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New Product Design
Role of design in new product development
Conjoint Analysis for product design
Designing a hotel exercise
“Courtyard by Marriott”
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Where companies want to put their efforts in new product development:
Getting our new products to the market on time, as planned (76% of companies interviewed).
Improving the appeal of our new products to customers (73%).
Developing our new products faster from concept to introduction (68%).
Developing products that are easier to manufacture, sell, install, and service (61%).
Reducing costs/investments related to new product development and introduction (47%).
Reducing the payback period of our new products (47%).
Increasing the number of new products (44%)
Arthur D. Little Worldwide Survey
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Breakdown of Success Factors:Process versus Environment
Importance toSuccess (rank
order)
Factors that portrayNPD process
Factors that describeProject Setting
1 1. Product superiority as perceived bycustomers
1. Product Superiority asperceived by customers
2 2. Early and sharp product definition3 3. Quality of technological activities4 4. Technological Synergy5 5. Quality of predevelopment activities6 6. Marketing Synergy7 7. Quality of marketing activities8 8. Market attractiveness9 9. Top management support
10 10. Competitive position
Source: Robert G. Cooper, Winning at New Products (1993)
Impact of Product Superiority on Product Success
18.4
58
98
0
50
100
Su
cc
es
s r
ate
(%
)
Mkt Share11.6%
Minimal Moderate Maximal
Product Superiority
Mkt Share32.4%
Mkt Share53.5%
Success measured using four factors: (1) whether it met or exceeded management’s criteria for success, (2) the profitability level (1-10 scale), (3) market share at the endof three years, and (4) whether it met company sales and profit objectives (1-10 scale).
Source: Robert G. Cooper, Winning at New Products (1993)
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Impact of Early Product Definition on Product Success
26.2
64.285.4
0
50
100
Su
cc
es
s r
ate
(%
)
Mkt Share22.9
Poor Moderate Strong
Product Definition
Mkt Share36.5
Mkt Share37.3%
Source: Robert G. Cooper, Winning at New Products (1993)
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Impact of Market Attractiveness on Product Success
73.961.542.5
0
50
100
Su
cces
s ra
te (
%)
Mkt Share31.7
Low Moderate High
Market Attractiveness
Mkt Share33.7
Mkt Share36.5%
Source: Robert G. Cooper, Winning at New Products (1993)
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Resources Allocated at Each Stage of NPD
57
315.3
435.9
148.4
553.2
203.8
0
100
200
300
400
500
600
PredevelopmentActivities
Product development& product testing
Commercialization
Mean Expenditure($000K)
Mean Person-Days
Source: Robert G. Cooper (1993)
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Value of Good Design
80% of a product’s manufacturing costs are incurred during the first 20% of its design (varies with product category).
Conjoint Analysis is a systematic approach for matching product design with the needs and wants of customers, especially in the early stages of the New Product Development process.
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A way to understand and incorporate the structure of customer preferences into the new product design process. In particular, it enables one to evaluate how customers make tradeoffs between various productattributes.
The basic output of conjoint analysis are:
• A numerical assessment of the relative importance that customers attach to attributes of a product category
• The value (utility) provided to customers by each potential feature of a product
What is Conjoint Analysis?
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Customer Value Assessment Procedures
CustomerValue
Attitude-Based
Direct Questions
UnconstrainedFocus groupsDirect survey questionsImportance and attitude ratingsrule-based system/AI/expert systems
Constrained/Compositional MethodsMultiattribute value analysisBenchmarking
Indirect/(Decompositional Methods)Conjoint analysisPreference Regression
Behavior-BasedChoice modelsNeural networksDiscriminant analysis
Inferential/Value-BasedInternal engineering assessmentIndirect survey questionsField value-in-use assessment
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Why is Conjoint Analysis Useful?
Designing new products that enhance customer value
Forecasting sales/market share of alternative product concepts
Identifying market segments for which a given concept has high value
Identifying the “best” concept for a target segment
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Measuring Importance of Attributes
When ordering a computer, how important is…Circle one
Not Very
Important Important
Price 1 2 3 4 5 6 7 8 9
Performance 1 2 3 4 5 6 7 8 9
Reliability 1 2 3 4 5 6 7 8 9
Delivery time 1 2 3 4 5 6 7 8 9
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Should we offer our business travelers more room space or a fax machine in their room?
Should we offer a shower or a bath in a hotel room?
Given a target cost for a product, should we enhance product reliability or its performance?
