New Products/Services Development, Management, and Strategy

1. New Products/Services Development, Management, and Strategy

2. Outline • Product Strategy in Business Marketing • Product Lines Defined • Business New Product Development • Organization of the New Product Effort • Product Life-Cycle Analysis • Determinants of the Product Mix • The Product Adoption–Diffusion Process • Product Portfolio Classification, Analysis, and Strategy • Product Deletion Strategy • Marketing of Business Services • Important Characteristics of Business Services • Business Service Marketing—Challenges and Opportunities

3. Product Lines Defined • Proprietary or catalog • Standard products offered to many customers and usually inventoried in anticipation of sales orders. For example, the DoAll Company keeps a large inventory of model No. C916A Band Saws to ensure quick delivery to customers. • Custom-built • Different variations of accessories and options to complement proprietary or catalog products offered. For example, the DoAll company fills a request from a major company for a custom, made-to-order saw with a larger motor size, larger table size, and automatic indexing.

4. Product Lines Defined • Custom-designed • Products designed for (and usually only for) a particular user. For example, DoAll designed a unique band saw with a custom-fixtured table and remote-control operation for Army to use to cut up live ammunition. • Industrial services • Intangibles, e.g., maintenance, machine repair, consulting. For example, DoAll provides a saw and coolant specialist who makes courtesy inspections at customers’ plants to assist in using DoAll in product applications.

5. Custom Product Versus Proprietary Standard Line Manufacturers • Custom:BMW designs a windshield washer fluid container for their new model and sends part prints to a custom plastics component manufacturer. Manufacturer must build production equipment but BMW owns molding dies and rights to product. Supplier sales build relationship, work with customer on design, finalize terms of sale. • Proprietary standard line:BMW picks a standard wheel bearing for its new model and orders it directly from manufacturer. Manufacturer sells same wheel bearing to others. Supplier sales build relationship, work with customer on application, finalize terms of sale.

6. Business New Product Development • New Product Approaches • Technology Push - When perceived value of particular technology is great; firm has only a vague notion of possible applications, and usually not much more. • Market Pull - Primarily the result of marketing research methodologies of interviewing potential users about their needs, then developing solutions to those perceived market needs.

7. Business New Product Development • The New Product Development Process • Idea and Concept Generation • Screening and Evaluation • Business Analysis • Product Development • Product Testing • Product Commercialization and Introduction

8. The New Product Development Process Idea and concept generation Screening and evaluation Business analysis Product development Product testing Product commercialization and introduction

9. Marketing Activities at Each Phase 1. Idea and concept generation: involves the search for product ideas and concepts that meet company objectives 2. Screening and evaluation: involves analysis to determine which ideas submitted are pertinent and merit a more detailed study of potential feasibility and market acceptance 3. Business analysis: return-on-investment criteria are examined along with competition and the potential for market entry

10. Marketing Activities at Each Phase (2) 4. Product development: involves taking the product from an idea generated during a brainstorming session to a state of readiness for product and market testing 5. Product testing: involves conducting commercial experiments necessary to verify earlier business judgements 6. Product commercialization and introduction: includes launching the new product through full-scale production and sales and committing the company's reputation and resources to the product's success

11. Organization of the New Product Effort • Product Manager • Individuals responsible for marketing mix decisions for specific product line as it travels through life cycle • New Product Manager • Plan, organize, implement, and control new product development. • New Product Committee • Part-time interdisciplinary management group reviews new product proposals; advantages outweigh disadvantages because committee is most common form of organizational structure for managing new products.

12. Organization of the New Product Effort • New Product Department • Specific department generates and evaluates new product ideas, directs and coordinates development work, and implements field testing and precommercialization of new product; allows for maximum effort in new product development, but at expense of major overhead costs. • New Product Venture Team • Task force representing various departments responsible for new product development and implementation; normally dissolved once new product is established in market.

13. Product Manager/Marketing Manager Role Old View: Organize, coordinate, and control. New View: Calculated chaos and controlled disorder Communicate—Communicate—Communicate: Make things happen. • Questions: • What companies purchase products from these producers? • What would a Product Manager do to facilitate these transactions and relationships?

14. Product Life-Cycle Analysis • Introduction • Market Growth • Market Maturity • Sales Decline

15. 7-7

16. ProductLife Cycle IntroductionGrowthMaturityDecline As a strategy planning tool, a “PLC” diagram is a visual representation of a tendency (many nonbusiness systems tend to same shape, such as to show income and height). On one level, it is a reminder to planner of what is coming—if an inflection point is reached, you should know what is coming (even though you only have actual life cycle to that point). In business, PLC is often driven by experience curve, economies of scale, competitive attraction to market opportunities, rate of diffusion factors, and eventual market saturation. Planners must adjust for actual impact of these factors on a particular product. (continued)

17. IntroductionGrowthMaturityDecline ProductLifeCycle On another level, marketers continuously monitor and adjust their strategy and tactics as product’s cycle progresses. As a reference, they can refer to standard mix strategies for each PLC stage (usually represented in a table directly under PLC diagram on most texts). Marketer’s objective is to adjust strategy to changing life cycle situation to maximize the results. As maturity approaches, marketer often decides to attempt a PLC extension by (1) finding ways to increase current market’s usage, (2) finding totally new uses, (3) finding new target segments, (4) developing new distribution, or (5) perhaps a major product improvement and repositioning. (continued)

18. Product Life Cycle Actual PLC curves can be any shape—from product that doesn’t sell at all, to fad that grows fast but has short life, to seasonal product, etc. Company depends on its marketers to understand what factors determine success and to make appropriate strategic decisions. It is often tempting for new students to want to learn PLC superficially, but in real world many people depend on in-depth understanding.

