New Product Development PGDEM New

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					New Product Development
   PGDBM/IT/IB/HR-
        Rajat Gera
Product Protocol
The Integrating and Focusing Role of
              Protocol
         Purposes of Protocol
• To determine what marketing and R&D groups need to
  do their work.
   – Think concept life cycle: this is more than a simple
     concept statement, yet less than we will have when
     the first prototype is available.
   – Try to identify the key deliverables at this point.
• To communicate essential to all players and integrate
  their actions, directing outcomes consistent with the full
  screen and financials.
• To set boundaries on development process or cycle
  time.
• To permit the development process to be managed (i.e.,
  what needs to be done, when, why, how, by whom,
  whether).
Contents of a Product Protocol
      • Target market
      • Product positioning
      • Product attributes (benefits)
      • Competitive comparison
      • Augmentation dimensions
      • Timing
      • Marketing requirements
      • Financial requirements
      • Production requirements
      • Regulatory requirements
      • Corporate strategy
        requirements
      • Potholes
   A Sample Protocol: Trash Disposal
               System

• Must automate trash disposal at factory cost not to exceed
  $800.
• Clean, ventilated, odor-free, no chance of combustion.
• Must be safe enough to be operated by children; outside
  storage safeguards against children and animals.
• Size must be small enough to work as kitchen appliance, to
  provide easy access and eliminate need for double handling of
  trash.
• Simple installation
• Decor adaptable to different user tastes.
• If design requires opening of exterior walls, structural integrity
  and insulation against elements must be maintained.
• User-friendly, automatic operation, easy to maintain by
  technical servicepeople.
QFD and Its House of Quality
Tradeoffs in QFD Example
• Improving resolution slows down text
  printing and really slows down graphics
  printing.
• Increasing edge sharpness slows down
  both text and graphics printing.
• Duplex printing speeds up text and
  graphics printing.
• Postscript compatibility improves
  resolution and edge sharpness.
    Moving to Later Stages of QFD

House of Quality:
Customer Attributes                                 Engineering Characteristics
                                   Converted to:


Parts Deployment:
Engineering Characteristics                                     Parts Characteristics
                                              Converted to:


Process Planning:
Parts Characteristics                                             Process Operations
                                         Converted to:


Production Planning:
Process Operations                                       Production Requirements
                                   Converted to:
 Source: Adapted from John R. Hauser and Don Clausing, “The House of Quality,” Harvard Business
 Review, May-June, 1988.
Development
                What Is Design?

• Has been defined as “the synthesis of
  technology and human needs into
  manufacturable products.”
• In practice, design can mean many things,
  ranging from styling to ergonomics to setting
  final product specifications.
• Design has been successfully used in a variety
  of ways to help achieve new product objectives.
• One thing it is not: “prettying up” a product that is
  about to manufactured!
Contributions of Design to the New
        Products Process
 Range of Leading Design Applications

Purpose of Design   Item Being Designed

Aesthetics          Goods
Ergonomics          Services
Function            Architecture
Manufacturability   Graphic arts
Servicing           Offices
Disassembly         Packages
       Product Architecture
• The process by which a customer need is
  developed into a product design.
• Solid architecture improves speed to
  market, and reduces the cost of changing
  the product once it is in production.
• Product components are combined into
  “chunks,” functional elements are
  assigned to the chunks, and the chunks
  are interrelated with each other.
Product Architecture Illustration
     Product Architecture and
        Product Platforms
• Product architecture development is
  related to establishing a product platform.
• If chunks or modules can be replaced
  easily within the product architecture,
  “derivative products” can be made from
  the same basic platform as technology,
  market tastes, or manufacturing skills
  change.
• Examples: 200 versions of the Sony
  Walkman from four platforms.
Assessment Factors for an
    Industrial Design
    Prototype Development
• Comprehensive Prototype: complete, fully-
  functioning, full-size product ready to be
  examined by customers.
• Focused Prototype: not fully functioning or
  developed, but designed to examine a
  limited number of performance attributes
  or features.
  – Examples: a crude, working prototype of an
    electric bicycle; a foam or wood bicycle to
    determine customers’ reactions to the
    proposed shape and form.
Model of the Product Design
          Process
    Improving the Interfaces in the
           Design Process
•   Co-location
•   Digital co-location
•   Global teams
•   Produceability engineer
•   Upstream partnering with vendors
     Computer-Aided Design (CAD)