Should we use a steel or aluminum casing to increase customer preference for the new equipment?
How Do We Resolve These “Design” Questions?
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Measuring ImportanceUsing Conjoint Analysis
Product Performance Reliability Price Preference
1 Hi Hi Hi ___
2 Hi Hi Lo ___
3 Hi Lo Hi ___
4 Hi Lo Lo ___
5 Lo Hi Hi ___
6 Lo Hi Lo ___
7 Lo Lo Hi ___
8 Lo Lo Lo ___
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Attributes• Price (4 options)• Delivery_terms (4 options)
Perf. specs Delivery time PriceExceed by 20% 6 months $600kExceed by 5% 9 months $700kMeet specs 12 months $800kShort by 5% 15 months $900k
Delivery termsInstalled, 2-year guaranteeInstalled, 1-year guaranteeInstalled, service contractFOB seller, service contract
A total of 256 (4x4x4x4) different offerings can be designed from these options!
An Example Conjoint Study:Air Pollution Control Equipment
• Performance specs (4 options)• Delivery time (4 options)
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Data for Conjoint Analysis: Paired Comparisons
Deluxe Mid-levelmodel model
Performance specs Exceed by 20% Exceed by 5%
Delivery time 12 months 6 months
Price 700k 700k
Delivery terms Installed, 1 year Installed, service contract
Which do you prefer?
Which one would you buy?
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Example of a SophisticatedData Gathering Instrument
Profile 1
Performance specs - Exceeds by 20%Delivery time - 12 months
Price - 700kDelivery terms - Installed, 1 year
Process pollution problem - Moderate
Please estimate the percent of your processes like the one described above where youwould use the product described by this profile, and each of the products listed below.
% ProcessesTest productCompetitor ACompetitor B
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Data for Conjoint Analysis: Full-Profile Ratings or Rankings
Product Perf_spec Del_time Price Del_terms Example bundle Preferencenumber score
1 Exceed_20% 6_months $600k Inst_2yr 100
2 Exceed_20% 9_months $700k Inst_ser 80
3 Exceed_20% 12_months $800k FOB_ser 40
4 Exceed_20% 15_months $900k Inst_1yr 20
5 Exceed_5% 6_months $700k Inst_1yr 70
6 Exceed_5% 9_months $600k FOB_ser 75
7 Exceed_5% 12_months $900k Inst_ser 65
8 Exceed_5% 15_months $800k Inst_2yr 70
9 Meet_specs 6_months $700k Inst_ser 50
10 Meet_specs 9_months $900k Inst_2yr 20
11 Meet_specs 12_months $600k Inst_1yr 40
12 Meet_specs 15_months $700k FOB_ser 30
13 Short_5% 6_months $900k FOB_ser 5
14 Short_5% 9_months $800k Inst_1yr 10
15 Short_5% 12_months $700k Inst_2yr 10
16 Short_5% 15_months $600k Inst_ser 0
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Example Part Worth for Attributes
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Example Part Worths for Attribute Options
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U(P) = aijxij
k
i=1
m
j=1
P: A particular product/concept of interest
U(P): The utility associated with product P
aij: Utility associated with the jth level (j = 1, 2, 3...kj) on the ith attribute
kj: Number of levels of attribute i
m: Number of attributes
xij: 1 if the jth level of the ith attribute is present in product P, 0 otherwise
Conjoint Utility Computations
j
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The relevant market consists of products P1, P2,...PN. Some of theses may be existing products and, others concepts being evaluated.
(Assume) Each consumer will prefer to buy the product with the highest utility among those available
Then forecasted market share for products Pi is given by:
Where K is the number of consumers who participated in the study
Market Share Forecasts
MS PConsumers who prefer i the most
Kik
K( )
1
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Market consists of three products and three customers
Product
Market Share Computation (Air Pollution Control Equipment)
Waste watch Thermatrix Wahlco
Performance specs Exceed 5% Exceed 20% Meet SpecsDelivery time 9 months 9 months 6 monthsPrice $800k $900k $600k Delivery terms FOB_ser Inst_1Yr Inst_ser
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Market Share Computation:(Air Pollution Control Equipment)
Sunoco Mattel ICIBase 0 0 0 Meet specs 5 10 10Exceed 5% 35 0 40Exceed 20% 40 0 50 12 months 20 5 39 months 30 20 86 months 40 10 10$800k 5 20 2$700K 8 35 5$600K 10 50 10Inst_ser 6 5 10Inst_1Yr 8 10 20Inst_2Yr 10 20 30
Customer’s Utility
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Computed Utility for Products
Market Share Computation:(Air Pollution Control Equipment)
WasteWatch Thermatrix Wahlco
Sunoco 70 78 61
Mattel 40 30 75
ICI 50 78 40
Maximum Utility Rule: If we assume customers will only buy the product with the highest utility, the market share for Thermatrix is 2/3 and 1/3 for Wahlco.
