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Who should Who should ultimately design the ultimately design the product? The product? The customer, of course.customer, of course.

Developing New Market Developing New Market OfferingsOfferings

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Meeting ObjectivesIn this meeting, we focus on the In this meeting, we focus on the following questions:following questions: What are customer value, satisfaction, and loyalty,What are customer value, satisfaction, and loyalty,

and how can companies deliver them? and how can companies deliver them? What is the lifetime value of customers?What is the lifetime value of customers? How can companies both attract and retain custoHow can companies both attract and retain custo

mers?mers? What is database marketing?What is database marketing?

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Meeting Objectives What challenges does a company face in devWhat challenges does a company face in dev

eloping new products?eloping new products? What organizational structures are used to What organizational structures are used to

manage new-product development?manage new-product development? What are the main stages in developing new What are the main stages in developing new

products, and how can they be managed products, and how can they be managed better?better?

What factors affect the rate of diffusion and What factors affect the rate of diffusion and consumer adoption of newly launched produconsumer adoption of newly launched products?cts?

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LoyaltyA deeply held commitment to re-buy or re-patronize a preferred product or service in the future despite situational influences and marketing efforts having

the potential to cause switching behavior.

The Value Proposition

The whole cluster of benefits the company promisesto deliver

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Measuring Satisfaction

Periodic surveysPeriodic surveys Customer loss rateCustomer loss rate Mystery shoppersMystery shoppers Monitor competitive performanceMonitor competitive performance

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Product and Service Quality

Quality is the totality of features and characteristics of a product or service that bear on its ability

to satisfy stated or implied needs.

Quality Conformance Performance

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Total Quality Management

TQM is an organization-wide approach to continuously improving the quality of

all the organization’s processes, products, and services.

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Maximizing Customer Lifetime Value

Customer profitabilityCustomer profitability Customer equityCustomer equity Lifetime valueLifetime value

Estimating Lifetime Value Annual customer revenue: $500Annual customer revenue: $500 Average number of loyal years: 20Average number of loyal years: 20 Company profit margin: 10Company profit margin: 10 Customer lifetime value: $1000Customer lifetime value: $1000

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Drivers of Customer Equity Value equityValue equity Brand equityBrand equity Relationship equityRelationship equity

Framework for CRM Identify prospects and customersIdentify prospects and customers Differentiate customers by needs and value to Differentiate customers by needs and value to

companycompany Interact to improve knowledgeInteract to improve knowledge Customize for each customerCustomize for each customer

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CRM Strategies

Reduce rate of defectionReduce rate of defection Increase longevityIncrease longevity Enhance share of walletEnhance share of wallet Terminate low-profit customersTerminate low-profit customers Focus more effort on high-profit Focus more effort on high-profit

customerscustomers

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Mass vs. One-to-One Marketing

MassMass Average customerAverage customer Customer anonymityCustomer anonymity Standard productStandard product Mass productionMass production Mass distributionMass distribution Mass advertisingMass advertising One-way messageOne-way message Economies of scaleEconomies of scale

One-to-OneOne-to-One Individual customerIndividual customer Customer profileCustomer profile Customized market Customized market

offeringoffering Customized productionCustomized production Economies of scopeEconomies of scope Share of customerShare of customer

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Customer Retention

Acquisition of new customers can cost 5 times Acquisition of new customers can cost 5 times more than retaining current customers.more than retaining current customers.

The average customer loses 10% of its The average customer loses 10% of its customers each year.customers each year.

A 5% reduction to the customer defection rate A 5% reduction to the customer defection rate can increase profits by 25% to 85%.can increase profits by 25% to 85%.

The customer profit rate increases over the life The customer profit rate increases over the life of a retained customer.of a retained customer.

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Describing Market Dynamics

Permanent capture marketsPermanent capture markets Simple retention marketsSimple retention markets Customer migration marketsCustomer migration markets

Building Loyalty

BasicBasic ReactiveReactive AccountableAccountable

ProactiveProactive PartnershipPartnership

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Reducing Customer Defection

Define and measure retention rateDefine and measure retention rate Distinguish causes of customer attritionDistinguish causes of customer attrition Estimate profit loss associated with loss of customersEstimate profit loss associated with loss of customers Assess cost to reduce defection rateAssess cost to reduce defection rate Gather customer feedbackGather customer feedback

Forming Strong Customer Bonds Add financial benefitsAdd financial benefits Add social benefitsAdd social benefits Add structural tiesAdd structural ties