• Greatly accelerates the design step and allows
  assessment of multiple possible designs without
  building expensive prototypes.
• Design for Manufacturability (DFM): search for
  ways to minimize manufacturing costs.
• Design for Assembly (DFA): search for ways to
  ease assembly and manufacture.
• Rational for DFM: A seemingly trivial detail in
  design phase might have huge manufacturing
  cost consequences later on!
    Some of the Uses of CAD in Auto
                Industry
• Determining fit of subassemblies: does the
  radio/CD player protrude too far into the engine
  area?
• Facilitating “decking” of cars (attaching the
  powertrain to the upper body): do all the pieces
  fit together perfectly?
• Crashworthiness: can we modify any aspects of
  the car’s design to improve its ability to protect
  the passengers in a crash?
Development Structure and
   Team Management
 Some Terms in New Products
        Organization
• Functional: People in business departments or
  functional areas are involved, and product
  development activity must mesh with their work.
• Project: The product innovation activity requires
  people who think first of the project.
• Matrix: Two people are likely to be involved in
  any piece of work: project manager and line
  function head.
       Options in New Products
            Organization
1. Functional
2. Functional Matrix
3. Balanced Matrix
4. Project Matrix
5. Venture
These are listed in increasing projectization, defined as
  the extent to which participants see themselves as
  independent from the project or committed to it.
Performance Success of the
Five Organizational Options




Similar results found for the teams’ ability to: meet schedule;
control cost; achieve technical performance
Operating Characteristics of the
        Basic Options
 Characteristic                    Functional <------------->Venture
 Decision Power of Leader                         Low               High
 Independence of Group                   Low                High
 % of time spent on project by member Low                   High
 Importance of Project                   Low                High
 Degree of risk of project to firm       Low                High
 Disruptiveness of project                        Low               High
 Degree of uncertainty                   Low                High
 Ability of team to violate
    company policy                       Low                High
 Independent funding                     Low                High
Decision Rules for Choosing Among
            the Options
Score each on a scale of 1 (low) to 5 (high):
1. How difficult is it to get new products in the firm?
2. How critical is it for the firm to have new products at this time?
3. How much risk to personnel is involved?
4. How important is speed of development?
5. Will the products be using new procedures in their
    manufacturing?
6. In their marketing?
7. What will be the $ profit contribution from each new item?
8. How much training do our functional people need in the markets
    represented by the new products we want?
Rating: Below 15: functional matrix will likely work.
15-30: a balanced matrix will probably work.
Over 30: You need a project matrix or even a venture!
     Considerations when Selecting an
          Organizational Option
• High projectization encourages cross-functional integration.
• If state-of-the-art functional expertise is critical to project
  success (e.g., in a scientific specialty such as fluid dynamics),
  a functional organization might be better, as it encourages the
  development of high-level technical expertise.
• If individuals will be part of the project for only a short time, it
  might make more efficient use of their time if they were
  organized functionally. Industrial designers may be involved in
  any given project for only a short time, so different projects
  can simply draw on their expertise when needed.
• If speed to market is critical, higher projectization is preferred
  as project teams are usually able to coordinate their activities
  and resolve conflicts more quickly and with less bureaucracy.
  PC makers often use project teams, as they are under severe
  time pressure.
Who Are the Team Members?

• Core Team: manage functional clusters
  (e.g., marketing, R&D, manufacturing)
  – Are active throughout the NPD process.
• Ad Hoc Group: support the core team
  (e.g., packaging, legal, logistics)
  – Are important at intervals during the NPD
    process.
• Extended Team Members: less critical
  members (e.g., from other divisions)
     Participants in the Product
       Management Process
• Project Manager
   – Leader, integrator, mediator, judge
   – Translator, coordinator
• Project Champion
   – Supporter and spokesperson
   – May be the project manager
   – Enthusiastic but play within the rules
• Sponsor
    – Senior executive who lends encouragement and
      endorsement to the champion
• Rationalist
    – The “show-me” person
  Participants in the Product
    Management Process
• Strategist
   – Longer-range
   – Managerial -- often the CEO
   – Spelled out the Product Innovation Charter
• Inventor
   – Creative scientist
   – “Basement inventor” -- may be a customer, ad agency
     person, etc.
   – Idea source
• Facilitator
   – Enhance team’s productivity and output
    Techniques for Attaining Speed in a New
                Product Project

Accelerating Product Development through
  Managing the Organization:
•   Use projectization: project matrix and venture teams.
•   Use small groups to thwart bureaucracy.
•   Empower, motivate, and protect the team.
•   Destroy turf and territory.
•   Make sure supporting departments are ready.
•   Clear the tracks in shared departments.
Techniques for Attaining Speed
         (continued)
Other Techniques for Accelerating Product
  Development:
• Intensify resource commitments (integrate channel
  members; parallel or concurrent engineering)
• Design for speed (CAD design, common components,
  design for easy testing, design in qualities that lead to
  fast trial)
• Prepare for rapid manufacturing.
• Prepare for rapid marketing.
Guiding Principles in New Product Process
             Implementation
              Clarity of Goals and Objectives


