Strategic Marketing, 3 rd edition

1. Strategic Marketing, 3rd edition Chapter 8: Product Innovation & Development Strategies

2. What is innovation? • Innovation is something along the lines of ‘introduction of something new’ or ‘new idea, method or device’ • The difference between innovation and invention is that invention applies to things that are new to the world, whereas innovation refers to subsequent changes and adaptations

3. Scope of Disruption Technology Business Models Products (Markides, 2006)

4. Disruptive business models • A disruptive technology shifts the production paradigm and often how a product or service is used

5. Disruptive products Additions to existing lines 26% Improvements/revisions 26% New product lines Different Kinds of Innovation 20% Cost reductions 11% New-to-the world 10% Repositions (Booz, Allen & Hamilton, 1982) 7%

6. Adding to existing lines Heinz added green to its range of ketchups

7. Improvements/ revisions

8. New product lines Asus added google nexus 7 tablet to its computing range

9. Cost reductions South West airlines introduced new processes and ways of doing business to fill a gap in the marketplace for cheap foreign travel

10. New to the world Motorola invented the first mobile phone in 1973 but it wasn’t until 1985 that they first came to the market in a format that would be recognized as mobile

11. Repositions Repositioning is defined as altering the position of a brand or product in the minds of the customer relative to the offerings of the competitive product. Repositioning is effected usually through changing the marketing mix in response to changes in the market place, or due to a failure to reach the brand's marketing objectives.

12. Concepts of Product Mix • Product mix/Product assortment consists of all the products and items that a particular seller offers for sale. • Product line is a group of products under the same product category that are closely related because they perform a similar function, are marketed through the same channel or fall within a given price range. • Product Mix width refers to how many different product lines the company carries. • Product mix length refers to total number of items in the mix. • Product mix depth refers to how many variants are offered of each product in the line. • Product mix consistency refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way.

14. Concepts of Product Line • Line stretching occurs when a company lengthens its product line beyond its current range, whether through down market, up market, or both. • A company can add products that are higher priced than the existing line (up market stretch). example: Lexus/Acura/crowne plaza/priority banking/Icon. • A company can add products that are lower priced than the existing line (down market stretch). Example: Mercedes C-class cars/Genstar/Luvs/Kodak Funtime. • A company can add products in both directions (two way stretch). For example: Titan was serving the middle price middle quality market. Gradually it added watches in the premium segment such a Titan Edge, Nebula, and Xylux, where it competes with European brands. In the Economy segment titan introduced Sonata. This is how Titan dominated the category. A presentation by Varqa Shamsi Bahar

15. NPD Process 1. Generation of ideas 2. Screening/Business Analysis/Concept 3. Development/Test/Marketing

16. Google’s ‘20% time’ policy • One of Google's most famous management philosophies is something called "20% time." • Founders Larry Page and Sergey Brin highlighted the idea in their 2004 IPO letter: • "We encourage our employees, in addition to their regular projects, to spend 20% of their time working on what they think will most benefit Google," they wrote. "This empowers them to be more creative and innovative. Many of our significant advances have happened in this manner."   • Huge 20% products include the development of Google News, Gmail, and even AdSense. Source: http://www.businessinsider.com/google-20-percent-time-policy-2015-4

17. Toolkit Strategy • Makes sense when you are faced with shrinking markets • Customers seeking customised products • Need to go through lots of iterations to develop a product • If an organisation uses high quality computer based simulations The toolkit strategy enables customers of NPD companies to undertake their own innovation

18. New Product development strategies2. Systematic Inventive Thinking (Goldenberg, Horowitz, Levav & Mazursky, HBR, 2003)

19. Subtraction and Multiplication Subtraction Remove an essential component from a product and find uses for the newly envisioned arrangement of the existing components. Phillips Consumer Electronics: • Remove local display & all the control buttons DVD player. • Use one button to control the most common functions. Multiplication involves adding elements Example: -developing a double waste bin unit that can be used for rubbish -a double flash when snapping a photo reduces the likelihood of “red-eye."

20. Division and Task Unification Task Unification: Assign a new and additional task to an existing resource • Division Divide the product and/or its components and rearrange them to form a new product. • Example: adding lawn mower blades in a cycle • Defrosting filament in a car windscreen. • Assigned extra task of enhancing radio reception. • Car manufacturers able to get rid of the separate radio antenna, long an ugly appendage on the car's body.

