Strategic Marketing 1 Imperatives for MarketDriven Strategy 2

Strategic Marketing 1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

CHAPTER 8 Innovation and New Product Strategy The Innovation Mandate Mc. Graw-Hill/Irwin Copyright © 2009 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

INNOVATION AND NEW PRODUCT STRATEGY * * * * Innovation as a Customer Driven Process New Product Planning Idea Generation Screening, Evaluating, and Business Analysis Product and Process Development Marketing Strategy and Market Testing Commercialization Variation in the Generic New Product Planning Process 8 -3

INNOVATION FEATURE Managing Google’s Idea Factory As director of consumer Web products Marissa Mayer is a champion of innovation. She favors new product launches that are early and often. She joined Google in early 1999 as a programmer when the workforce totaled 20. By 2007 Google had 5, 700 employees with expected sales of $16 billion. How Google Innovates The search leader has earned a reputation as one of the most innovative companies in the world of technology. A few of the ways Google hatches new ideas: § FREE (THINKING) TIME Google gives all engineers one day a week to develop their own pet projects, no matter how far from the company’s central mission. If work gets in the way of free days for a few weeks, they accumulate. Google News came out of this process. 8 -4

§ THE IDEAS LIST Anyone at Google can post thoughts for new technologies of businesses on an ideas mailing list, available companywide for input and vetting. But beware: Newbies who suggest familiar or poorly thought-out ideas can face an intellectual pummeling. § OPEN OFFICE HOURS Think back to your professors’ office hours in college. That’s pretty much what key managers, including Mayer, do two or three times a week, to discuss new ideas. One success born of this approach was Google’s personalized home page. § BIG BRAINSTORMS As it has grown, Google has cut back on brainstorming sessions. Mayer still has them eight times a year, but limits hers to 100 engineers. Six concepts are pitched and discussed for 10 minutes each. The goal: to build on the initial idea with at least one complementary idea per minute. § ACQUIRE GOOD IDEAS Although Google strongly prefers to develop technology in-house, it has also been willing to snap up small companies with interesting initiatives. In 2004 it bought Keyhole, including the technology that let Google offer sophisticated maps with satellite imagery. Source: “Managing Google’s Idea Factory, ” Business. Week, October 3, 2005, 88 -90. 8 -5

FINDING CUSTOMER VALUE OPPORTUNITIES Customer value analysis Objective is to identify needs for: 1. New products 2. Improvements to existing products 3. Improvements in production processes 4. Improvements in supporting services 8 -6

Customer Expectations Customer Satisfaction Gap Actual Product Performance OPPORTUNITIES (1) New Products (2) Improvements (3) New and Improved Processes 8 -7

TRANSFORMATIONAL Break-through innovation Digital photography NEW PRODUCT CATEGORY Dell Printers Nike Apparel Golf clubs LINE EXTENSION New color/package/style INCREMENTAL IMPROVEMENTS Software updates 8 -8

The Evolution of the Creative Company STEP 1 Technology and information become commoditized and globalized. Suddenly, the advantage of making things “faster, cheaper, better” diminishes, and profit margins decline. STEP 2 With commoditization, core advantages can be shipped abroad. Outsourcing to India, China, and Eastern Europe sends a growing share of manufacturing and even the Knowledge Economy overseas. STEP 3 Design Strategy begins to replace Six Sigma as a key organizing principle. Design plays a key role in product differentiation, decision-making, and understanding the consumer experience. Source: Bruce Nussbaum, “How to Build Innovation Companies, ” Business. Week, August 1, 2005, 62 -63. 8 -9

STEP 4 Creative innovation becomes the key driver of growth. Companies master new design thinking and metrics and create products that address consumers’ unmet, and often unarticulated, desires. STEP 5 The successful Creative Corporation emerges, with new Innovation DNA. Winners build a fast-moving culture that routinely beats competitors because of a high success rate for innovation. 8 -10

Characteristics of Successful Innovators Creating an Innovative Culture Leveraging Capabilities Making Resource Commitments STRATEGIC INITIATIVES Selecting the Right Innovation Strategy Developing and Implementing Effective New Product Processes 8 -11

Creating an Innovation Culture q Innovation Workshop for top executives to develop an innovation plan. q Innovation Statement highlighting objectives and senior management’s role and responsibilities. q Training programs for employees and managers. q Communicate the priority of innovation. q Speakers to expose employees to innovation authorities. Source: Thomas D. Kuczmarski et al. , “The Breakthrough Mindset, ” Marketing Management, March/April 2003, 43. 8 -12

The Innovation Strategy Spells Out Management’s Priorities for New Product Opportunities 1. Set specific New Product Objectives. 2. Communicate the role of New Products throughout the organization. 3. Define the areas of strategic focus: Product Scope Markets Technologies 4. Include longer term discontinuous projects in the portfolio along with incremental projects. Source: Robert Cooper, “Benchmarking New Product Performance, ” European Management Journal, Feb. 1998, 1 -7. 8 -13