                        Ownership


         Leadership, at both senior and team levels


            Integration with business processes


                        Flexibility
  Issues in Team Management
• Team compensation and motivation
  – Monetary vs. non-monetary rewards?
  – Process-based vs. outcome-based rewards?
• Closing the team down
 What is Product Use Testing?
Product use under normal operating
  conditions.
Some terms:
  – Alpha testing: done in-house.
  – Beta testing: done at the customer site.
Typical goals of beta testing: to determine if
 the product works and is free of “bugs.”
       Knowledge Gained From
         Product Use Testing
•   Pre-use sense reactions.
•   Early use experiences ("Does it work?").
•   Major benefits results (beta tests).
•   Diagnostic information.
                        Common Pitfalls of
                          Beta Testing
• Beta test site firm has no internal capacity to test the performance of
  the product at the required level and lacks the funding to hire an
  outside firm to do the test.
• Developer puts in a wishy-washy performance requirement like
  "user-friendly" which is meaningless without a measurable
  specification.
• Testing is done too late in the NPD process, which almost ensures
  that development time will be extended and production delays will
  occur. Doing testing in increments throughout the process can
  avoid this pitfall.
• Developers attempt to beta-test their own products. By definition
  they are too close to the product to critically test it and find
  problems.
• Developers ignore early negative results, hoping that the product will
  improve by itself during the NPD process. All beta test results,
  whether positive or negative, need to be honestly evaluated.
         Gamma Testing
• Beta testing may not meet all the product
  developer’s requirements.
  – Does the new product meet customers’
    needs?
  – Is it cost-effective for them?
• Gamma testing involves thorough use and
  evaluation of the new product by the end
  user.
• It’s an ideal product use test -- but in many
  cases firms go with beta testing.
  – Cost and time considerations
 Some Key Testing Dimensions
• User groups to contact (lab personnel, experts,
  employees, stakeholders).
• Mode of contact (mail vs. personal, individual vs. group,
  point of use vs. central location).
• Identity disclosure (avoid halo-image effects).
• Degree of use explanation (no comment, some, full
  explanation).
• Degree of control over use (supervised vs.
  unsupervised)
• Singularity (monadic usually less sensitive than paired or
  triangular comparison).
    More Key Testing Dimensions
• Duration of use (single use vs. extended periods).
• Source of product (batch, pilot plant, final production).
• Product form (single product vs. variants).
• Mode of recording reaction (like/dislike, preference,
  descriptive information).
• Source of norms (past experience, market research
  firms).
• Research service (internal vs. outside personnel).
Types of Product Use Tests
Type                                Products                             Instructions
Monadic                             The new product alone.               "Try this new toothbrush, and tell
                                                                         me how you like it."
Paired comparison                   The new product and another          "Try these, and tell me how you
                                    one: the market leader, the leader   like them and which you prefer."
                                    in a key segment, the "best."
Triangular                          The new product and two others,      Same as above.
                                    or two variants of the new
                                    product and one other.

Multiple-product techniques can use side-by-side or staggered (sequential monadic) product-use
approaches.
The Five Decision Sets that
 Lead to a Marketing Plan
                 Strategic Givens

Corporate, some team decisions made earlier.
 Often found in the PIC Guidelines.
• A specified gross margin: affects funding.
• Speed-to-market: affects promotional outlays and
  schedules.
• Commitment to a given channel: affects distribution plan.
• Advertising policy: affects promotion decisions.
• Pricing policy: affects decision to use penetration or
  skimming pricing (slide down demand curve).
             Revision of PIC Goals

• Customer Acceptance     • Product Level
  Goals                     Performance Goals
  –   Use                   –   Cost
  –   Satisfaction          –   Time to Market
  –   Sales                 –   Performance
  –   Market Share          –   Quality
• Financial Performance   • Other
  Goals                     – Competitive Effect
  – Time to break even      – Image Change
  – Margins                 – Morale Change
  – IRR, ROI
Strategic Platform Decisions

 •   Permanence
 •   Aggressiveness
 •   Type of Demand Sought
 •   Competitive Advantage
 •   Product Line Replacement
 •   Competitive Relationship
 •   Scope of Market Entry
 •   Image
              Permanence

• Permanent, stand-alone.
• Permanent, but as a bridge to other items
  -- e.g., platform strategy.
• Temporary. Given firms’ tendency to
  develop streams of products, more and
  more new products are actually only
  temporary.
     Some Other Strategic Platform
             Decisions
• Aggressiveness (aggressive versus cautious
  attitude at entry)
• Type of demand sought (primary versus
  selective)
• Competitive advantage sought (differentiation,
  price leadership, or both)
• Competitive relationship (aim at a competitor,
  avoid a competitor)
• Image (create a new image, tweak an existing
  image, use the already-existing image)
           Scope of Market Entry

This is not test marketing. This is launch.
 All forces in place and working.
• Roll out slowly -- checking product, trade and
  service capabilities, manufacturing fulfillment,
  promotion communication, etc.
• Roll out moderately, but go to full market as
  soon as volume success seems assured.
• Roll out rapidly -- full commitment to total
  market, restricted only by capacity.
      The Target Market Decision

• Alternative ways to segment a market
  – end-use, geographic/demographic,
    behavioral/psychographic, benefit
    segmentation
• Micromarketing and mass customization
• Also consider the diffusion of innovation
     To Whom Are We Marketing?

