The Product

New Product / Service Development Process

Life Cycle Management
Market response analysis
Competitive monitoring & defense
Innovation at maturity
Introduction
Launch planning
Tracking the launch
Testing
Advertising & product testing
Pretest & pre-launch forecasting
Test marketing
Design
Customer needs Sales forecast
Product positioning Engineering
Segmentation Marketing mix
Opportunity Identification
Market definition
Idea generation
Reposition
The NewProd Scoring Model
Very Good
(10)
Good
(8)
Average
(6)
Poor
(4)
Very Poor
(2)
Sub-factor Sub-factor
Weight
EP EV EP EV EP EV EP EV EP EV TOTAL
EV
Sub-factor
Evaluation
Product
Superiority
1 .1 1 .2 1.6 .5 3.0 .2 0.8 - - 6.4 6.4
Unique
features for
users
1 .1 1 .2 1.6 .4 2.4 .2 0.8 .1 0.2 6.0 6.0
Reduce
customer
costs
3 .3 3 .4 3.2 .2 1.2 .1 0.4 - - 7.8 23.4
Higher
quality than
competitors
1 .1 1 .2 1.6 .5 3.0 .2 0.8 - - 6.4 6.4
Does unique
task for user
2 .5 5 .4 3.2 .1 0.6 - - - - 8.8 17.6
Priced lower
than
competition
2 - - .2 1.6 .5 3.0 .3 1.2 - - 5.8 11.6
10 TOTAL 71.4
To help evaluate ideas generated
Steps in the Design Process
Opportunity
Definition
Refinement

Marketing
R&D
Engineering
Production
Evaluation
Customer Measurement
1. Qualitative measurement to identify
issues
2. Quantitative measurement for input
to models
Summary of Customer
Perception
Segments
Product Features
Preference
Choice
What-if Forecasts
1. Aggregate Individuals
2. Awareness & Availability
HONDA
Quality Function Deployment (QFD)
A set of planning and communication routines

Focuses on coordinating skills within an organization for:
1. Design
2. Manufacture and marketing of goods & services

Foundation of the House of Quality is the belief that products
should be designed to reflect customers needs - so marketing
people, design engineers, and manufacturing staff must work
closely together from the time a product is first conceived

Conceptual map that provides the means for inter-functional
planning and communications
Building the House of Quality
Q1: What do customers want?
Bundles Customer Attributes
Easy to open Easy to close from outside
& close door Stays open on a hill

Isolation Does not leak in rain
No road noise
Q2: Are all attributes equally important?
Bundles Customer Attributes Importance
Easy to open Easy to close from outside 7
& close door Stays open on a hill 5

Isolation Does not leak in rain 3
No road noise 2

Building the House of Quality Continued
Q3: Will delivering on needs yield competitive advantage?
Bundles Customer Attributes Importance Customer Perceptions
Easy to open Easy to close from outside 7
& close door Stays open on a hill 5

Isolation Does not leak in rain 3
No road noise 2



Questions 1~3 are based on the customer responses. From this we can identify
opportunities for improvement - Easy to close from outside which we are
weak on, and Stays open on hill which all 3 cars are weak on. To improve
these attributes, we now need to enter the engineering domain.
1 2 3 4 5
Worst
Best
O B A
BOA
ABO
BA O
O: Our Car; A: As Car; B: Bs Car
Building the House of Quality Continued
Q4: How can we change the product?
Open-Close
Effort
Sealing
Insulation
I
s
o
l
a
t
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n

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a
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7
5
3
2
Customer
Attributes
E
n
g
i
n
e
e
r
i
n
g

C
h
a
r
a
c
t
e
r
i
s
t
i
c
s

Easy to close from out
Stays open on a hill
Doesnt leak in rain
No road noise
O B A
BOA
ABO
BA O
-

E
n
e
r
g
y

t
o

c
l
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d
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+

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D
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+