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Database Key Concepts Customer databaseCustomer database Database marketingDatabase marketing Mailing listMailing list

Business databaseBusiness database Data warehouseData warehouse Data miningData mining

Using the Database

To identify prospectsTo identify prospects To target offersTo target offers To deepen loyaltyTo deepen loyalty

To reactivate customersTo reactivate customers To avoid mistakesTo avoid mistakes

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Developing New Market Offerings

Six categories of new products1. New-to-the-world products

2. New product lines

3. Additions to existing product lines

4. Improvements and revisions of existing products

5. Repositioning

6. Cost reductions

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Challenges in New-Product Development

Incremental innovationIncremental innovation Disruptive technologiesDisruptive technologies

Why do new products fail?Why do new products fail? A high-level executive pushes a favorite idea A high-level executive pushes a favorite idea

through in spite of negative research through in spite of negative research findings.findings.

The idea is good, but the market size is The idea is good, but the market size is overestimated.overestimated.

The product is not well designed.The product is not well designed.

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Challenges in New-Product Development

The product is incorrectly positioned The product is incorrectly positioned in the market, not advertised in the market, not advertised effectively, or overpriced.effectively, or overpriced.

The product fails to gain sufficient The product fails to gain sufficient distribution coverage or support.distribution coverage or support.

Development costs are higher than Development costs are higher than expected.expected.

Competitors fight back harder than Competitors fight back harder than expected.expected.

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Challenges in New-Product Development

Factors that tend to hinder new-product Factors that tend to hinder new-product developmentdevelopment Shortage of important ideas in certain areasShortage of important ideas in certain areas Fragmented marketsFragmented markets Social and governmental constraintsSocial and governmental constraints Cost of developmentCost of development Capital shortagesCapital shortages Faster required development timeFaster required development time Shorter product life cyclesShorter product life cycles

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Organizational Arrangements New-product deployment requires specific New-product deployment requires specific

criteria – one company established the criteria – one company established the following acceptance criteriafollowing acceptance criteria The product can be introduced within five yearsThe product can be introduced within five years The product has a market potential of at least The product has a market potential of at least

$50 million and a 15 percent growth rate.$50 million and a 15 percent growth rate. The product would provide at least 30 percent The product would provide at least 30 percent

return on sales and 40 percent on investment.return on sales and 40 percent on investment. The product would achieve technical or market The product would achieve technical or market

leadership.leadership.

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Budgeting For New Product Budgeting For New Product DevelopmentDevelopment 3M’s approach:3M’s approach:

15% rule15% rule Each promising idea gets an Each promising idea gets an

“executive champion”“executive champion” Expect some failuresExpect some failures Golden Step awards handed out Golden Step awards handed out

each yeareach year

Organizational Arrangements

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Organizational Arrangements Organizing New-Product DevelopmentOrganizing New-Product Development

Product managersProduct managers New-product managersNew-product managers High-level management High-level management

committeecommittee New product New product

departmentdepartment Venture teamsVenture teams

Stage-gate systemStage-gate system Gatekeepers make Gatekeepers make

one of four decisions:one of four decisions: GoGo KillKill HoldHold RecycleRecycle

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Steps in New Product

Development

Idea Generation

Idea Screening

Concept Develop & Test

Marketing Strategy

Product Development

Market Testing

Commercialization

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Interacting with OthersInteracting with Others Sales representativesSales representatives IntermediariesIntermediaries Product championProduct champion

Techniques for stimulating Techniques for stimulating creativity in individuals and groupscreativity in individuals and groups Attribute listingAttribute listing Forced relationshipsForced relationships Morphological analysisMorphological analysis

Idea Generation

Reverse assumption Reverse assumption analysisanalysis

New contextsNew contexts Mind-mappingMind-mapping

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Idea managerIdea manager Idea committeeIdea committee Two types of errors in Two types of errors in

screening ideasscreening ideas DROP-errorDROP-error GO-errorGO-error

Idea ScreeningIdea Screening

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Product-Idea Rating Device

Relative Relative WeightWeight

Product Product ScoreScore

Product Product RatingRating

Product Success RequirementsProduct Success Requirements (a)(a) (b)(b) (c = a x b)(c = a x b)

Unique or superior productUnique or superior product .40.40 .8.8 .32.32

High performance to cost ratioHigh performance to cost ratio .30.30 .6.6 .18.18

High marketing dollar supportHigh marketing dollar support .20.20 .7.7 .14.14

Lack of strong competitionLack of strong competition .10.10 .5.5 .05.05

TotalTotal 1.001.00 .69.69

Rating scale: .00-.30 poor; .31-.60 fair; .61-.80 good. Minimum acceptance rate: .61Rating scale: .00-.30 poor; .31-.60 fair; .61-.80 good. Minimum acceptance rate: .61