• Users vs. non-users (primary vs. selective
  demand)
• Target market criteria (demographic,
  geographic, psychographic, benefit
  segmentation)
• Everybody -- no narrowing down (mass
  customization, Post-It notes)

The real issue here is commitment -- by all
  NPD participants and by management
         Why Should They Buy It?

• This too we have been testing -- basic concept
  statement used for testing and for guiding
  technical (e.g., QFD “Whats”), and the key
  reason on the “How likely would you be to buy
  this if we marketed it?” (product use test)
• Formatted in three ways:
   – Solves major problem current products do
     not.
   – Better meet needs and preferences.
   – Lower price than current items.
     Product Positioning Options
Position to an Attribute       Position on a Surrogate
• Feature                      • Nonpareil
• Function                     • Parentage
• Benefit (direct or follow-   • Manufacture
  on)                          • Target
                               • Rank
                               • Endorsement
                               • Experience
                               • Competitor
                               • Predecessor
            Branding Decisions

• What is the brand’s role or purpose?
• Are you planning a line of products?
• Do you expect a long-term position in the
  market?
• How good is your budget?
• Physical/sensory qualities of brand
  considered?
• Message clear and relevant?
• Insulting or irritating to anyone?
   Questions and Guidelines in Brand
           Name Selection

Question                                         Guideline
What is the brand's role or purpose?             If the brand is to aid in positioning, choose
                                                 a brand name with meaning (DieHard,
                                                 Holiday Inn). If purely for identification, a
                                                 neologism (made-up word) such as Kodak
                                                 or Exxon will work.
Will this product be a bridgehead to a line of   If so, choose carefully so as not to be a
products?                                        limitation in the future (Western Hotels
                                                 changed name to Western International,
                                                 then finally to Westin.)
Do you expect a long-term position in the        If not, a dramatic, novelty name might be
market?                                          useful (such as Screaming Yellow Zonkers).
Is the name irritating or insulting to any       Women found Bic's Fannyhose to be
market segment?                                  objectionable.
Some Brand Names That Didn’t Work             Figure 17-9




   Crapsy Fruit   French cereal
   Fduhy Sesane   China Airlines snack food
   Mukk           Italian yogurt
   Pschitt        French lemonade
   Atum Bom       Portuguese tuna
   Happy End      German toilet paper
   Pocari Sweat   Japanese sport drink
   Zit            German lemonade
   Creap          Japanese coffee creamer
   I'm Dripper    Japanese instant coffee
   Polio          Czech laundry detergent
   Sit & Smile    Thai toilet paper
   Barf           Iranian laundry detergent
     How Brand Equity Provides Value

   High             High                  High              More/Better
                                                                               Other Brand
   Brand           Brand                Perceived             Brand
                                                                                 Assets
  Loyalty         Awareness              Quality           Associations


Reduced           Easier to             Supports             Creates            Patents or
 marketing         make                  quality              positive           trademarks
 costs             brand                 positioning          image
                   associations
Increased                               Supports             Helps              Strong
 trade            Increased              higher-price         customer           channel
 leverage          liking and            strategy             process            relationships
                   familiarity                                information




