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
Reposition
Idea generation
 The NewProd Scoring Model
• To help evaluate ideas generated
Very Good Good Average Poor Very Poor
(10) (8) (6) (4) (2)
Sub-factor Sub-factor EP EV EP EV EP EV EP EV EP EV TOTAL Sub-factor
Weight EV Evaluation
Product 1 .1 1 .2 1.6 .5 3.0 .2 0.8 - - 6.4 6.4
Superiority
Unique 1 .1 1 .2 1.6 .4 2.4 .2 0.8 .1 0.2 6.0 6.0
features for
users
Reduce 3 .3 3 .4 3.2 .2 1.2 .1 0.4 - - 7.8 23.4
customer
costs
Higher 1 .1 1 .2 1.6 .5 3.0 .2 0.8 - - 6.4 6.4
quality than
competitors
Does unique 2 .5 5 .4 3.2 .1 0.6 - - - - 8.8 17.6
task for user
Priced lower 2 - - .2 1.6 .5 3.0 .3 1.2 - - 5.8 11.6
than
competition
10 TOTAL 71.4
 Steps in the Design Process

Customer Measurement
Opportunity 1. Qualitative measurement to identify
Definition issues
2. Quantitative measurement for input
to models

Summary of Customer
Refinement HONDA Perception Product Features

• Marketing
• R&D Preference Segments
• Engineering
• Production
Choice

“What-if” Forecasts
1. Aggregate Individuals
Evaluation 2. Awareness & Availability
 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
O BA
& close door Stays open on a hill 5
BOA
Isolation Does not leak in rain 3 ABO
No road noise 2
BA O
Worst Best
1 2 3 4 5
O: Our Car; A: A’s Car; B: B’s Car

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.
 Building the House of Quality… Continued
Q4: How can we change the product?
Open-Close Sealing
Effort Insulation

Relative Importance

+ Force on level ground

Characteristics
- Energy to close door

+ Door seal resistance

+ Road noise reduction

Engineering

+ Force on 10o slope

Customer Customer Perceptions
Attributes
1 2 3 4 5
& Close Door
Easy to Open

Easy to close from out 7 O BA

Stays open on a hill 5 BOA

Doesn’t leak in rain 3 ABO

Isolation

No road noise 2 BA O
 Building the House of Quality… Continued
Q5: How much do engineers influence customer perceived qualities?
Open-Close Sealing
Relationships
Effort Insulation
+ Strong Positive

Relative Importance

+ Force on level ground

Characteristics
- Energy to close door

+ Door seal resistance

+ Road noise reduction

+ Medium Positive

Engineering

+ Force on 10o slope

_ Medium Negative
_ Strong Negative

Customer Customer Perceptions

Attributes
1 2 3 4 5
+ _
& Close Door
Easy to Open

Easy to close from out 7 O BA

Stays open on a hill 5 + + BOA

Doesn’t leak in rain 3 + ABO

Isolation

No road noise 2 + + BA O
 Open-Close Sealing
Relationships
Effort Insulation
+ Strong Positive

Relative Importance

+ Force on level ground

Characteristics
- Energy to close door

+ Door seal resistance

+ Road noise reduction

+ Medium Positive

Engineering

+ Force on 10o slope

_ Medium Negative
_ Strong Negative

Customer Customer Perceptions

Attributes
1 2 3 4 5
+ _
& Close Door
Easy to Open

Easy to close from out 7 O BA

Stays open on a hill 5 + + BOA

Doesn’t leak in rain 3 + ABO

Isolation

No road noise 2 + + BA O

Measurement Units ftlb lb lb lb/ft db

Objective
Measures

Our Car 11 12 6 3 9
A’s Car 9 12 6 2 5
B’s car 9.5 11 7 2 6
Q6: How does one engineering change _
affect other characteristics? _ Roof Matrix

_
+ +
Open-Close Sealing
Relationships
Effort Insulation
+ Strong Positive

Relative Importance

+ Force on level ground

Characteristics

- Energy to close door

+ Door seal resistance

+ Road noise reduction

+ Force on 10o slope
Engineering
+ Medium Positive
_ Medium Negative
_ Strong Negative

Customer Customer Perceptions

Attributes 1 2 3 4 5
+
Isolation & Close Door

_
Easy to Open

Easy to close from out O BA

7
Stays open on a hill 5 + + BOA

ABO
Doesn’t leak in rain 3 +
BA O
No road noise 2 + +
Measurement Units ftlb lb lb lb/ft db
Objective
Measures

Our Car 11 12 6 3 9
A’s Car 9 12 6 2 5
B’s car 9.5 11 7 2 6
Q7: What are the technical limitations and _
costs associated with various changes _ Roof Matrix