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Concept Development and Testing

Product ideaProduct idea Product conceptProduct concept

Concept developmentConcept development Category conceptCategory concept Product–positioning mapProduct–positioning map Brand conceptBrand concept

Concept TestingConcept Testing Rapid prototypingRapid prototyping Virtual realityVirtual reality Customer-driven Customer-driven

engineeringengineering

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Concept Development and Testing

Questions to measure product dimensionsQuestions to measure product dimensions Communicability and believabilityCommunicability and believability Need levelNeed level Gap levelGap level

Need-gap scoreNeed-gap score Perceived valuePerceived value Purchase intentionPurchase intention User targets, purchase User targets, purchase occasions, purchasing occasions, purchasing frequencyfrequency

Conjoint AnalysisConjoint Analysis Example: five design Example: five design

elementselements Three package designsThree package designs Three brand namesThree brand names Three pricesThree prices Possible Good Housekeeping Possible Good Housekeeping

sealseal Possible money-back Possible money-back

guaranteeguarantee

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Marketing Strategy

Target market’s size, structure, and behaviorTarget market’s size, structure, and behavior Planned price, distribution, and promotion for Planned price, distribution, and promotion for

Year 1Year 1 Long-run sales and profit goals and marketing-Long-run sales and profit goals and marketing-

mix strategy over timemix strategy over time Business AnalysisBusiness Analysis

Estimating Total SalesEstimating Total Sales Survival-age distributionSurvival-age distribution

Estimating Cost and ProfitsEstimating Cost and Profits Break-even analysisBreak-even analysis Risk analysisRisk analysis

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Product Development Quality Function Deployment (QFD)Quality Function Deployment (QFD) Customer attributes (CAs)Customer attributes (CAs) Engineering attributes (EAs)Engineering attributes (EAs) Customer testsCustomer tests Alpha testingAlpha testing Beta testingBeta testing

Consumer preference Consumer preference measures:measures: Rank-orderRank-order Paired-comparisonPaired-comparison Monadic-ratingMonadic-rating

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Consumer-Goods Market TestingConsumer-Goods Market Testing Seeks to estimate four variablesSeeks to estimate four variables

TrialTrial First repeatFirst repeat AdoptionAdoption Purchase frequencyPurchase frequency

Sales wave researchSales wave research Simulated Test MarketingSimulated Test Marketing Controlled Test MarketingControlled Test Marketing

Market Testing

Test MarketsTest Markets How many test cities?How many test cities? Which cities?Which cities? Length of test?Length of test? What information?What information? What action to take?What action to take?

Business-Goods Market TestingBusiness-Goods Market Testing

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Commercialization When (Timing)When (Timing)

1.1. First entryFirst entry

2.2. Parallel entryParallel entry

3.3. Late entryLate entry

Where (Geographic Strategy)Where (Geographic Strategy) To Whom (Target-Market Prospects)To Whom (Target-Market Prospects) How (Introductory Market Strategy)How (Introductory Market Strategy)

Critical path scheduling (CPS)Critical path scheduling (CPS)

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The Consumer-Adoption Process

AdoptionAdoption Consumer-adoption processConsumer-adoption process Consumer-loyalty processConsumer-loyalty process Mass-market approachMass-market approach Heavy-usage target marketingHeavy-usage target marketing

Stages in the Adoption ProcessStages in the Adoption Process InnovationInnovation Innovation diffusion processInnovation diffusion process

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The Consumer-Adoption Process

Adopters of new products move Adopters of new products move through five stagesthrough five stages AwarenessAwareness InterestInterest EvaluationEvaluation TrialTrial AdoptionAdoption

Factors Influencing the Adoption ProcessFactors Influencing the Adoption Process Readiness to Try New Products and Personal Readiness to Try New Products and Personal

InfluenceInfluence

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Adopter Categorization on the Basis of Relative Time of Adoption of Innovation

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The Consumer-Adoption Process

Personal influencePersonal influence

Characteristics of the InnovationCharacteristics of the Innovation Relative advantageRelative advantage CompatibilityCompatibility ComplexityComplexity DivisibilityDivisibility CommunicabilityCommunicability

Organizations’ Readiness to Adopt Organizations’ Readiness to Adopt InnovationsInnovations