Provides value to customer:                     Provides value to firm:
Assists in customer information                 Increases effectiveness of marketing
processing                                      programs
Increases confidence in purchase                Increases customer loyalty and trade
Increases satisfaction in product use           leverage
                                                Facilitates brand extensions
                                                Is a source of competitive advantage
       Building Brand Equity
• Getting awareness of the brand and the
  meaning.
• Making brand associations -- even the
  factory location in Saturn’s case.
• Building perceived quality
• Loyalty in repurchase -- locking them in
• Getting reseller support
                             A Brand Report Card
Characteristic                             Examples
Delivers benefits desired by customers.    Starbucks offers “coffee house experience,” not just
                                           coffee beans, and monitors bean selection and roasting
                                           to preserve quality.
Stays relevant.                            Gillette continuously invests in major product
                                           improvements (MACH3), while using consistent slogan
                                           “The best a man can get.”
Prices are based on value.                 P&G reduced operating costs and passed on savings as
                                           “everyday low pricing,” thus growing margins.
Well positioned relative to competitors.   Saturn competes on excellent customer service,
                                           Mercedes on product superiority. Visa stresses being
                                           “everywhere you want to be.”
Is consistent.                             Michelob tried several different positionings and
                                           campaigns between 1970 and 1995, while watching
                                           sales slip.
The brand portfolio makes sense.           The Gap has Gap, Banana Republic, and Old Navy
                                           stores for different market segments; BMW has the 3-,
                                           5-, and 7-series.
Marketing activities are coordinated.      Coca-Cola uses ads, promotions, catalogs,
                                           sponsorships, and interactive media.
What the brand means to customers is       Bic couldn’t sell perfume in lighter-shaped bottles;
well understood.                           Gillette uses different brand names such as Oral-B for
                                           toothbrushes to avoid this problem.
Is supported over the long run.            Coors cut back promotional support in favor of Coors
                                           Light and Zima, and lost about 50% of its sales over a
                                           four-year period.
Sources of brand equity are monitored.     Disney studies revealed that its characters were
                                           becoming “overexposed” and sometimes used
                                           inappropriately. They cut back on licensing and other
          Profitable Brand Strategies
                                     Low Relative Market Share         High Relative Market Share
 Value Brand Category              Dead End                         Low Road
                                   Example: Nine Lives              Example: Oscar Meyer
                                   Optimum strategies:              Optimum strategies:
                                    Slash costs and prices           Cut costs and reduce prices
                                    “Trump” market leader with       Build brand equity
                                      superpremium brand
 Premium Brand Category            Hitchhikers                      High Road
                                   Example: Neutrogena, Post        Example: Gillette, Clorox
                                   Optimum strategies:              Optimum strategies:
                                    “Don’t rock the boat”            Value-improving innovations
                                    Innovate                         Premium prices
                                    Find a niche market



Source: Adapted from Vijay Vishwanath and Jonathan Mark, “Your Brand’s Best Strategy,” Harvard
Business Review, May-June 1997, pp. 123-129.
               The Launch Cycle
Sales and
Expenditures




                                           Sales
      Expenditures


       Prelaunch             Beachhead   Early growth
                   Announcement
Tactical Launch Decisions and Actions, Showing Influences on
  Launch Tactic Effective For:
                               Demand
  Promotion
   Advertising            Cases where awareness will stimulate trial
   Coupons                Reinforcing awareness
   Publicity              New and controversial technologies with high perceived usage risk
   Sampling               Cases where product advantages best learned through usage
   Beta Test Sites        Stimulating “sampling” and as a reference for other potential buyers
  Sales and
  Distribution
                          Clarifying relative product advantages or where uncertainty exists
  Shows/Demonstratio
  ns
   Technical Support      Cases of incompatibility in usage process
   Distribution           Cases where relative advantage strong (direct channels)
  Structure
   Intensity of           Cases where warranty/maintenance service needs to be offered easily
  Coverage
   Distribution           Cases where availability needs to be stimulated
  Incentives
  Pricing
   Introductory Pricing   High relative advantage and compatibility (skimming policy); early
                          adoption needs to be stimulated (penetration policy)
   Price                  Cases where economic risk needs to be reduced (i.e., through rebates
  Administration          or money-back guarantees)
  Product
   Breadth of             Introducing new product categories with high relative advantage
  Assortment
  Timing
   Product Deletion       High margin but strong relative advantage (fast deletion); high
                          switching costs (slow deletion)
   Preannouncing          Building hype for new products; useful if relative advantage is high
                 Beachhead
• This refers to the heavy expenditure needed to
  overcome sales inertia (“getting the ball rolling”).
• Steep rising expenditures curve during this
  period, up to point where sales are increasing at
  an increasing rate.
• Begins with the announcement.
• Key decision during beachhead: when do you
  end it? How do you know inertia has been
  overcome?
         Copy Strategy Statement
• Communications tools used at launch will have
  certain deliverables.
• The way in which the firm communicates these
  deliverables to the advertising and promotion
  creative people is the copy strategy statement.
• Typical contents:
   – The market segment targeted
   – The product positioning statement
   – The communications (promotion) mix
   – The major copy points to be communicated.
    Typical Examples of Copy Points

• “The provider of this insurance policy is the
  largest in the world.”
• “This cellular phone has no geographic
  limitation.”
• “Dockers are available at JCPenney.”
• “Future neurosurgeons benefit from the hand-to-
  eye skills of computer games like this one.”
  There is no limit to the choices here, but there must be a
  focus. Only a few copy points are going to be accomplished
  at a time.
    A-T-A-R Goals: The New Product
           Group’s Obligation
• New product group must persuade itself and
  management that the plan can achieve the
  necessary awareness, availability, trial, and
  repeat purchase...
• and that it can do so in sufficient quantity and at
  acceptable cost.
• Awareness: measuring awareness/methods for
  getting awareness
              Stocking and availability
               Motivating Distributors
Resellers Role: prestocking activities such as training and
installing equipment/stocking of new item/preparation for promotion
And actual promotion