Share of preference rule: If we assume that each customer will buy each product in proportion to its utility relative to the other products, then market shares for the three products are:
Waste Watch: 30.3% Thermatrix: 34.8 Wahlco: 34.9
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Identifying Segments based onConjoint Part Worths
Part-worth means for each option in each cluster: Option Overall CL1 CL2 ---------- ----------- ---------- -----------
Exceed_20% 17.9 4.00 27.9 Exceed_5% 17.5 4.08 27.2 Meet_specs 13.9 14.8 13.3 Short_5% 3.42 5.54 1.89 6_months 11.1 6.38 14.4 9_months 17.4 12.9 20.7 12_months 18.5 10.2 24.4 15_months 5.39 1.92 7.89 600 23.0 35.8 13.7 700 16.5 26.2 9.50 800 6.35 10.0 3.72 900 1.48 2.77 5.56 Inst_2yr 16.8 26.2 10.1 Inst_1yr 15.0 20.5 11.0 Inst_serv 6.06 5.15 6.72 FOB 2.65 1.08 3.78 ClusterProportion .419 .581
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Members in Each Segment
Segment 1 Cummins, Illinois-Tool, Mattell, Nes_Resn, Ralston
Purina, New_W-Tech, Baltimore Gas, Applied Coatings, Pharmasyn, Th_Electric, Ag_Power, Vencor, El_chem.
Segment 2 ICI, Deere, Intel, Mobil, Maytag, Air Products, Sunoco,
HP, Conagra, Kimberly Clark, Hershey, Texaco, Union Carbide, Westinghouse Electric, Dow Chemical, Boise Cascade, Kodak, El_Chem, 3M
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Situations Where Conjoint Analysis Might Be Valuable
The new concept involves important tradeoffs affecting design, production, marketing, or other operational variables.
Product/service is realistically decomposable into a set of basic attributes.
Product/service choice tends to be high involvement.
Factorial combinations of basic attribute levels are believable.
Desirable new-product alternatives can be synthesized from basic alternatives.
Product/service alternatives can be realistically described, either verbally or pictorially. (Otherwise, actual product formulations should be considered).
Perceptions of hypothetical combinations are reasonably homogeneous across members of the target group.
A Conjoint Application at Marriott
Early 1980’s: Running out of good sites for typical full-service Marriott hotels.
Idea: new chain for dissatisfied travelers Business travelers? (6+ trips/midweek) Pleasure travelers? (2+ trips/stay in hotels/motels)
Hotel chain should: Offer good value for the money Have minimal cannibalization of Marriott’s other facilities Offer market position with competitive advantages
Conjoint Analysis with 50 attributes (2-8 options/attribute)
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Some Hotel Design Features
building shape landscape design pool type and location hotel size
room size &decor type of heating & cooling location/type of bathroom
type/location of restaurant room service vending services/stores in-room kitchen
location atmosphere type of people (clientele)
External factors
Rooms
Food-related services
Lounge facilities
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Some Hotel Design Features (Continued)
reservations registration/checkoutl limo to airport bellman message center secretarial service car rental maintenance
sauna exercise room racquetball courts tennis courts game room children’s playroom & yard
security guards smoke detectors 24 hours video
Services
Leisure facilities
Security factors
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Marriott–13
Courtyard by Marriott:Implementation
From 3 test hotels in 1983, by late 1988, 175 “Courtyard by Marriott” hotels were opened.
Fastest growing moderately priced hotel chain in U.S.
Market share + 4% of that projected by conjoint simulation.
Occupancy rate above industry average.
Grew to 300 hotels by 1994, sales over $1 billion, 14,000 new jobs
Created new market segment (5 new clone chains have been developed).
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Some Resources for Tracking Developments in Conjoint Analysis
http://www.sawtooth.com
http://www.nevada.edu/~huc/html/conj.html
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Conjoint Study at XeroxColor Printer/Finisher Module Study
Purpose of Study
To determine the equipment capabilities most needed in a digital production printing/copying environment.
