How to Improve Success Rate of New Product/Service Commercialization

1. How to Improve Success Rate of New Product/Service Commercialization Krannert School of Management Purdue University October 21, 2009 Tom Wagner (BSIM’67)

2. Presentation Topics • Why this is important? • Five marketing illustrations. • Five key determinants of commercial success. • Summary. • Take-aways.

3. The Challenge of Top Line Revenue Growth in Today’s Economy • “Investors see little reason to hold stocks. We need to see better revenues and top-line growth” ( Jon Brorson, Director of Equities at Northern Trust) • Revenue growth contingent upon economic growth is obsolete. • New product/services key to revenue growth. • Anyone who pursues a Marketing career will have responsibility for new product/service commercialization. • Over 30,000 new products are introduced annually but at least 80% of these fail.

4. Mortality of New Product Ideas Number of Ideas 50 Idea Generation and Screening Business Analysis Development Testing Commercialization 0 Percentage of Time Source: Booz, Allen & Hamilton, Inc.

5. Why Do New Ideas Fail? • Fail to offer unique benefit…don’t address what customers really want/need. • Underestimate competition • Idea good but design problems • Product costs more to produce than expected • Rush to market without well developed marketing plan • Move to slowly

6. Introduce New Low Calorie BeerRheingold vs. Miller High Life

7. Retain LeadershipKawasaki Personal Watercraft

8. Move Down The Thermoplastic Compound Value Chain Resin Injection Molder Original Equipment Mfg. Compounder Reinforce- ment

9. How Does Campbell Soup TargetItalian Sauce Leader Ragu

10. W.W. Grainger Service Penetration

11. New Product/Service Planning Process Strategic Emphasis and Idea Generation Incremental or Innovation Is it Real? Can We Win? Is it Worth It? Validation Customer Needs and Wants. Vs. Competition Strategic Positioning Features Benefits $ Values Customer Value Proposition Features Benefits $ Values

12. New Product/Service Strategic Emphasis • The best predictors of success are market knowledge and demand-driven products and services. • Winners avoid diversification during downturns…they reinforce the core businesses by focusing resources on playing to win on their main field of competition. Diversification dilutes focus just at the time when focus is critical.

13. New Product/Service Strategic Emphasis Market Development (Medium Risk) Diversification (Major Risk) Market Development (Medium Risk) Diversification (High Risk) New Markets: Product Development (Medium Risk) Market Penetration (Low Risk) Existing Market Penetration (Minimal Risk) Existing New Products/Services:

14. Strive for Innovation

15. Auto Tire Technology Status in 1975Goodyear Reluctant to Invest in Radials Annual Tire Demand Bias Ply Tires Fiber Glass Belted Bias Tires Steel Belted Radial Tires 1965 1970 1975 1980 1985 1990 1995 2000

16. Goodyear Lost Share to Radial Leader- Michelin Annual Tire Demand 1965 1970 1975 1980 1985 1990 1995 2000

17. 1971 Southwest Enters Airline Business

18. U.S. Airline Industry • Typical Incremental Differentiation by Traditional Large Airlines: • American, Continental, United, Delta/Northwest, U.S Air had combined $23 billion operating losses in 2008. • Southwest Chose Innovative Business Model: • Low fares, shorter flights, city-to-city (not hubs), no frills, fastest flight turnaround, only Boeing 737, flexible work rules. • Hugh Success…operating Income of $450 million in 2008.

19. Innovation • “Mankind has already achieved all that it is capable of inventing”

20. Innovation • “Mankind has already achieved all that is capable of inventing” • Henry J. Elllsworth, Commissioner of the U.S. Patent Office, circa 1900

23. Chips Ahoy! 100 Calorie Pack • 100 Calorie Packs have 285% retail price premium. • Only 3 years after introduction annual sales are $30 million. • Operating margin at least 20% greater than traditional product.

24. Don’t Neglect Innovation for the Allure of Incremental Improvements • Organizations intuitively tend to add features to an existing product in response to the perceived wants and needs of customers which often results in incremental improvements that have little impact on customers’ buying patterns. • Innovation includes: products, service, business models, net-working, etc. • Don’t encourage creativity of creativity’s sake; instead encourage creative solutions to real problems. Innovation is good only if its useful. • Great ideas are the beginning, not the end, of business innovation.

25. Sources of New Ideas • Customers • In-house Research and Development • Competitive Activities • Universities • Consultants • External Inventors • Management • Paying Attention to Unexpected Events

26. Customer FocusThe Center of Everything Marketing Does Product Price Customer Distribution Promotion

27. Today’s marketers strive to develop unique strategies by finding unsatisfied customers and offering them superior value. They don’t sell products…capture customers Hugh $ are spent on market research to understand customer needs.. Yet everyday, new products and services are introduced only to fail dramatically. Customer Focus

28. R.J. Reynolds “Premier” Smokeless CigaretteNew Product Failure

29. “Premier” Commercialization • “Premier” was intended to reduce or eliminate the unhealthy side effects for both smoker and people around smoker. • R.J. Reynolds commercialized in 1988 after devoting several years and approximately $1 billion to develop and commercialize. • “Premier” withdrawn 1989 after smokers complained of charcoal-like aftertaste.

30. What Will Drive Success:Rheingold vs. Miller High Life

31. Rheingold vs. Miller High Life • Rheingold Breweries in Brooklyn, NY developed process to remove starch from beer in 1967. • Introduced as “Gablinger’s Diet Beer” • Advertisements showed a very fat man shoveling spaghetti into his mouth and downing a Gablinger turned off traditional beer drinkers.