• Increase distributor’s unit volume.-outstanding product/use pull
  techniques/monopoly/merchandise assistance ie pop’s
• Increase distributor’s unit margin.-% margin, special
  discounts/allowances and special payments/prepay allowances to
  save interest
• Reduce distributor’s cost of doing business-managerial
  training/returned goods policy/drop-ship delivery/tray pack the
  merchandise.
• Change distributor’s attitude toward the line.-by
  encouragement/discouragement/rap sessions/better product
  instruction sessions
    Getting Trial: Barriers to Trial
    •Trial may be personal/vicarious/virtual
    •Trial must have some cost associated
    with it for learning to take place
•   Lack of interest in the claim.
•   Lack of belief in the claim.
•   Rejecting something negative about product.
•   Complacency.
•   Competitive ties.
•   Doubts about trial.
•   Lack of usage opportunity.
•   Cost.
•   Routines.
•   Risk of rejection.
  Appropriate Launch Tactics Given
 Relative Advantage and Compatibility
                                 A. Low Relative Advantage         B. High Relative Advantage
1. Low Compatibility             Penetration price                 Preannounce
                                 Slow deletion                     Broad product assortments
                                 Risk-based promotion (leasing,    Information-based promotion
                                 money-back guarantees,            (shows, demonstrations, websites,
                                 equipment allowances)             publicity/education)
                                 Intensive distribution            Selective distribution
2. High Compatibility            Secrecy before entry              Skim price
                                 Narrow product assortments        Fast deletion
                                 Awareness promotion (coupons,     Usage-based promotion (samples,
                                 etc.)                             beta tests) to clarify benefits
                                 Intensive distribution            received
                                                                   Selective distribution




     Source: Adapted from Joseph P. Guiltinan, "Launch Strategy, Launch Tactics, and Demand Outcomes,"
     Journal of Product Innovation Management, Vol. 16, No. 6, November 1999, pp. 520-521.
     What Is Market Testing?
• Market testing is not test marketing!
• Test marketing is one of many forms of
  market testing -- others include simulated
  test market, informal sale, minimarket,
  rollout.
• Test marketing is also a much less
  common form now due to cost and time
  commitments and other drawbacks.
Decision Matrix on When to Market
               Test
High                                                      Low




                                                          and Accuracy
                                                          Scope of Learning
Cost and Time
Savings




Low                                                        High

                Stages of the product development cycle
How Market Testing Relates to the
     Other Testing Steps
Two Key Values Obtained from Market
             Testing
• Solid forecasts of dollar and unit sales volume.
• Diagnostic information to allow for revising and
  refining any aspect of the launch.
     Deciding Whether to Market Test
• Any special twists on the launch? (limited time
  or budget, need to make high volume quickly)
• What information is needed? (expected sales
  volumes, unknowns in manufacturing process,
  etc.)
• Costs (direct cost of test, cost of launch, lost
  revenue that an immediate national launch
  would have brought)
• Nature of marketplace (competitive retaliation,
  customer demand)
• Capability of testing methodologies (do they fit
  the managerial situation at hand)
   Types of Information That May Be
                Lacking
• Manufacturing process: can we ramp-up from
  pilot production to full scale easily?
• Vendors and resellers: will they do as they have
  promised in supporting the launch?
• Servicing infrastructure: adequate?
• Customers: will they buy and use the product as
  expected?
• Cannibalization: what will be the extent?
Methods of Market Testing, and Where
               Used
           Speculative Sale
• Often used in business-to-business and
  consumer durables, similar to concept and
  product use tests.
• Give full pitch on product, answer
  questions, discuss pricing, and ask:
  – “If we make this product available as I have
    described it, would you buy it?”
• Often conducted by regular salespeople
  calling on real target customers.
Conditions for Speculative Sale
• Where industrial firms have very close downstream
  relationships with key buyers.
• Where new product work is technical, entrenched
  within a firm's expertise, and only little reaction is
  needed from the marketplace.
• Where the adventure has very little risk, and thus a
  costlier method is not defendable.
• Where the item is new (say, a new material or a
  completely new product type) and key diagnostics are
  needed. For example, what set of alternatives does
  the potential buyer see, or what possible applications
  come to mind first.
       Simulated Test Market (STM)
• Create a false buying situation and observe what the
  customer does.
• Follow-up with customer later to assess likely repeat
  sales.
• Often used for consumer non durables.
• Purpose is to get estimates of ATAR
• Usually involve 300-600 people, 8-14 weeks.
• Prominent suppliers of STMs are BASES and
  IRI
• Key purpose is to estimate how well the product will sell
  so the various services offer trial and repeat rates with
  the clients assumptions on awareness, retail
  availability, competitive actions
        Simulated Test Market
             Procedure
•   Mall intercept.
•   Self-administered questionnaire.
•   Advertising stimuli.
•   Mini-store shopping experience.
•   Post-exposure questionnaire.
•   Receive trial package.
•   Phone followup and offer to buy more.
      Possible Drawbacks to STMs