R
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a
d

n
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r
e
d
u
c
t
i
o
n

Customer Perceptions
1 2 3 4 5
Building the House of Quality Continued
Q5: How much do engineers influence customer perceived qualities?
Open-Close
Effort
Sealing
Insulation
I
s
o
l
a
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7
5
3
2
Customer
Attributes
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n
g
i
n
e
e
r
i
n
g

C
h
a
r
a
c
t
e
r
i
s
t
i
c
s

Easy to close from out
Stays open on a hill
Doesnt leak in rain
No road noise
O B A
BOA
ABO
BA O
-

E
n
e
r
g
y

t
o

c
l
o
s
e

d
o
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r

+

F
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1
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+

R
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a
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d
u
c
t
i
o
n

Customer Perceptions
1 2 3 4 5
+
+ +
_
+
+ +
Relationships
+ Strong Positive
+ Medium Positive
_ Medium Negative
_ Strong Negative
Open-Close
Effort
Sealing
Insulation
I
s
o
l
a
t
i
o
n

E
a
s
y

t
o

O
p
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n

&

C
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m
p
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7
5
3
2
Customer
Attributes
E
n
g
i
n
e
e
r
i
n
g

C
h
a
r
a
c
t
e
r
i
s
t
i
c
s

Easy to close from out
Stays open on a hill
Doesnt leak in rain
No road noise
O B A
BOA
ABO
BA O
-

E
n
e
r
g
y

t
o

c
l
o
s
e

d
o
o
r

+

F
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n

l
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v
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l

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d

+

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1
0
o

s
l
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+

D
o
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+

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Customer Perceptions
1 2 3 4 5
+
+ +
_
+
+ +
Relationships
+ Strong Positive
+ Medium Positive
_ Medium Negative
_ Strong Negative
O
b
j
e
c
t
i
v
e

M
e
a
s
u
r
e
s

Measurement Units
ftlb lb lb lb/ft db
Our Car
As Car
Bs car
11
9
9.5
12
12
11
6
6
7
3
2
2
9
5
6
Open-Close
Effort
Sealing
Insulation
I
s
o
l
a
t
i
o
n

E
a
s
y

t
o

O
p
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n

&

C
l
o
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e

D
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r

R
e
l
a
t
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v
e

I
m
p
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t
a
n
c
e

7
5
3
2
Customer
Attributes
E
n
g
i
n
e
e
r
i
n
g

C
h
a
r
a
c
t
e
r
i
s
t
i
c
s

Easy to close from out
Stays open on a hill
Doesnt leak in rain
No road noise
O B A
BOA
ABO
BA O
-

E
n
e
r
g
y

t
o

c
l
o
s
e

d
o
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r

+

F
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Customer Perceptions
1 2 3 4 5
+
+ +
_
+
+ +
Relationships
+ Strong Positive
+ Medium Positive
_ Medium Negative
_ Strong Negative
O
b
j
e
c
t
i
v
e

M
e
a
s
u
r
e
s

Measurement Units
ftlb
lb lb
lb/ft
db
Our Car
As Car
Bs car
11
9
9.5
12
12
11
6
6
7
3
2
9
5
6 2
_
_
_
+
+
Roof Matrix
Q6: How does one engineering change
affect other characteristics?
Open-Close
Effort
Sealing
Insulation
I
s
o
l
a
t
i
o
n

E
a
s
y

t
o

O
p
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n

&

C
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e

D
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R
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l
a
t
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v
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I
m
p
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r
t
a
n
c
e

7
5
3
2
Customer
Attributes
E
n
g
i
n
e
e
r
i
n
g

C
h
a
r
a
c
t
e
r
i
s
t
i
c
s

Easy to close from out
Stays open on a hill
Doesnt leak in rain
No road noise
O B A
BOA
ABO
BA O
-

E
n
e
r
g
y

t
o

c
l
o
s
e

d
o
o
r

+

F
o
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+

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1
0
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+

