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Marketing 7
Lecture 4
The Strategic
Elements of ProductDevelopment
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Why Study e! Products"
# $t is %ig %usiness & %illions of dollars annually on
technical development alone'
# The challenge of creating radical innovation
(totally ne! product categories) is vie!ed %y%usiness consultant *ary +amel as ,the most
important %usiness issue of our time'-
# .ccelerating innovation and %usiness gro!th
through innovation are the top %usiness
challenges according to the $ndustrial /esearch
$nstitute'
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0ut the e! Products Process
is Difficult1
Although you may hear much higher percentages, careful
studies supported by research evidence suggest that about
40% of new products fail somewhat higher for consumer
products, somewhat lower for business-to-business products.
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0est Practices in e! Products
# 2or every 3 ideas5
& 2e!er than 7 make it though initial screening
& 2e!er than 6 pass concept evaluation and testing
&. little more than make it through development&.%out make it through testing
&.%out 86 are commerciali9ed
& 36 of these 86 (a%out :;) are successful'
& Success rate is lo!er in consumer goods (63;) and ashigh as :6; in healthcare'
Source< =omparative Performance .ssessment Study5 PDM.5 8'
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=omparing the 0est e!
Product 2irms vs' the /est
# 2or the top ne! product firms5 a%out 4>;
of company sales and profits come from
products that !ere introduced in the lastfive years'
# 2or other firms5 this average is a%out 83;'
# Lesson< firms that maintain theircommitment to ne! products are re!arded
!ith sales and profits1
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*lo%ali9ation and e! Product
Development# Top firms deploy over 6; of their /?D spending in
foreign countries'
# *lo%al product teams allo! firms to leverage their ne!
product skills across their su%sidiaries'
# Design5 /?D5 and manufacturing may occur in different
su%sidiaries around the !orld'
# Difficulties< coordinating the efforts across multiple
countries to launch a successful ne! product'
# +aving a global innovation culture& %eing a!are of
differences in %usiness and cultural environments and
%eing open to glo%al markets & is important to success'
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2irms With a *lo%al $nnovation
=ulture
# Procter ? *am%le products are developed glo%ally in thefirm@s 88 research centers located in 3 countries'Market research and testing of the S!iffer occurred in theA'S' and 2rance'
# .pple did product design and customer reBuirementdefinition in the A'S' and Capan in developing the iPod'
# $kea identifies unmet customer needs and commissionsinhouse and outsourced designers to compete for thedesign' World!ide manufacturing partners compete forthe manufacturing rights' The firm also has ecellent
glo%al logistics for product delivery to stores andcustomers'
Source< Loida /osario5 ,0orderless $nnovation< The $mpact of *lo%ali9ation on PD Planning inThree $ndustries5- Visions5 Cune 8:'
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The e! Products Process is
.ll .%out Teams# The ne! products team is a cross-functional
team!ith personnel from marketing5 /?D5
engineering5 manufacturing5 production5 design5
and other areas'# .ll mem%ers of the team make a contri%ution to
the ne! products process and the success of
the team depends on ho! !ell they interact'
# Try to avoid narro! functional vie!points and
stereotypes'
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ot .ll e! Products .re Planned
# Micro!ave ovens
# .spartame (utraS!eet)
# Scotch*ard fa%ric protector# Teflon
# Penicillin
# Frays# Dynamite
In each case, an accidental discovery but someone new
they had something when they saw it!1-9
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What $s a e! Product"
# New-to-the-world (really-new) products (10% of new products):
$nventions that create a !hole ne! market' E'< Polaroid camera5 SonyWalkman5 Palm Pilot5 /oller%lade skates5 P?* 2e%re9e and Dryel'
# New-to-the-firm products (0%):Products that take a firm into a categoryne! to it' E'< P?* %rand shampoo or coffee5 +allmark gift items5 .T?TAniversal credit card5 =anon laser printer'
# !dditions to e"isting product lines (#%):Line etensions and flankers
that flesh out the product line in current markets' E'< Tide LiBuid5 0udLight5 .pple@s iMac5 +P LaserCet 7P'
# $mprovements and revisions to e"isting products (#%): =urrent productsmade %etter' E'< P?*@s continuing improvements to Tide detergent5 $vorysoap'
# epositionings (&%): Products that are retargeted for a ne! use or
application' .lso includes retargeting to ne! users or ne! target markets'E'< .rm ? +ammer %aking soda sold as a refrigerator deodorantG aspirinrepositioned as a safeguard against heart attacksG Marl%oro retargeted asa man@s cigarette'
# 'ost reductions (11%): e! products that provide the customer similarperformance %ut at a lo!er cost' May %e more of a ,ne! product- in
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Easier Said Than Done"
# Top innovators such as $ntel and *illette stay focused andcommitted to innovation as a longterm strategic goal'
# Without such focus5 firms can fall %ack to ,t!eaking-eisting products and relying on minor product
improvements5 instead of true product innovation thatresults in ne!tothe!orld products or really ne! productlines'
# The %est ne! product firms do not give in to this temptation5%ut continue to commit to innovative products'
# The %iggest factor contri%uting to success is having auniue superior product that adds value for the customer'
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The Strategic Elements of
Product Development
# *he New +roducts +rocess (This chapter and =hapter 8)
&. phased process that takes the ne! product idea through concept
development5 evaluation5 development5 launch5 and postlaunch'
# *he +roduct $nnovation 'harter (=hapter )
&. strategy for ne! products that ensures that the team develops products inline !ith firm o%Hectives and marketplace opportunities'
# *he +roduct +ortfolio (=hapter )
&. !ay to assess !hich ne! products !ould %e the %est ones to add to the
eisting line5 given financial and strategic o%Hectives'
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The 0asic e! Product Process
Phase 3< Ipportunity $dentificationJSelection
Phase 8< =oncept *eneration
Phase < =onceptJProHect Evaluation
Phase 4< Development
Phase 6< Launch
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So5 Does .ll If This .ctually Work"
# =heck the efforts of the %est product developersin the %usiness< the Iutstanding =orporate$nnovator a!ard !inners as selected %y theProduct Development ? Management
.ssociation# /ecent !inners< +e!lettPackard5 Do!
=hemical5 Maytag5 +arleyDavidson5 =orning5/oyal DSM5 0ausch ? Lom%'
# .ll have had a sustained commitment toinnovation5 !ith remarka%le results in terms ofne! products'
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