19. Determinants of the Product Mix • Technology • Competition • Changes in Levels of Business Activity • Operating Capacity • Market Factors

20. The Product Adoption-Diffusion Process • Stages in the Adoption Process • Awareness - Buyer learns of new product or service, but lacks information. • Interest - Buyer seeks out or requests additional information. • Evaluation - Buyer (or member of buying team) considers/evaluates usefulness of product/service; consideration might be given to value-analysis project or make-buy situation.

21. The Product Adoption-Diffusion Process (2) • Stages in the Adoption Process • Trial - Buyer adopts product or service on limited basis. • Adoption - If trial purchase worked, then buyer decides to make regular use of product/service. • Diffusion Process – goes beyond the adoption process and represents the spread of a new product, innovation, or service throughout an industry over time.

22. The Product Adoption-Diffusion Process (3) • Factors Influencing the Rate of Adoption-Diffusion • Perceived risk • Perceived advantage • Incompatibility with existing products/behavior • Uncertainty • Diffusion speed varies among industries—fast in electronics, slow in domestic steel.

23. Product Portfolio Classification, Analysis, and Strategy • What is a Product Portfolio? • Diagnosing the Product Portfolio • Product Portfolio Strategies

24. BCGSBUPortfolioBusinessStrategy High Business strength, Growth rate, Cash use Low Low High Industry attractiveness, Market share, Cash generation (continued)

25. BCG Business SBU Portfolio Strategy High Use cash to make into star Defend position Business strength, Growth rate, Cash use Low Nurture to feed cash to? Fix or abandon High Low Industry attractiveness, Market share, Cash generation (continued)

26. BCG Business SBU Portfolio Strategy (as might appear in your strategic planning documents) High Growth rate Cash use Low Computers Printers Modems Telephones High Low Market share Cash generation Note: Size can indicate amount of sales. (continued)

27. GE Strategic Planning Grid High Medium Low High Business strength axis Self-defined as a function of: size, growth, share, profitability, image, position, people, and other factors of business strength or weakness Medium Low High Medium Low Industry attractiveness axis Self-defined as a function of: size, market growth, strength of competitors, industry profitability, technical strength, and positive acting market environmental factors. (continued)

28. Problem#1:SBUs Can Be Repositioned by Redefining Axes HighMedium Low High Medium Businessstrength axis Low Coca-Cola* as a part of the cola market HighMedium Low *Coca-Cola does not sell directly to consumers Industryattractivenessaxis (continued)

29. Problem#1:SBUs Can Be Repositioned by Redefining Axes High Medium Low High Business strength axis Medium Low Coca-Cola as a part of the soft drink market High Medium Low Industry attractiveness axis (continued)

30. Problem#1:SBUs Can Be Repositioned by Redefining Axes High Medium Low High Medium Business strength axis Low Coca-Cola as a part of the all types of drinks market High Medium Low Industry attractiveness axis (continued)

31. Problem#1:SBUs Can Be Repositioned by Redefining Axes Bottom line: SBU market share and market strength change as market is redefined; also possible that industry attractiveness changes. Note: Coca-Cola slides are for the purpose of demonstrating the concept of SBU position shifting as axes are redefined; they do not represent actual strategic position of Coca-Cola.

32. Problem #2:Doing What the Grid Position Indicates • When portfolio models were first introduced, marketers did what the grid position indicated rather than using them as a tool to help visualize company’s mix of SBUs, interrelationships, relative strengths, etc. • If a larger percentage of business is in products in which company is not strong, margins are low, and market is not attractive, they may still be providing important coverage of fixed overhead. Don’t automatically get rid of “dog”-quadrant products. • Bottom line: Two-factor portfolio models are not decision models; they are tools to help marketers with their thinking. Even with multiple-factor computer decision support systems, the decision is still the marketer’s.

33. Product Deletion Strategy • Harvesting • Line Simplification • Divestment

34. Important Characteristics of Business Services • Intangibility • Freight forwarding, consulting, repair, etc. can seldom be tried out/tested in advance of purchase; instead, buyers must view advertising copy, listen to sales presentation, or consult current users to gain insight into expected performance. • Perishability and fluctuating demand • Services cannot be stored and markets fluctuate by day, week, or season; idle service capacity is business that is lost forever—no inventory buffer.

35. Important Characteristics of Business Services • Simultaneity • Production and consumption of services are inseparable; this typically puts marketer in very close contact with customer, requiring them to be highly professional. • Heterogeneity • A service is an experience and thus cannot be duplicated; difficult to standardize and thus output quality may vary.

36. Business Service Marketing – Challenges and Opportunities • Service Marketing Vs. Product Marketing • Positioning Strategy • Bundling of Services • Service Strategy and the Marketing Mix • Product • Price • Place • Promotion

37. Business Service Marketing – Challenges and Opportunities • New Service Development • Share Building • Market Extension • Line Extension • New Business