D
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+

R
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e
d
u
c
t
i
o
n

Customer Perceptions
1 2 3 4 5
+
+ +
_
+
+ +
Relationships
+ Strong Positive
+ Medium Positive
_ Medium Negative
_ Strong Negative
O
b
j
e
c
t
i
v
e

M
e
a
s
u
r
e
s

Measurement Units
ftlb lb lb lb/ft db
Our Car
As Car
Bs car
11
9
9.5
12
12
11
6
6
7
3
2
9
5
6 2
_
_
_
+
+
Roof Matrix
Technical Difficulty
Estimated Cost
Targets
Q7: What are the technical limitations and
costs associated with various changes
4-Approaches to Mass Customization
Transparent Collaborative
Cosmetic Adaptive
P
r
o
d
u
c
t

Representation
change
no change
no change change
Flexible Product Development
Sensing the market
Testing technical solution
Integrating customer needs with technical solutions
Design
Testing
Integration
Stabilization/Ramp Up
Specs
Sensing the Market
Cyclical Workload Mismatch
marketing
engineering
b
r
e
a
k

Time
lo
hi
W
o
r
k
l
o
a
d

Product Definition Product Development Product Launch
New Product / Service Development Process
Life Cycle Management
Market response analysis
Competitive monitoring & defense
Innovation at maturity
Introduction
Launch planning
Tracking the launch
Testing
Advertising & product testing
Pretest & pre-launch forecasting
Test marketing
Design
Customer needs Sales forecast
Product positioning Engineering
Segmentation Marketing mix
Opportunity Identification
Market definition
Idea generation
Reposition
Pre-Test & Pre-Launch Forecasting
Used by firms introducing high-tech products; telecom products; consumer
apparel; utilities; financial services; medical services; insurance; software;
durable goods; entertainment products
Based on primary data collection


Concept Exposure
Offering
Price
Key Measures
Seek Info?
Intent
Liking
Price / Value
Uniqueness
Believability
Need fulfillment
Survey Data
Adjustment
Demographics
Price / Value
Perception
Absolute Price
Category Usage
Total Sales
100% Aware
100% Available
Market Adjustment
Advertising
Distribution
Competition
Sales
Further, companies like Vantis (division of Bases) have a database of 15000 new product
introductions to benchmark success of new product. The product scores will be compared to
a subset of the database of about 30-50 studies of related, similarly priced products

The database is divided into thirds for comparison. Placement in the upper third of the
database indicates that the test product scored higher than two-thirds of previous studies on
that measure. An example:
Pre-Test & Pre-Launch Forecasting .. Continued
Purchase Intent
Liking
Price / Value
Uniqueness
Believability
Need fulfillment
LOWER MIDDLE UPPER
X
X
X
X
X
X
In the above example, the new product scores high on several measures. However, its
Premium positioning results in average purchase intent
Pre-Test & Pre-Launch Forecasting .. Continued
Forecasting the sales of a new frequently purchased product
Forecast sales, P for a new product depends upon
Awareness of new brand (A
w
)
Availability of new brand (A
v
)
Ultimate trial proportion conditional on awareness and availability (T)
Long run share of purchases of new brand among those who try (R)
Total category sales (C)
P = C A
w
A
v
T R
Advertising
Media
Weight
Brand
Awareness
Trial
Initial
Repeat
Continued
Repeat
Sales &
Market
Share
Distribution
Promotion
Predictions from Assessor
67% success rate in test
market compared with 35.5%
without
Average share forecast 7.77%
versus actual test market share
of 7.16%. The difference is
statistically significant - HBA,
household, food products (n =
44 products.)
If predicted share = target
share for GO decision,
P(Success in TM) = .38, if it
exceeds by 2%, then .76, if it
exceeds by 4%, then .96
Durable goods, New Technology & New to World Products: Information
Acceleration Systems
Customer interacts with multimedia computer with full-motion video capabilities
Computer simulates not just the product but also the full marketing environment
including brochures, print ads, and TV ads. These are stored in the PC and consumers
can call up the info as and when they desire
In addition, WOM and personal selling in a showroom setting are also simulated.
Videos for these are created using several different personality profiles. Consumers
choose the profile they feel most comfortable with (e.g., one of the profiles resembles
a close friend you can trust)
Consumers can examine the product from all angles and, if appropriate, open the
product for closer inspection
As the consumer receives all this information at a pace more rapid than in an actual
purchase environment, it is called an Information Acceleration system.
Pre-Test & Pre-Launch Forecasting .. Continued
Click on the box containing
the person you would like to
speak to..
Forecasting the sales of a new durable: Bass Model
Time
S
a
l
e
s