• Mathematical complexity
• False conditions
• Possibly faulty assumptions on data, such as
  number of stores that will make the product
  available
• May not be applicable to totally new-to-the-
  market products, since no prior data available.
• Does not test channel member response to the
  new product, only the final consumer
   A-T-A-R and the
Market Testing Methods
   Controlled Sale by Informal Selling

• Used for business-to-business products,
  also consumer products sold directly to
  end users.
• Train salespeople, give them the product
  and the selling materials, and have them
  make calls (in the field, or at trade shows).
• Real presentations, and real sales, take
  place.
Controlled Sale by Direct Marketing

  More secrecy than by any other controlled sale
   method.
  The feedback is almost instant.
  Positioning and image development are easier
   because more information can be sent and
   more variations can be tested easily.
  It is cheaper than the other techniques.
  The technique matches today's growing
   technologies of credit card financing, telephone
   ordering, and database compilation.
      Controlled Sale by Minimarkets

• Select a limited number of outlets -- each store is a
  minicity or “minimarket.”
• Do not use regular local TV or newspaper advertising, but
  chosen outlets can advertise it in its own flyers.
• Can do shelf displays, demonstrations.
• Use rebate, mail-in premium, or some other method to
  get names of purchasers for later follow-up.
• More realistic, actual buying situation, great flexibility in
  changing price and other variables
• Helps to work on problems like brand confusion, price,
  package instructions, product misuse, or different
  positionings
 Controlled Sale by Scanner Market Testing

• Audit sales from grocery stores with scanner systems --
  over a few markets or national system and two panels of
  1000 families in each city to have electronic technology
  installed in their TV sets, report their exposure to print
  media and make all their purchases from the listed
  grocery stores, use a special card to identify their family
• Sample uses:
   – Can use the data as a mini-market test.
   – Can compare cities where differing levels of sales
     support are provided.
   – Can monitor a rollout from one region to the next.
Minimarkets and Scanner Testing: IRI’s
     BehaviorScan and InfoScan
• Cable TV interrupt privileges
• Full record of what other media (such as magazines) go
  into each household
• Family-by-family purchasing
• Full record of 95 percent of all store sales of tested items
  from the check-out scanners
• Immediate stocking/distribution in almost every store is
  assured by the research firm.
Result: IRI knows almost every stimulus that hits each
  individual family, and it knows almost every change that
  takes place in each family's purchase habits.
  Full scale methods: The Test Market

• REPRESENTATIVE PIECE OF THE MARKET IS
  SELECTED FOR DRESS REHEARSAL
• Several test market cities are selected.
• Product is sold into those cities in the regular channels
  and advertised at representative levels in local media.
• Once used to support the decision whether to launch a
  product, now more frequently used to determine how
  best to do so.
    Pros and Cons of Test Marketing
Advantages:                   Disadvantages:
• abundant supply of          • Cost ($1 mill+)
  information such as sales   • Time (9-12 months+)
  usage, prices, reseller        – hurt competitive
  reaction, publicity and          advantage
  competitive reaction           – competitor may
• Risk Reduction                   monitor test market
   – monetary risk               – competitor may go
   – channel relationships         national
   – sales force morale       • Competitor can disrupt
• Strategic Improvement         test market
   – marketing mix
   – production facilities
               A Risk of Test Marketing:
                “Showing Your Hand”
•Kellogg tracked the sale of General Foods' Toast-Ems while they were in test
market. Noting they were becoming popular, they went national quickly with Pop-
Tarts before the General Foods' test market was over.

•After having invented freeze-dried coffee, General Foods was test-marketing its
own Maxim brand when Nestle bypassed them with Taster's Choice, which went on
to be the leading brand.

•While Procter & Gamble were busy test-marketing their soft chocolate chip
cookies, both Nabisco and Keebler rolled out similar cookies nationwide.

•The same thing happened with P&G’s Brigade toilet-bowl cleaner. It was in test
marketing for three years, during which time both Vanish and Ty-D-Bol became
established in the market.

