CHAPTER 7 NEW PRODUCT PLANNING AND DEVELOPMENT 1152020

CHAPTER 7 NEW PRODUCT PLANNING AND DEVELOPMENT 11/5/2020 1

Gap Analysis for Scanning and Idea Generation The gap is the difference between existing product offer to consumer and what the consumer want. If the gap is filled, organization survives and grows. l Its broken down into four areas: 1. usage gap, 2. distribution gap, 3. product gap and 4. competitive gap. l 11/5/2020 2

Usage Gap Its between the total potential for the market and actual current usage by all the consumer in the market. l Market potential: maximum number of consumers including all the segments. It can be determined by market research or calculated using secondary sources. Someone can also study the numbers using similar products. l 11/5/2020 3

Usage Gap (Cont. ) Existing Usage: total market share. It can be derived from marketing research or panel research(A. C. Nielsen). It can also be collected by government agencies, or industry bodies. Usage gap=market potential-current. usage (market share) l It is important for the brand leaders, if they have a significant share(over 30%) l 11/5/2020 4

Distribution Gap Limitation of distribution by law (beers, drugs, frozen foods, etc) l Resistance by channels to carry all the items. It is difficult to maximize distribution, if it is not back by promotion and effective sales force. Channels are willing to carry the items that sell well. l 11/5/2020 5

Product Gap It is related to segment or positioning gap. If an organization does not have offering in a particular segment, the positioning of those products is excluded from that segment. l It is a deliberate policy and decided by the organization. l 11/5/2020 6

Competitive Gap Effectiveness of marketing strategy relative to the competitors in the same product market. Exp. Lexus vs Mercedes l Price and promotion are important factors. Market Gap Analysis: Gaps in the market, rather than with products: low market share l 11/5/2020 7

Effects of Gap Analysis Gap analysis is a tool to help businesses examine current marketing strategies and helps them to improve it. l It may provide information to fresh product or market strategies. l It may give you information about where you stand in the market. l The organization may be proactive rather than reactive. l 11/5/2020 8

New Product Innovation and Introduction New-to-the-world(10%) l New product lines(20%) l Additions to existing lines(26%) l Improvements/revisions(26%) l Repositioning(7%) l Cost reductions: similar performance at lower cost(11%) l 11/5/2020 9

Product Modification Feature modification(functional): make more attractive to consumer. l Quality modification: continuos quality improvements. l Style modifications: most frequent modification l Image modification: associated with style and quality. It concentrates on changing the non product attributes. l 11/5/2020 10

Creating New Products New Product ideas can come from anywhere and should be accepted even if it is not invented by the proper group. New Products are characterized: l Being the first at the market l Concerning the environment l Customer inputs l Imitation of competitors products 11/5/2020 11

New Product Development Process l Idea Generation: » employees » customers » competitors » channels l Idea screening: » Qualitative l to ensure that the new product will not have any conflict with overall corporate and marketing strategies. Unprofitable ideas and ones that firm does not have resources and technological base must be eliminated. 11/5/2020 12

New Product Development Process (cont) l Idea Screening (cont. ) » There are three risk categories: l l l strategic risk – new product idea does not match with strategic goals of the firm market risk – new product idea will not meet market needs internal risk – new product will not be developed within the desired time and budget 11/5/2020 13

New Product Development Process (Cont. ) l Project Planning/Financial analysis: » forecast the financial performance of the new product l l Sensitivity analysis: price Vs. demand analysis Break-even analysis: net operating profit after deducting fixed and variable expenses should cover at least initial investment » Marginal costing: l l Marginal revenue=Marginal cost new product should at least cover the variable costs, not the fixed expenses. Existing overhead cost would not apply. 11/5/2020 14

New Product Development Process (Cont. ) l Product development » new product is evaluated in terms of engineering, manufacturing, finance and marketing. l Concept testing: » focus group interviews l Test marketing: » duplication of real world product launch on a smaller less expensive scale: » Test city: a specific city is used for a test market 11/5/2020 15

New Product development Process (Cont. ) l Test marketing (cont. ) » Residential neighborhoods: a supermarket can be used as a test market » Test sites: this approach is used by firms selling industrial goods (Business-to-Business market) » Lead countries: Test market is used in a general region of the world: exp. Europe, Japan, etc. l l pseudo sales-surveying potential customers controllable sales-buyer make a purchase Full scale-fully market the product in a limited basis national lunch-make adjustment if necessary 11/5/2020 16

New Product Development Process (Cont. ) l Decisions made about test market: » Which test market? Test city versus a TV area » What will be tested? » How long a test? repeat purchase effect » What success criteria? what level of performance should be achieved l Problems conducting test markets » replicability: test market is not a representation of the national market » competitors warning » cost: high cost involves 11/5/2020 17

New Product development Process (Cont. ) l Commercialization(product launch): » Product replacement: improved version of existing one. Less risky alternative. » Risk vs. time: There are two alternatives: 1. Pioneer: first in the market-greater risk 2. Latecomer: followers- risk is minimized » Japanese style product development 1. Speed: It requires highly trained work force and close relationship with suppliers 2. Product churning: quickly decide whether or not to keep the product 11/5/2020 18

Causes of New Product failure Competitors’ reaction l Poor positioning l Poor timing l Poor quality l Failure of promised benefits l Too little marketing support l Poor perceived price/quality l 11/5/2020 19

Causes of New Product Failure (cont. ) Faulty estimate market potential and demand l Faulty estimate of production and marketing cost l Improper selection of distribution channels l Unexpected change in the economy after introduction l Lack of managerial synergy-marketing, engineering and production l 11/5/2020 20