Innovation Management

1. Innovation Management Kevin O’Brien New Products & Market Testing

2. Learning objectives • Appreciate the importance of balancing consumer needs, technical feasibility and business viability in new product development (NPD) • Be able to describe the main evaluation steps in the NPD process • Understand the (classical) role of marketing research in NPD • Have an awareness of different approaches to market testing

3. The Challenge (Source: IDEO)

4. How to maximise successes? • Improve odds on each individual product • market research, segmentation, competitor analysis etc. • linear NPD process • predictable, incremental new products (the 90%) • Introduce many products in quick succession and hope one succeeds • probe and learn, market experimentation, expeditionary marketing • iterative NPD process • highly innovative (discontinuous) new products (the 10%)

5. Development phases Evaluation phases Idea Evaluation Concept/design Evaluation Prototype Evaluation Pre-production model Evaluation Launch model Evaluation Conventional NPD Process Title of ‘evaluation set’ Idea screening Concept testing Business analysis Product testing (functional & market) Test-marketing Post-launch evaluation

6. Brainstorming Intuition, associations of ideas Product-centred Features, functions, benefits Analogy, force relationships Market-based Gap analysis, perceptual mapping Scenario-based Activity analysis, problem analysis, scenario analysis Sources of Ideas

7. Empathic design • How to identify latent customer needs? • Evident but not yet obvious • Problem identification • Problems and frustrations with current solutions • Story-telling • How do you behave? • How do you feel? • Listen to customers’ stories • Observation • Observation in a natural setting • Product selection and use (Leonard & Rayport, 1997)

8. Concept Development & Testing • Concept development • detailed description of the idea stated in terms meaningful to the customer • Concept testing • present to target consumers as words, pictures, physical mock-up or virtual reality form • assessment of benefits, willingness to purchase, acceptable price • initial target market profiling • Concepts offering potential are progressed

9. Concept Development & Testing • Consumer perceptions • Concept uniqueness • Concept believability • Ability to solve problem • Inherent interest • Value for money • Concept presentation • Line drawings • Photographs • Storyboards • Mock-ups

10. Business Analysis • Development costs • R&D capabilities, time to market • Market potential • target market, positioning, sales, market share & profit forecasts • Marketing costs • promotion, distribution, sales force etc • Business attractiveness • return on investment, level of risk • forecasts of first time sales, repeat sales, rate of adoption & replacement sales • How important is this project to the overall business strategy?

11. Product Development & Testing • Concept developed into a workable product • Design and development challenges: • technical feasibility • customer needs • ease of manufacture • Initial models produced which undergo: • Functional testing • Consumer testing • Channel testing • Does the product fulfil the concept statement?

12. Product Development & Testing • Product-related decisions • Content & form of presentation (number of product variants?) • Disclosure of identity (blind or branded?) • Explanation/supervision of test • Location of test • Use of comparator products • Consumer panels • Representative? • Ad hoc surveys • Who? When? Where?

13. Lead users • Innovators/early-adopters • Pioneers in (B2B) markets • Can’t find processes/materials/equipment to meet novel requirements • Already working on innovations/prototypes • Early experience with problem • Rich and accurate feedback • Highly motivated • Beta-tests, early market probes, joint development • But not easy to identify ….. • Start with generic problem, network contacts, workshops (von Hippel, 1988)

14. Market testing • Product (and marketing programme) are tested in realistic market conditions prior to full-scale launch • product, advertising, positioning, distribution, branding, pricing, packaging, sales budgets • Acts as a final screen in the NPD process • cancel projects which fare badly • Provides real data to test assumptions from market research, analysis and planning • improved sales and profit forecasts • Costly, time-consuming, highly visible

15. Market testing • Standard test markets • full marketing campaign in small number of representative cities • store audits, consumer & channel surveys • Controlled test markets • panels of stores in different geographical locations • panels of shoppers • Simulated test markets • simulated shopping environments

16. “Probe & learn” NPD process • Gain market insights by experimentation • launch early versions of products into plausible initial markets • learn from these small-scale market trials • modify the product and marketing approach • launch again, and again, and again …… • Learning and adaptation rather than analysis • A process of “successive approximation” • Important in directing the development effort • Appropriate when technologies and markets are uncertain (Lynn et al., 1996)

17. “Probe & learn” NPD process • Notebook market (1986-90) • 30+ product launches • Hard disks/floppy disks • Microprocessor speeds • LCD/plasma screens • Price points • Explored every market niche • Withdrew more products than competitors had launched • Achieved market leadership

18. References Leonard, D. and Rayport, J.F. (1997) Spark innovation through empathic design, Harvard Business Review, Nov-Dec, 102-113. Lynn, G.S., Morone, J.G. and Paulson, A.S. (1996) Marketing and discontinuous innovation: the probe and learn process, California Management Review, 38(3), 8-37. Von Hippel, E. (1988) The sources of innovation, New York: Oxford University Press.