NEW PRODUCT PLANNING PROCESS Customer Needs Analysis Idea Generation Screening and Evaluation Business Analysis Marketing Strategy Development Product Development Testing Commercialization 8 -14

Achieving Cross-Functional Interaction and Coordination R&D Operations Marketing Finance 8 -15

Responsibility for New Product Planning * * * Coordination of new product activities by a high-level general manager Inter-functional coordination by a team of new product planning representatives Creation of a project task force responsible for new product planning Designation of a new products manager to coordinate planning between departments Formation of matrix structure for integration new product planning with business functions Creation of a permanent design center 8 -16

IDEA GENERATION * * * Idea search: targeted or open-ended? How extensive and aggressive? What specific sources are best for generating a regular flow of new product ideas? How can new ideas be obtained from customers? Where will responsibility for the new product ideas search be placed? What are potential threats from alternative (or disruptive) technologies? 8 -17

Alliances/ Acquisition/ Licensing National Policy Creative Methods Direct Search METHODS OF GENERATING IDEAS Linking Marketing and Technology Technological Innovation Exploratory Customer Studies Facilitating Lead User Analysis 8 -18

An Innovation Champion in Action at GE Beth Comstock calls herself “a little bit of the crazy, wacky one” at corporate headquarters. And it’s an apt description when you realize she works at General Electric Co. Comstock, 44, is charged with transforming GE’s culture, famously devoted to process, engineering, and financial controls, to one that’s more agile and creative. Chairman and CEO Jeffrey R. Immelt tapped the former communications chief to become GE’s first-ever chief marketing officer almost three years ago. The job came with a critical twist: the goal of driving innovation through the company’s 300, 000 plus ranks. “Creativity is still a word we’re wrestling with, ” Comstock concedes. “It seems a bit undisciplined, a bit chaotic for a place like GE. ” More comfortable territory is the term “imaginative problem-solving” – encouraging people to think “what if” – yet always with the aim of driving growth. One of Comstock’s first moves was to bring in anthropologists to audit GE’s culture. They came back with praise for GE’s famous work ethic but noted that employees wanted more “wow” – more discoveries from the company founded by Thomas Edison. 8 -19

Comstock has a role whose importance is spreading throughout Big Business – that of innovation champion. She began by studying the best practices at companies such as Procter & Gamble, Fed. Ex, and 3 M. She brought in a raft of creativity consultants, futurists, and design gurus to lead sessions with different operations. Their names were jolting for GE types: Play, a Richmond (VA. ) group that helps execs think differently, and Jump, based in San Mateo, CA. , which researches how people use things. GE is expanding its army of designers to bring businesses closer to customers. And Comstock is staging “dreaming sessions” where Immelt, senior execs, and customers debate future market trends. Comstock concedes some managers view the workshops as a waste of time. “We have a long way to go, ” she says. But for GE, there’s no turning back. Source: Bruce Hussbaum, “How to Build Creative Companies, ” Business. Week, August, 2005, 77. 8 -20

SCREENING, EVALUATING, AND BUSINESS ANALYSIS IDEA GENERATION SCREENING (fit/feasibility) CONCEPT EVALUATION BUSINESS ANALYSIS 8 -21

Business Analysis * Revenue Forecasts * Preliminary Marketing Plan * Cost Estimation * Profit Projections * Other Considerations 8 -22

PRODUCT AND PROCESS DEVELOPMENT NEW PRODUCT CONCEPT PRODUCT DEVELOPMENT AND USE TESTING MARKETING STRATEGY DEVELOPMENT MARKET TESTING LAUNCH 8 -23

Product and Process Development * Development of the new product includes: * Product design * Packaging design * Decisions to make or purchase product components * Product Development Process: * Product Specifications * Industrial Design * Prototype * Use Tests * Process Development * Collaborative Development 8 -24

Does it have the required attributes? Verify claims PURPOSE OF USE TESTS Ideas for improvements Identify use situations 8 -25

MARKETING STRATEGY AND MARKET TESTING § Marketing Strategy Decisions * Market Targeting * Positioning Strategy § Market Testing Options * Simulated Test Marketing * Scanner – Based Test Marketing * Conventional Test Marketing * Testing Industrial Products * Selecting Test Sites * Length of the Test * External Influences 8 -26

Scanner-based Test Marketing Less artificial than simulated testing Costs less than full-scale market test Test is controlled by using IRI’s 2300 panel members in each test city Cable TV enables use of controlled ad testing Tests take about 12 months 8 -27

COMMERCIALIZATION The Marketing Plan * Complete marketing strategy * Responsibilities for execution * Cross – functional approach Monitoring and Control * Real – time tracking * Role of the Internet * Include product performance metrics with performance targets 8 -28

Marketing Strategy Market Target(s) Objectives Marketing Program(s) 8 -29

VARIATIONS IN THE GENERIC NEW PRODUCT PLANNING * Technology Push Processes * Platform Products * Process – Intensive Products * Customized Products 8 -30