21. Product rollovers • Should the old product be sold out before introducing the new or should they be sold simultaneously? • If so, should they be sold at different prices, in different geographic regions or different channels? Solo-product Dual-Product (Billington, Lee and Tang, 1998)

22. Solo-product roll • This aims to have the entire range of old products sold out at the planned introduction date • High-risk and high-return strategy • Expensive if old product is sold out too early or there are high inventory levels in place, as potential sales may be lost

23. Product Rollover • Dual product roll • Both old and new products sell simultaneously for a period • It is less risky than solo option but requires the marketing of both old and new product • Strategies to differentiate the new and old product: • Geographic rolls: Daimler Benz first introduced its smart car in Europe then in USA • Channel rolls: Nike introduced new models to own stores and old one to discount retailers • Dual pricing: Samsung mobile reduces the price of a model immediately after a new model is introduced. • Silent roll:Sony TV • Lean launch: Just in time launch (unlikely strategy)

24. Disruptive technologies: Roger’s perspective • Rogers identified five adopter types Early majority Late majority Early adopters Laggards Innovators

25. Disruptive technologies: Roger’s perspective • Adoption of innovation is categorized by consumers’ readiness to accept technologies • Innovators: risk takers and willing to try new ideas • Early adopters: respected opinion leaders in the product field who are more cautious • Early majority: do not seek leadership, but are more likely to adopt than the average buyer • Late majority: more risk averse and will adopt an innovation after there has already been a sizeable take up • Laggards: highly risk averse and traditional. Once an innovation has reached traditional status they will come into the market

26. Disruptive technologies: Moore’s perspective • Chasm strategy: Innovative products do not normally slide in from the left hand side and work their way steadily across to the right. Instead they often meet with failure, which he categorized as falling into the chasm. • Moore’s perspective is geared towards B2B rather than B2C. But it’s applicable to both • Products disappear during business screening, development and test marketing • After introduction into the market, products fail to meet commercial success Adapted from Chasm Group CHASM

27. Chasm Behaviour Stay with herd Hold on Get ahead of herd No Way Try it CHASM Pragmatists Techies Sceptics Visionaries Conservatives Chasm Group

28. Chasm Behaviour • Techies: companies that are largely motivated by technology. Do not reference behavior of other companies. Willing to purchase high tech products at a relatively low price and assume risk of debugging. Will need considerable training • Visionaries: stay ahead of rivals. Use technology to get ahead. Reference other visionaries and accept high pricing and require high level of consulting training • Pragmatists: failure of high-tech products rests on their inability to resonate with the pragmatic company. They reference other pragmatic companies, prepared to pay a market price and need some training service. Looking to buy from strong contenders. If they perceive that the innovation failed to fix a problem, then they will simply not buy it. • Conservatives: risk averse. They reference pragmatists. They wait and see whether or not the technology stays the course. Pricing needs to be lowered • Sceptics: similar to laggards. Buy when there is no alternative. What they have has broken down and they have to replace it and the new technology is the only alternative

29. Conservatives Pragmatists Figure 8.9: Chasm Strategies Visionaries Sceptics Techies Motive Ref Group Pricing Lead’ship IMC Services Personal Vision Other Visionaries High Potential Innovation High Level Consultancy Business Other Pragmatists Market/Med Strong Contender Safe/Easy/ Effective Some Competition Pragmatists Pragmatists Market/Low Market Leader Safe/Easy/ Effective Few Only Option None Low Monopoly Only Choice None Tech None Low None New Train Source: Modified from Geoffrey A. Moore (1999), Crossing the Chasm: Marketing and Selling Technology Products to Mainstream Customers, Oxford: Capstone Publishing.

30. Crossing the chasm • Use Techies to iron out any bugs • Use Visionaries to develop the whole product including pre and post sales. Visionaries will enable the company to find competitive advantage and establish a basis for appeal for the pragmatists. • Use bowling-alley strategy to target Pragmatists

31. Options for Innovation Hi Follow Mode Interaction Mode Market Orientation Isolate Mode Shape Mode Lo Lo Technological Orientation Hi (Berthon, Hulbert & Pitt, 1999)