_
+ +
Open-Close Sealing
Effort Insulatio Relationships
+

Relative Importance
Strong Positive

Characteristics
n

Engineering

+ Force on level ground

+ Medium Positive

- Energy to close door

+ Door seal resistance

+ Road noise reduction

+ Force on 10o slope
_ Medium Negative
_ Strong Negative

Customer Customer Perceptions

Attributes 1 2 3 4 5
+ _ O BA
& Close Door
Easy to Open

Easy to close from out 7

Stays open on a hill 5 + + BOA

Doesn’t leak in rain 3 + ABO

Measures Isolation

No road noise 2 + + BA O

Measurement Units ftlb l l lb/ft d

Objective

Our Car b
11 12 b6 3 b9
A’s Car 9 12 6 2 5
B’s car 9.5 11 7 2 6
Technical
Difficulty
Estimated Cost
Targets
 4-Approaches to Mass Customization

Representation

change Transparent Collaborative

Product

no change Adaptive Cosmetic

no change change
 Flexible Product Development

• Sensing the market

• Testing technical solution
• Integrating customer needs with technical solutions

Sensing the Market

Specs
Design
Testing

Integration
Stabilization/Ramp Up
 Cyclical Workload “Mismatch”

hi
Product Definition Product Development Product Launch

marketing
Workload

break
engineering

lo

Time
 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
Reposition
Idea generation
 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 Survey Data
• Liking Adjustment Total Sales
• Price / Value •Demographics • 100% Aware
• Uniqueness • Price / Value • 100% Available
• Believability Perception
• Need fulfillment • Absolute Price
• Category Usage Market Adjustment
• Advertising
• Distribution
• Competition

Sales
 Pre-Test & Pre-Launch Forecasting .. Continued
• 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:

LOWER MIDDLE UPPER

Purchase Intent X
Liking X
Price / Value X
Uniqueness X
Believability X
Need fulfillment 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 (Aw)
◆ Availability of new brand (Av)
◆ 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 Aw Av T R
Promotion

Advertising Sales &

Brand Initial Continued
Media Trial Market
Awareness Repeat Repeat
Weight Share

Distribution
 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
 Pre-Test & Pre-Launch Forecasting .. Continued
• 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.
Click on the box containing
the person you would like to
speak to..
 Forecasting the sales of a new durable: Bass Model

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
Sales

St = α (M - Yt-1) + β (Yt-1/M) (M - Yt-1)

St = (α + β (Yt-1/M)) (M - Yt-1)

Values for the unknown parameters, α, β, and

M are obtained using data for similar goods
Time
 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
Reposition
Idea generation
Cross-Functional Integration in New Product Strategy
R&D
Engineering De
s si gn
e e d for
N Ma

sts
e r nu
tom Pro

que
fac
Cus e s ign ces t uri
sN

Re
tD ng
u c eed

nd
o d s
Pr

Fu
Sales Forecast
Marketing Production
Inventory
Bud

Bu
gets

Fu dg e ts
nd e ts u d g sts
Re B q ue
R e
qu d
es n
ts Fu

Finance
New Product Development - Plan Vs. Reality
Exultation

Idea Generation
Disenchantment

Screening &
Refinement Confusion

Test Search for guilty

Marketing
Punishment of
Innocent
National
Launch
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
brand’s ability to take sales away from rival’s via a price reduction
versus its competitor’s ability to take sales away via the competitor’s
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 brand’s price reduction
on the sales of all competing brands
• CLOUTi = Σj,j ne i [e ]
2
ji
• Compute VULNERABILITY which is the effect on my sales of a
price reduction by all competing brands
• VULNERABILITYi = Σj,j ne i [e ]
2
ij
 A Clout - Vulnerability Map

A E
CLOUT

C
F
G

VULNERABILITY
 Brand Management: 2 Dimensions, 4 Strategies

The Hitchhiker The High-Road

Category
Premium

ROS = 15% ~ 20% ROS > 20%

Innovate Innovation
Niche strategies Judicious Pricing
Price follower Raise Entry Barriers

The Dead-End Brand

The Low-Road
ROS < 5%
ROS = 5% ~ 10%
Category

Slash price/cost
Cut Costs
Value

Move Right
Lower Prices
“Trump” category Your Brand’s
Category Drifts Up?
Move Up Best Strategy
low Vishwanath &
high Mark
Relative Market Share 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 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 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 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 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 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 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
Grade: A (40 - 50 points); B (30-40 points); C (20-30 points); D (10-20 points)
The Value Development Audit
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 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