development decision.
In the in-depth study by Khurana and Rosenthal[12] front-end activities include:
• product strategy formulation and communication,
• opportunity identification and assessment,
• idea generation,
• product definition,
• project planning, and
• executive reviews.
Economical analysis, benchmarking of competitive products,and modeling and prototyping are
also important activities during the front-end activities.
The outcomes of FFE are the
• mission statement
• customer needs
• details of the selected concept
• product definition and specifications
• economic analysis of the product
• the development schedule
• project staffing and the budget, and a
• business plan aligned with corporate strategy.
In a paper by Husig, Kohn and Huskela (2005)[13] was proposed a conceptual model of Front-End
Process which includes early Phases of Innovation Process. This model is structured in three
phases and three gates:
• Phase 1: Environmental screening or opportunity identification stage in which
external changes will be analysed and translated into potential business
opportunities.
• Phase 2: Preliminary definition of an idea or concept.
• Phase 3: Detailed product, project or concept definition, and Business
planning.
The gates are:
• Opportunity screening;
• Idea evaluation;
• Go/No-Go for development.
The final gate leads to a dedicated new product development project . Many professionals and
academics consider that the general features of Fuzzy Front End (fuzziness,,ambiguity, and
uncertainty) make difficult to see the FFE as a structured process,but rather as a set of
interdependent activities ( e.g.Kim and Wilemon ,2002).[14] However, Husig et al.,2005 [10]
argue that front-end not need to be fuzzy,but can be handled in a structured manner. Peter
Koen[15] argue that in the FFE for incremental,platform and radical projects,three separate
strategies and processes are typically involved.[15] The traditional Stage Gate (TM) process was
designed for incremental product development,namely for a single product.The FFE for
developing a new platform must start out with a strategic vision of where the company wants to
develop products and this will lead to a family of products. Projects for breakthrough products
start out with a similar strategic vision,but are associated with technologies which require new
discoveries.It is worth mentioning what are incremental,platform and breakthrough products.
Incremental products are considered to be cost reductions, improvements to existing product
lines,additions to existing platforms and repositioning of existing products introduced in markets.
Breakthrough products are new to the company or new to the world and offer a 5-10 times or
greater improvement in performance combined with a 30-50% or greater reduction in costs.
Platform products establish a basic architecture for a next generation product or process and are
substantially larger in scope and resources than incremental projects[15].

[edit] NPD organizations

• Product Development and Management Association (PDMA)
• Association of International Product Marketing & Management

[edit] NPD strategies

• Design for six sigma
• Stage-Gate model
• Quality function deployment
• Flexible product development

[edit] Related fields

• Marketing
• Engineering
• Brand management
• Product management
• Industrial design

[edit] See also

• Product
• Conceptual economy
• Product lifecycle
• Choice Modelling
• Time to market (TTM)
• Social design
• Requirements management
[edit] References
1. ^ Ulrich, Karl T. and Eppinger, Steven D (2004) Product Design and
Development, 3rd Edition, McGraw-Hill, New York, 2004
2. ^ Ullman, David G. (2009) The Mechanical Design Process, Mc Graw-Hill, 4th
edition
3. ^ Bernstein, Jerry and Macias, David (2001) "Engineering New Product
Success: the New Product Pricing Process at Emerson Electric"
4. ^ Kim, J. and Wilemon, D. (2002), Sources and assessment of complexity in
NPD projects. R&D Management, 33 (1), pp. 16-30.
5. ^ a b Koen et al. (2001), Providing clarity and a common language to the
‘fuzzy front end’. Research Technology Management, 44 (2), pp.46-55
6. ^ Smith, Preston G. and Reinertsen, Donald G. (1998) Developing Products in
Half the Time, 2nd Edition, John Wiley and Sons, New York, 1998.
7. ^ Husig and Kohn (2003), Factors influencing the Front End of the Innovation
Process: A comprehensive Review of Selected empirical NPD and explorative
FFE Studies ,Brusell,Juni 2003,p.14.
8. ^ "The PDMA Glossary for New Product Development". Product Development
& Management Association. 2006. http://www.pdma.org/npd_glossary.cfm.
9. ^ Smith,Preston G., Reinertsen Donald G.(1991) Developing products in half
the time, Van Nostrand Reinhold,New York
10.^ Cooper,R.G. Predevelopment activities determine new product success, in:
Industrial Marketing Management,Vol.17 (1988), No 2,pp. 237-248
11.^ Cooper R.G., Edgett, S.J.(2008), Maximizing productivity in product
innovation, in: Research Technology Management,March 1, 2008
12.^ Khurana, A; Rosenthal, S.R. (1998). "Towards Holistic "Front Ends" in New
Product Development". Journal of Product Innovation Management 15 (1):
57–75.
13.^ Husig, S; Kohn, S; Poskela, J (2005). "The Role of Process Formalisation in
the early Phases of the Innovation Process". 12th Int. Prod. Development
Conf. Copenhagen.
14.^ Kim,J., Wilemon,D.(2002) : Accelerating the Front End Phase in New
Product Development [1]
15.^ a b c Koen, Peter A. (2004), "The Fuzzy Front End for
Incremental,Platform,and Breakthrough Products", PDMA Handbook of New
Product Development, 2nd Ed.: 81–91
Retrieved from "http://en.wikipedia.org/wiki/New_product_development"
Categories: Product development | Systems engineering | Innovation

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A market development strategy targets non-buying customers in currently targeted segments. It

also targets new customers in new segments. (Winer)
A marketing manager has to think about the following questions before implementing a market
development strategy: Is it profitable? Will it require the introduction of new or modified
products? Is the customer and channel well enough researched and understood?
The marketing manager uses these four groups to give more focus to the market segment
decision: existing customers, competitor customers, non-buying in current segments, new
segments.