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McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

9

New Products

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Considerations in Adding or Dropping a Variant

• Customer based• New customer attracted• Old customer

cannibalization• Confusion and dilution of

brand equity

• Operations based• Loss of economies of scale• Problems in gaining

additional distribution• Additional servicing needs

• Old customers lost• Customer switching• Signal of weakness

• Impaired efficiency• Maintaining distribution• Servicing old versions

Adding Dropping

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Product Stages

1. Idea generation2. Concept development3. Feasibility screening4. Concept testing5. Product development6. Product testing7. Market testing8. Go-no-go decision

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Assessing the Impact of Product Redesign on Customers

ReactionResponse after Trial

Impact on Sales/Profits

1. Loyal A. Try 1) Prefer2) Like3) Not like

GainNeutralLoss

B. Not try Loss2. Occasional A. Try 1) Prefer

2) Like3) Not like

GainTrail sales gainLoss

B. Not try Loss

3. Noncustomers A. Try 1) Prefer2) Like3) Not Like

GainTrail sales gainTrail sales gain

B. Not try Neutral

Current Customers

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Proactive Idea Generation

1. Customer analysis2. Competitor analysis3. Active search4. Category analysis5. Brainstorming

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Reactive Idea Sources

1. Customers2. Employees3. Suppliers4. Distribution channels5. Operations people6. Internal and External R&D7. Design8. Entrepreneurs

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Common Formal Tests• Concept testing

• Surveys• Focus groups• Demonstrations

• Product testing• Product tests• Discrimination and preference testing

• Market tests

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Decisions for a Market Test

• Action standards• Where to test markets• What to do• How long• Cost• Information gathering

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Keys to Eventual Sales 1. Awareness2. The eventual proportion of consumers

who try the product (trial). 3. The proportion of triers who remain with

the brand (repeat).4. The usage rate of the product category

among eventual users.

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Typical Penetration for New Brand Over Time

Period

Pene

trat

ion

(per

cent

)

1 2 3 4 5

10

20

30

40

Ultimate penetration level (45%)

•

••••

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Typical Repeat Rate for New Brand Over Time

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Repeat Rates and Product Performance

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Really New Products

1. Create or expand a new category, thereby making cross-category competition the key

2. Are new to customers for whom substantial learning is often required

3. Raise broad issues such as the appropriate channels of distribution and organizational responsibility

4. Create (sometimes) a need for infrastructure, software, and add-ons

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Examples of Really New ProductsPackaged Goods Bottled tea

Light beerFrozen vegetablesSports drinks (Gatorade)

Services Overnight air deliveryATMsCredit cardsIRAs, annuitiesInternetPriceline.comAribaLivePerson.com

Durables Microwave ovensRoom air conditionersDishwashersBlack-and-white TVs

Industrial products

NylonSemiconductorsNuclear power reactorsPrinting presses

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Getting Ideas for Really New Products

1. Asking (or listening to) dissatisfied customers2. Asking nonrepresentative customers3. Using open-ended, qualitative (vs. structured

survey) procedures4. Involving customers as co-developers5. Listening to scientists and newcomers rather

than engineers and experts6. Scanning the literature for interesting

possibilities

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Evaluating Really New Products

1. Relative advantage2. Compatibility3. Risk4. Complexity5. Observability/communicability6. Trialability/divisibility

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Evaluating New Products

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Evaluation Criteria for New Products

• Customer Level1. Do customers like it?2. Is it unique?3. Will they buy it?4. How soon/fast will they buy it?

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Evaluation Criteria for New Products (cont.)

• Firm Level1. Does it add to our customer base through…

• Acquisition?• Expansion?• Loyalty/retention?• Enhanced brand equity?

2. Does it detract from our customer base through…• Cannibalization?• Customer defections?• Lowered brand equity?

3. Do we have the capabilities to…• Develop it?• Produce it?• Distribute and sell it?• Buy or partner to do a-c?

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Evaluation Criteria for New Products (cont.)

• Firm Level4. Will it be profitable…

• On a stand-alone basis?• Long-run impact on produce line?

5. Are there other benefits associated with it…• Learning/capacity enhancement?• PR?

6. Are there other costs associated with it…• Legal liability?• PR?

7. Can we control the market in the long run?