POM Lecture 7-a BBA 2K10

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New-Product Development Strategy New-Product Development Process Managing New-Product Development Product Life-Cycle Strategies Additional Product and Service Considerations

A firm can obtain new products through: Acquisition New-product development

Acquisition refers to the buying of a whole company, a patent, or a license to produce someone elses product New product development refers to original products, product improvements, product modifications, and new brands developed from the firms own research and development

As director of consumer Web products Marissa Mayer is a champion of innovation. She favors new product launches that are early and often. She joined Google in early 1999 as a programmer when the workforce totaled 20. By 2007 Google had 5,700 employees with expected sales of $16 billion.

How Google Innovates

The search leader has earned a reputation as one of the most innovative companies in the world of technology. A few of the ways Google hatches new ideas: FREE (THINKING) TIME
Google gives all engineers one day a week to develop their own pet projects, no matter how far from the companys central mission. If work gets in the way of free days for a few weeks, they accumulate. Google News came out of this process.

 THE IDEAS LIST

Anyone at Google can post thoughts for new technologies of businesses on an ideas mailing list, available company wide for input and vetting. But beware: Newbies who suggest familiar or poorly thought-out ideas can face an intellectual pummeling.

OPEN OFFICE HOURS

Think back to your professors office hours in college. Thats pretty much what key managers, including Mayer, do two or three times a week, to discuss new ideas. One success born of this approach was Googles personalized home page.

BIG BRAINSTORMS
As it has grown, Google has cut back on brainstorming sessions. Mayer still has them eight times a year, but limits hers to 100 engineers. Six concepts are pitched and discussed for 10 minutes each. The goal: to build on the initial idea with at least one complementary idea per minute.

ACQUIRE GOOD IDEAS

Although Google strongly prefers to develop technology in-house, it has also been willing to snap up small companies with interesting initiatives. In 2004 it bought Keyhole, including the technology that let Google offer sophisticated maps with satellite imagery.
Source: Managing Googles Idea Factory, BusinessWeek, October 3, 2005, 88-90.

Reasons for new product failure Overestimation of market size Poor design Incorrect positioning Wrong timing Priced too high Ineffective promotion Management influence High development costs Competition

New product does not have to be a high technology breakthrough to be successful, but it must deliver superior customer value

Major Stages in New-Product Development

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Idea generation Idea screening Concept development and testing Marketing strategy development

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Business analysis Product development Test marketing Commercialization

Idea Generation
Idea generation is the systematic search for new-product ideas Sources of new-product ideas Internal External

Idea Generation
Internal sources refer to the companys own formal research and development, management and staff, and intrapreneurial programs

External sources refer to sources outside the company such as customers, competitors, distributors, suppliers, and outside design firms

Concept Development and Testing

Product idea is an idea for a possible product that the company can see itself offering to the market Product concept is a detailed version of the idea stated in meaningful consumer terms Product image is the way consumers perceive an actual or potential product

Concept Development and Testing

Concept testing refers to new-product concepts with groups of target consumers

Marketing Strategy Development

Marketing strategy development refers to the initial marketing strategy for introducing the product to the market
Marketing strategy statement includes: Description of the target market Product positioning, sales, market share, and profit goals Price, distribution, and budget Long-term sales, profit goals, and marketing mix strategy

Marketing Strategy Development

Business analysis involves a review of the sales, costs, and profit projections to find out whether they satisfy the companys objectives

Marketing Strategy Development

Product development involves the creation and testing of one or more physical versions by the R&D or engineering departments Requires investment

Marketing Strategy Development

Test marketing is the stage at which the product and marketing program are introduced into more realistic marketing settings Provides the marketer with experience in testing the product and entire marketing program before full introduction

Marketing Strategy Development

When firms test market

When firms may not test market

New product with large investment

Uncertainty about product or marketing program

Simple line extension

Copy of competitor product Low costs Management confidence

Marketing Strategy Development

Approaches to test marketing Standard test markets Controlled test markets Simulated test markets

Marketing Strategy and Development

Standard test markets are small representative markets where the firm conducts a full marketing campaign and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. Results are used to forecast national sales and profits, discover product problems, and finetune the marketing program.

Marketing Strategy Development

Challenges of standard test markets Cost Time Competitors can monitor the test Competitor interference Competitors gain access to the new product before introduction

Marketing Strategy Development

Controlled test markets are panels of stores that have agreed to carry new products for a fee Less expensive than standard test markets Faster than standard test markets Competitors gain access to the new product

Marketing Strategy Development

Simulated test markets are events where the firm will create a shopping environment and note how many consumers buy the new product and competing products. Provides measure of trial and the effectiveness of promotion. Researchers can interview consumers.

Marketing Strategy Development

Advantages of simulated test markets Less expensive than other test methods Faster Restricts access by competitors Disadvantages Not considered as reliable and accurate due to the controlled setting

Marketing Strategy Development

Commercialization is the introduction of the new product When to launch Where to launch Planned market rollout

The process by which the adoption of an innovation spreads.

Innovators Early Adopters Categories of Adopters in the Diffusion Process Early Majority Late Majority

Laggards

Percentage of Adopters

Innovators 2.5%

Early Adopters 13.5%

Early Majority 34%

Late Majority 34%

Laggards 16%

Time

Complexity
Compatibility Product Characteristics Predict Rate of Adoption Relative Advantage Observability

Trialability

Word of Mouth Communication Aids the Diffusion Process Direct from Marketer

 Situation

involving one product taking sales from another offering in a product line

Cannibalization

occurs when sales of a new product cut into (reduce) the sales of a firms existing products.