•General Foods' test market results for a new frozen baby food were very
encouraging, until it was learned that most of the purchases were being made by
competitors Gerber, Libby, and Heinz.
                   The Rollout

• Select a limited area of the country (one or
  several cities or states, 25% of the market, etc.)
  and monitor sales of product there.
• Starting areas are not necessarily representative
   – The company may be able to get the ball
     rolling more easily there
   – The company may deliberately choose a hard
     area to sell in, to learn the pitfalls and what
     really drives success.
• Decision point: when to switch to the full national
  launch.
             Types of Rollout
•   By geography (including international)
•   By application
•   By influence
•   By trade channel
Patterns of Information Gained
        During Rollout
            Risks of Rollout
• May need to invest in full-scale production
  facility early.
• Competitors may move fast enough to go
  national while the rollout is still underway.
• Problems getting into the distribution
  channel.
• Lacks national publicity that a full-scale
  launch may generate.
   Probable Future for Market
       Testing Methods
• Test marketing       (“dinosaur”)

• Pseudo sale        (incomplete)

• Minimarket        (flexibility & variety)

• Rollout       (small, fast, flexible)
Launch Management Concept Showing
         Remedial Action
% aware who                   As of now                                  Goal
have tried




                                          With action




              Plan                                      Without action
                     Actual


  Launch                      Now                                    6 months

                                                                            Time
 The Launch Management System

• Spot potential problems.
• Select those to control.
   – Consider expected impact/damage.
• Develop contingency plans for the management of
  problems.
• Design the tracking system.
   – Select variables.
   – Devise measuring system.
   – Select trigger points.
Adage: in driving a car, it is the potholes you don’t know
about (or forget about) that cause you damage.
       Spotting Potential Problems

• Problems section from the situation analysis.
• Role-play what competitors will do.
• Look back over all the data in the new product's
  "file."
• Consider hierarchy of effects needed to result in
  a satisfied customer (A-T-A-R).
A-T-A-R Hierarchy: Where Does
       the Problem Lie?
                                          Reused
                   Tried                  Not R.
  Aware

                    Not
                   Tried


 Unaware   Does the problem lie in awareness,
           trial, or repeat?
Decision Model for Building Launch
          Control Plan
          Select the Control Events

Of all potential problems,
• Which have enough impact to warrant investigation?
• Which of these ought to be given special consideration?*
• Which of these should be given contingency planning?
• And which of these need to be tracked?

           *Basis: Consider potential damage and likelihood
           of occurrence.
       Develop Contingency Plans

• "Is there anything we can do?"
   – E.g.: competitive price cut or product
     imitation.
• Base contingency plan on type of problem:
   – 1. A company failure (e.g., inadequate
     distribution)
   – 2. A consumer failure (e.g., low awareness
     or trial)
      Designing the Tracking System

• Select the tracking variables
  –    Relevant, measurable, predictable
• Select the trigger points
• Consider the non trackable problems
 Questions from New Product
       Tracking Study
Category Usage Questions
In the past six months, how many times have you bought (product
    category)?
What brands of (product category) have you ever heard of?
Have you ever heard of (brand)? (Ask for 4 to 6 brands)
Have you ever bought (brand)? (Ask for 4 to 6 brands)
About how many times have you bought (brand) in the past six
    months?
Advertising Awareness Questions
Do you recall seeing any advertising for (brand)? (ask all brands
    respondent is aware of)
Describe the advertising for (brand).
Where did you see the advertising for (brand)?
    Questions from New Product
     Tracking Study (continued)
Purchase Questions
Have you ever bought (brand)?
   If "Yes":                                  If "No":

   How many times have you bought it?         Did you look for (brand) in the
   How likely are you to buy (brand) again?    store?
   What did you like/dislike about (brand)?   Why didn't you try (brand)?
   What do you think of the price of          How likely are you to try (brand)
    (brand)?                                  in the future?
  A Sample Launch Management Plan

Potential Problem
  Salespeople fail to contact general-purpose market at
  prescribed rate.
Tracking
  Track weekly sales call reports (plan is for at least 10
  general-purpose calls per week per rep).
Contingency Plan
  If activity falls below this level for three weeks running, a
  remedial program of one-day district sales meetings will
  be held.
Another Problem Illustrated
Potential Problem
  Potential customers are not making trial purchases
  of the product.
Tracking
  Begin a series of 10 follow-up calls a week to
  prospects.
  There must be 25% agreement on product's main
  feature and trial orders from 30% of those
  prospects that agree on the feature.
Contingency Plan
  Special follow-up phone sales calls to all prospects
  by reps, offering a 50% discount on all first-time
  purchases.
 A Stepwise Product Deletion
          Process
                                 Recognition of the product to
                                          be deleted


                             Analysis and revitalization stage



                   Evaluation and decision formulation stage


                                      Implementation stage
Source: George J. Avlonitis, Susan J. Hart, and Nikolaos X. Tzokas, “An Analysis of Product Deletion
Scenarios,” Journal of Product Innovation Management, Vol. 17, No. 1, January 2000, pp. 41-56.

				
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