International Operations Management MGMT 6367 Lecture 11 Instructor: Yan Qin Fall 2012

International Operations Management

MGMT 6367

Lecture 11

Instructor: Yan Qin

Fall 2012

Global Product Launch

Product ManagementNew product projects

13 key activities in a typical new product projectReasons for new product failures

Product launch strategyWhat is an effective product launch strategyMajor considerations

Global product launchAdditional considerations in the global contextWhy most product launches fail (with short

cases)

Product ManagementProduct Management oversees the product

planning process, which encompasses the following activities for each product to satisfy marketplace needs and achieve company objectives.

Conceptualizing

Developing

Finalizing

Testing

Commercializing

Launching

Sustaining

Disposing

New product Vs. Current product

Commercializing

Launching

Sustaining

Disposing

Current Products

Conceptualizing

Testing

Finalizing

Developing

New Products

New product projects (NPPs)Key activities in a typical new product project

1 Initial idea screen

2 Preliminary market assessment

3 Preliminary technical assessment

4 Detailed market study

5 Predevelopment business and financial analysis

6 Product development

7 In-house product tests

8 Customer product tests

9 Trial sell

10 Pre-commercialization business analysis

11 Production/Operation start-up

12 Market launch

13 Full-scale production



13 key activities in a typical new product project

Reasons for new product failures

* Slides written based on the book “Winning at New Products: Accelerating the Process from Idea to Launch” by Robert G. Cooper.

Product launch strategyGlobal product launch

1. Initial idea screen

The initial idea screen is the 1st go/kill decision in a new product project.

This activity is preferably to be performed by a multi-disciplinary group with well-defined decision criteria.

In a study of 203 new product projects in 123 companies in 2001, 60% of the companies indicated that screening was

conducted by a multi-disciplinary group of decision makers. However, no formal criteria were used to make the decision.

24% of the companies indicated that a single individual made the decision and again with no formal decision criteria.

2. Preliminary market assessment

This is the 1st market study to analyze real customer requirements, possible market acceptance of the new concept, and the current competitive situation in the target market.

Direct customer contact is crucial for this market study.

However, the 2001 study revealed that Companies relied on discussions with sales

force, a review of competitors’ products, a library search, and an internal discussion among colleagues at this step.

3. Preliminary technical assessment

This technical assessment addresses questions such as “Can the product be developed?” and “Can it be manufactured?”

It is usually based on internal discussions, in-house sources, and some literature search.

According to the 2001 study, this activity was undertaken in the great majority of projects and was rated as proficiently executed.

4. Detailed market study

The detailed market study usually includes the user needs-and-wants study, concept tests*, positioning studies, and competitive analysis.

Based on the 2001 study of the 203 NPPs, this activity was omitted in almost 75% of the total projects and was “very poorly handled” when performed.

A clear target market and a well-defined concept of the new product are crucial to the success of the detailed market study.

* A concept test is a study of customer reactions to the proposed new product to gauge expected acceptance.

5. Predevelopment business and financial analysis

This is the decision to go to a full-scale development program.

This activity usually includes a financial analysis, risk assessment and a qualitative business assessment.

According to the 2001 study, this activity was conducted by 63% of the projects before moving into full-scale development.

6th & 7th activities

6th: Product developmentThis is the actual development of the product.

This activity accounted for an average of 37% of the total time and effort spent on a typical new product project according to the 2001 study (we’ve been repeatedly mentioning).

7th: In-house product testsThis is when the new product is tested in-house

under controlled or laboratory conditions.

In-house product tests are usually called α tests.

8th & 9th activities

8th: Customer product testsIn this activity, customers are often given a

sample or prototype of the product at no charge. There is sometimes on-site user test of a new

product at this step.

9th: Trial sellThis is an attempt to sell the product to a limited

number of customers or in a limited geographical area.

The success of a trial sell requires a sharp definition of test market customers and good measures of test market results.

10th, 11th, 12th and 13th activities

10th: Pre-commercialization business analysisThis is the final business and financial analysis

prior to product launch, which usually includes detailed market information review and a detailed financial analysis.

11th: Production/operations start-upThe start-up of full-scaled production/operations.

12th: Market launchThe official launch of the new product.

13th: Full scale production


Poor marketing research

“We decided what our

marketplace wanted in this new product without really asking that

market what its priorities on.”

“A lack of thoroughness in identifying real

needs in the marketplace, or in spotting early

signs of competitors

girding up to take the offensive.”


Technical problems in design and production

There are often difficulties in converting from pilot plant scale to full-scale production.