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Determine the “tradeoffs” individuals in production management and supervisory positions were willing to make with respect to Black & White digital production printing and copying equipment.
Collected data via a PC-based interview.
Obtained additional information relating to respondents’ current environment through self-administered paper and pencil survey.
Respondents were pre-recruited by telephone. Those meeting the necessary qualifications and who agreed to participate, were invited to a central location where the interview was administered. Each respondent was paid $75 to participate.
Conjoint Study
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Sample Size/Composition
A total of 159 interviews were conducted among respondents as follows:
Commercial Printer 48
CRD/In-Plant 47
Quick Printer 45
Service Bureau 9
Form Printer 5
Book Printer 4
Other 1
TOTAL 159
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All Respondents were required to meet the following qualifications:
Production/General Manager in charge of printing or copying
Extremely/Very familiar with work process in shop
Have primary/shared responsibility in purchase decision process for new production printing or copying equipment
Print 800,000 or more impressions or pages in average month
Willing to participate in study
Sample Size/Composition (Contd.)
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Attributes and Options
PRINT QUALITY
1. Indigo (Sample K)2. Xeikon (Sample L)3. GTO-DI (Sample M)4. Breakthrough (Sample N)5. Tetra (Sample O)
SERVICE and SUPPLIES COST per PAGE
1. $25 for 1,000 full color pages2. $35 for 1,000 full color pages3. $50 for 1,000 full color pages4. $75 for 1,000 full color pages5. $125 for 1,000 full color pages
EQUIPMENT PURCHASE PRICE
1. $200,000 2. $250,000 3. $300,000 4. $400,000 5. $500,000
SERVICE CONTRACT
1. Flat fee with unlimited print volume2. Lower flat fee plus a fixed cost/page3. Flat fee plus a graduated cost/page4. None-Service billed on time & materials basis
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Attributes and Options
OPERATOR vs. SERVICE TECHNICIAN
1. 80% of service hrs by trained operator/20% by service tech.2. 50% of service by trained operator/50% by service tech.3. 0% of service hrs by trained operator/100% by service tech.
PRINT SPEED1. 35 PPM Simplex (BW&C)/70 PPM Duplex (BW&C)2. 70 PPM Simplex and Duplex (BW&C)3. 100 PPM Simplex (BW&C)/200 PPM Duplex (BW&C)4. 70 PPM Simplex (BW&C)/140 PPM Duplex (BW&C)5. 100 PPM Simplex and Duplex (BW&C)
SYSTEM CONFIGURATION1. Printing device incorporates on-line screening2. Printing device incorporates on-line finishing3. Printing device incorporates on-line scanning AND finishing
SERVICE ACTIONS
1. 5 service actions/1,000,000 prints2. 10 service actions/1,000,000 prints3. 15 service actions/1,000,000 prints4. 20 service actions/1,000,000 prints
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Attributes and Options
MAINTENANCE
1. 80% of service hours are scheduled/20%unscheduled2. 50% of service hours are scheduled/50% unscheduled3. 20% of service hours are scheduled/80% unscheduled
OPERATOR TRAINING
1. Operator is fully skilled after one month of full-time training2. Operator is fully skilled after two weeks of full-time training3. Operator is fully skilled after one week of full-time training
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Simulation Inputs - Competing Products
Attribute Preferred Level JADIS XEIKON
Print Quality BREAKTHROUGH BREAKTHROUGH XEIKON
Service and Supplies/Cost per Page
$25 for 1,000 full color pages
$35 for 1,000 full color pages
$50 for 1,000 full color pages
Equipment Purchase Price
$200,000 Varies $400,000
Service ContractFlat fee with unlimited print volume
Lower flat fee plus a fixed cost/page
Flat fee with unlimited print volume
Operator versus Service Technician
80% trained operator/ 20% service tech.
50% trained operator/ 50% service tech.
80% trained operator/ 20% service tech.
Print Speed
100 PPM Simplex (B&W or Color); 200 PPM Duplex (B&W or Color)
70 PPM Simplex and Duplex (B&W or Color)
70 PPM Simplex (B&W or Color); 140 PPM Duplex (B&W or Color)
System ConfigurationOn-line scanning AND finishing
On-line finishing On-line finishing
Service Actions 5/1,000,000 prints 15/1,000,000 prints 20/1,000,000 prints
Maintenance80% scheduled/20% unscheduled
50% scheduled/50% unscheduled
50% scheduled / 50% unscheduled
Operator Training One week One week Two weeks