1. Sales at any point in time comes from
innovators and imitators
2. The number of people who can innovate is a
fraction of those who have not yet bought
3. The number of imitators depends upon how
those who have already purchased influence
those who have not
S
t
= a (M - Y
t-1
) + b (Y
t-1
/M) (M - Y
t-1
)

S
t
= (a + b (Y
t-1
/M)) (M - Y
t-1
)
Values for the unknown parameters, a, b, and
M are obtained using data for similar goods
New Product / Service Development Process
Life Cycle Management
Market response analysis
Competitive monitoring & defense
Innovation at maturity
Introduction
Launch planning
Tracking the launch
Testing
Advertising & product testing
Pretest & pre-launch forecasting
Test marketing
Design
Customer needs Sales forecast
Product positioning Engineering
Segmentation Marketing mix
Opportunity Identification
Market definition
Idea generation
Reposition
Cross-Functional Integration in New Product Strategy
Marketing
R&D
Engineering
Finance
Production
Sales Forecast
Inventory
New Product Development - Plan Vs. Reality
Idea Generation
Screening &
Refinement
Test
Marketing
National
Launch
Exultation
Disenchantment
Confusion
Search for guilty
Punishment of
Innocent
Distinction for the
uninvolved
Measuring Brand Equity
Excess-Price Approach
Observation of Prevailing Prices
Customer Research
Tradeoff / Conjoint Analysis
Replacement Cost Approach
Cost of Introducing New, Comparable Product
Stock-Price Approach
Market Value of Firm - Replacement Value of Tangible Assets = Intangible
Assets
Intangible Assets = Brand Equity + Value of Patents, etc. + Value of Industry
Factors that permit monopoly profits (imperfect competition)
Brand Equity = F(Advertising, Age, Order of Entry..)
Future -Earnings Approach
Measuring Brand Equity: Clout - Vulnerability Analysis
There are several measures of brand equity. One such measure is a
brands ability to take sales away from rivals via a price reduction
versus its competitors ability to take sales away via the competitors
price reduction
Based on segment-level price elasticities
Compute the price elasticities for all the competing brands in the
market
Compute CLOUT which is the effect of my brands price reduction
on the sales of all competing brands
CLOUT
i
= S
j,j ne i
[e
2
ji
]
Compute VULNERABILITY which is the effect on my sales of a
price reduction by all competing brands
VULNERABILITY
i
= S
j,j ne i
[e
2
ij
]
A Clout - Vulnerability Map
C
L
O
U
T

VULNERABILITY
A
B
C
D
E
F
G
Brand Management: 2 Dimensions, 4 Strategies
Relative Market Share
low
high
V
a
l
u
e

C
a
t
e
g
o
r
y

The Hitchhiker
ROS = 15% ~ 20%

Innovate
Niche strategies
Price follower
The High-Road
ROS > 20%

Innovation
Judicious Pricing
Raise Entry Barriers
The Low-Road
ROS = 5% ~ 10%

Cut Costs
Lower Prices
Category Drifts Up?
The Dead-End Brand
ROS < 5%

Slash price/cost
Move Right
Trump category
Move Up
Your Brands
Best Strategy
Vishwanath &
Mark
HBR 1997
Product Line Decisions
Product Line Analysis