Sometimes, companies try to develop the “perfect” product, one that is simply over-engineered (and too costly) compared to what the customer need.


Insufficient marketing effortAssuming that “the product would sell itself”, a

company might fail to back the product’s launch with sufficient marketing, selling, and promotional resources.

It is suggested that before a product even enters the Development stage, there should be a marketing plan, complete with earmarked resources.

The 2001 study of 203 new product projects revealed that 78% of the total effort goes to technical and/or production activities; Only 16% is devoted to marketing activities, and much of it goes to product launch.


Bad timing (key reason for failure)

This is a dilemma.

There are penalties from either moving too fast or moving not quickly enough. Moving too fast can result in both technical

problems and flawed planning and control.

Moving not quickly enough may cause a new product to miss the window of opportunity.



13 key activities in a typical new product projectReasons for new product failures



cases)

Product Launch

An effectiv

e product launch strateg

y

When to

launch

What to

launch

Why to

launch

How to

launch

Where to

launch

In details, a product launch strategy must communicate product advantages to the target market effectively and efficiently in the course of delineating price, distribution, market entry timing, marketing communication, and the launch budget.

Major considerations in product launch

Identification of target markets, which should actually be considered early in the product development project.The target market decision drives decisions

related to product position and pricing, while achieving expected financial performance during product launch.

Pricing should include not only the launch price but also the long-term decision between penetration pricing and price skimming.

Supplement: Penetration Vs. Skimming

Penetration pricing is the offering of a low price for a new product during its initial offering in order to attract customers away from competitors.

In price skimming, a company charges the highest possible initial price that customers will pay. As the demand of the initial customers is satisfied, the company lowers the price to attract more price sensitive customers. This is just like “skimming” successive layers of

cream.

Major considerations in product launch

Logistics and inventory flow of materials from the manufacturer to the end customerPay attention to the crucial role that distributors, if

any, play in the positioning of the new product and the communication of the product benefits to the end customers.

Cross-functional integration is the mechanism for constructing, enabling, and sustaining an effective launch strategy.

Organization decisions on whether to become a first-mover, fast-follower, early me-too, or late entrant also affects a general product launch strategy.


Product Management

New product projects



cases)

* Part of the slides are written based on the article “Why most product launches fail” by Joan Schneider and Julie Hall.

Global launch considerations

Identify and develop Supply Chain partners in the global context.

Manage logistics and inventory to deliver demand expectations in geographically dispersed markets.

Check the language and cultural references so that the promotional mix properly underpins the global launch.

For example, brand names appropriate in one region might have negative connotations in another. And colors may have different associations across culture.

Why most product launches fail

Situation 1: The company cannot support fast growth of the product sales.

Suggestion: Have a plan to ramp up quickly if the product takes off .

Case: In 2000, American Biophysics introduced its Mosquito Magnet, which uses carbon dioxide to lure mosquitos into a trap. The product became an immediate success due to the West Nile virus scare. However, after production was moved from its low-volume Rhode Island facility to mass production in China, the product quality dropped dramatically. American Biophysics lost the market completely in a short time.


Situation 2: The new product falls short of claims and gets bashed.

Suggestion: Delay launch if possible until the product is ready.

Case: The public had high expectations of Windows Vista when it was introduced in 2007. However, it flopped due to a number of many compatibility and performance issues.


Situation 3: The new item exists in “product limo”.

Suggestion: Test the product to make sure that its differences will sway buyers.

Case: Coca-Cola introduced C2 in 2004, which has the same taste as Coke but only half of the calories. The product was intended to attract customers that are calorie-sensitive but don’t like the taste of Diet Coke. However, C2 failed in the marketplace. Coca-Cola learned the lesson and introduced Coke Zero in 2005, a product with full favor and zero calories. Coke Zero quickly became a success.


Situation 4: The product defines a new category and requires substantial consumer education – but doesn’t get it.

Suggestion: If consumers cannot quickly grasp how to use your product, it’s a toast.

Case: P&G launched a scent “player” that looked like a CD player and emitted scents, contained on a disc, every 30 minutes. This confused consumers. Many thought the device involved both music and scents.


Situation 5: The product is revolutionary but there is no market for it.

Suggestion: Don’t gloss over the basic questions “Who will buy this and at what price”.

Case: The buzz spiraled out of control when news of a secret new product code-named Ginger and created by the renowned inventor Dean Kamen leaked to the press. The technologically advanced motorized scooter sold about 24,000 in the first five years despite of the relatively low price.

Documents

International Operations Management MGMT 6367 Lecture 11 Instructor: Yan Qin Fall 2012