32. Miller Lite Beer SuccessCustomer Focus • Most beer is bought by heavy drinkers • A beer that ‘fat’ people could drink and not gain as much weight would NOT be received positively by the market. • “Show me a man concerned about his waistline and I’ll show you a poor prospect for serious beer drinking.” • Customers said they would be interested in a beer that was less filing BUT still tasted great! • Miller Brewing acquired the light beer process when it bought assets of Meister Brau. • 1972 Miller Lite was launched as “Everything you wanted in a beer… and less”. Some of the most macho football players in U.S. pushed Miller Lite • The low calorie beer category has been one of the most successful food and beverage innovations of the past 25 years even though Miller did not invent the technology. • Rheingold is no longer in business.

33. How to Learn What Customers WantImprovements to Kawasaki Jet Ski • What could be done to improve Jet Ski ride?

34. Improvements to Kawasaki Jet Ski • What could be done to improve current Jet Ski ? • Existing customers asked for more padding on Jet Ski to make standing position more comfortable. • Kawasaki responded with several incremental improvements to original design. • Kawasaki lost significant share and its #1 leadership position.

35. Voice of Customer Technique Face-to-Face interview process Consumers at each step down the value chain. Needs and wants expressed in customer’s own words and terminology. Search for ‘Outcomes’ Prioritized by customers. Responsibility for developing solution rests with supplier, not customer.

36. Examples of Probing • Tell me more about … • Why did that please you ? • Why do you believe …..? • Why did you select …..? • Why is that significant ? • Why do you suggest that ……? • Why would that be an improvement ? • What do you mean by ….? • What keeps you awake at night? • Why do you buy from us? • Please be more specific when you say….

37. Organizing and Prioritizing Customer Feedback • Eliminate duplication • Separate needs and attributes from opinions, solutions, and numerical values • Assemble like attributes and return to customers and ask to prioritize

38. Pitfalls to Avoid • Offer solutions when problems are raised • Encourage customer to discuss needs or attributes in terms of our products and services and not theirs • Judgmental tone, ie. Why did you do that? • “Functional Fixedness” – instead probe for outcomes • Imply we are going to fix their problems within weeks • Interrupt customer • Ask questions without interest and sympathy • Poor eye contact • Settle for opinions and solutions rather than probe to uncover true needs and attributes

39. Advantages of VOC Survey Technique Traditional survey methods ask for solutions, but.. Customers have limited frame of reference “Me Too” solutions offered Incremental improvements and not bold changes VOC probes for Outcomes VOC helps establish Values since there can be a huge gap between what customers want and what they are willing to pay for.

40. Yamaha Personal Watercraft Asked for ‘Outcomes’ • Faster learning curve • More stability • Longer rides without fatigue • Multiple riders

41. Personal Watercraft – Using ‘Outcomes’ Results in New, Innovative Design • Faster learning curve • More stability • Longer rides without fatigue • Multiple riders Yamaha and Sea-Doo (Bombardier) gained significant share

42. New Product/Service Planning Process Strategic Emphasis and Idea Generation Incremental or Innovative Is It Real? Is It Worth It? Can We Win? Validation Customer Needs and Wants. Vs. Competition Strategic Positioning Features Benefits $ Values Customer Value Proposition Features Benefits $ Values

43. Move Down The Thermoplastic Compound Value Chain Resin Injection Molder Original Equipment Mfg. Compounder Reinforce- ment

44. Validation Questions • Is It Real? • Market size • Customer needs and wants • Can We Win? • Sustainable competitive advantage • Pricing levels • Sales projections • Is It Worth It? • Investment • Variable and fixed costs Pre-tax income • Level of risk • Corporate return on investment goals • Impact on external relationships • Management priority vs. other growth opportunities

45. Is It Real? • Over $200 million sales in U.S. market. • Projected growth of 7%/yr due to stiffness and impact strength advantages over other resins. • Automotive and Appliance largest uses. • None of the current compounders had captive raw material supplies. • Automotive and Appliance OEM’s always looking for lower price. • Compounding technology well established.

46. Is It Worth It? • Initial investment of $3 million. • Projected variable costs of $.60/lb. • ROI of 10%, assuming ave. price of $.75/lb • Could strain relationships with traditional customers, ie the current compounders.

47. Can We Win? • Market price not totally defined but uncovered some contracts as low as $.60/lb and likely to proliferate to other molders. • Competitive compounders operated very large, highly automated facilities which we were not willing to duplicate. • Relationships at automotive and appliance OEM’s BUT not at immediate target customers – molders. • Conclusion: Can not win…cancel project

48. New Product/Service Planning Process Strategic Emphasis and Idea Generation Incremental or Innovative Is it Real? Can We Win? Is it Worth It? Validation Customer Needs and Wants vs. Competition Strategic Positioning Features Benefits $ Values Customer Value Proposition Features Benefits $ Values

49. Segmentation and Positioning • By creatively, segmenting markets, you can spot opportunities. • Segmentation is key to target marketing. • Positioning refers to how customers think about your proposed brand. • Careful positioning can help highlight a unifying theme or benefits that relate to the target market. • Positioning ensures that the whole marketing mix is consistent and leads to competitive advantage. • With proper positioning, you can convince customers that your offering is unique in the marketplace.

50. How Does Campbell Soup TargetItalian Sauce Leader Ragu