% of Total Sales from Each Item in Line

How is Line Positioned vis-a-vis Competition
Major Attributes of Paper Board are: Paper Weight & Finish
Quality
Create a Product Line Map in Weight vs. Finish Quality
Space and see how Your Line Compares with Competitors
Also Helps to Identify Gaps in Market Offerings
Product Line Decisions (Contd..)
Product Line Length
Optimal Number of Items in Line

Line Stretching Decision
Downward Stretch....Line Filling vs. Cannibalization
Upward Stretch....Price/Quality Imputations
Two-Way Stretch
Moving Upscale or Downscale
Going Downscale
Opening up of powerful new channel - Wal*Mart / Best Buy
Protection against private label infringement
To avoid negative spillover launch a new brand
Problems - Lower Awareness; Lower Channel Clout
Reposition entire brand
Sub-brands
Parent - Endorser
Co-drivers
Parent (driver) - Child (descriptor)
Moving Upscale or Downscale
Going Upscale
Problem with credibility
Reposition entire brand - almost impossible
Sub-brands
Parent (driver) - Child (descriptor)
Strategies for Sub-Brands: Minimizing Risk
When moving down market
Try to create a qualitatively different offering aimed at a distinct
segment
Think about elevating the parent brand when the value entry is
launched
Be cautious about price premiums
Use the parent-child metaphor

When moving up market
Make the vertical leap reasonable
Differentiate the upscale entry
How do you manage ideas for new products &
concepts
1. Ideas not solicited
2. Ideas solicited from select group
3. Ideas can be sold to management even if not
solicited
4. New ideas are recognized even if results are
unclear
5. People encouraged to generate new ideas
How do you manage innovation for product
development
1. Innovation limited to the labs
2. Innovation is in marginal improvements
3. New features are added to existing products
4. Innovation is the cornerstone of all new products
5. Cross functional innovations catayze birth of
new products
How do you use new products as marketing
weapons
1. Company often last to enter new categories
2. The company follows the leader closely
3. Company sometimes a pioneer by chance
4. Company launches new products, with new
concepts, albeit occasionally
5. Company usually launches new products with
new concepts
How frequently do you launch new products and
brands
1. Company relies only on tried & trusted brands
2. Rate of launches is below industry average
3. Rate of launches is on par with average
4. New products are launched when considered
necessary
5. Company responds to every market change with
a launch
How do you work on product improvement &
modification
1. No organized process in the company
2. Products allowed to run through life cycle with
few changes
3. Products improved in decline stage
4. Products have periodic changes based on
customer feedback
5. Products constantly changing based on feedback
& opportunities
How does your company test market new
products
1. Occasional, non-institutionalized process
2. Conducted regularly with small samples
3. Marketing mix seldom modified after test
marketing
4. Regular test marketing - only for products
5. All elements of the marketing mix are test-
marketed and suitably modified
How closely is the customer involved in product
testing
1. Feedback obtained after launch
2. Customer involved in test-marketing stage
3. Customer consulted in the beginning for product
ideas
4. Customer involved from prototype to test
marketing
5. Customer involved at every stage from idea
generation
How do you customize products for different
buyers
1. Product offering is homogeneous
2. Differentiation via external factors such as
package size
3. Service envelope is customized
4. Product-service combo is tailored to individual
buyer
5. Customization is offered to every buyer
How do you familiarize channel with new
products
1. Products are introduced into channel with little
innovation
2. Channel members are told of the product after
launch
3. Some advance notification is provided
4. Informed but not involved in the planning
5. Work closely with company on new products
How do you respond to new products from
competitors
1. No serious attempt to develop new product
2. Company checks whether a new product is
necessary
3. Customer needs are re-examined before
developing a competing product
4. New product launched with more benefits
5. Response via counter-innovation with extra
benefits
Grade: A (40 - 50 points); B (30-40 points); C (20-30 points); D (10-20 points)
The Value Development Audit