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Business-to-Business MarketingNew Product Strategy

Haas School of BusinessUC Berkeley

Fall 2008Week 9

Zsolt Katona

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Overview• Week 3: Pricing• Week 5: R&D• Week 6: Sales Force • Week 7: Differentiation• Week 8: Branding • Today: New Product Strategy

– Case Discussion: Biopure– A few thoughts on PLC– Industrat Decision 7

• Week 10: Key Account Management– Case: Wesco

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Time

Sales/Period

Sales

Profits

Introduction Growth Maturity Decline

Product Life Cycles (PLC)

Beyond idiosyncratic factors, the demand of each category/product/brand follows a systematic (“bell-shaped”) pattern over time.

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Derived PLC

The spread of products into U.S. households

Sources: U.S. Bureau of Census (1970 and various years), Cellular Telecommunications Industry Association (1996), World Almanac and Book of Facts (1997)

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THE FASTLEARNING PRODUCT LIFE CYCLES

THE FAD

WITH A SIGNIFICANT RESIDUAL MARKET

THE MARKET SPECIALTY

THE FASHION CYCLE

THE ABORTED INTRODUCTION

THE SLOW LEARNING PRODUCT LIFE CYCLE

THE FAD

THE INSTANT BUST

Regrowth periods

THE PYRAMID CYCLE

Typicalpatterns

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Theory behind PLC

The diffusion of products, brands and innovations in general is mainly driven by a social process similar to the spread of an epidemic.

Key elements:– “innovators”– “imitators”– “word of mouth” communication

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The Bass model

Describes sales, s, at time t as a function of cumulative sales, S:

))()()(

(/)( tSMM

tbSatSts

Where:a: innovation coefficientb: imitation coefficientM: market potential

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Innovator characteristics(consumer goods)

• wealthier• younger• more educated• “cosmopolitan”• mobile• risk takers• “opinion leaders”

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Industrial innovators

• larger firms• financially powerful• faster growing• with high R&D spending• with a younger CEO

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What promotes diffusion?(consumer markets)

• homogeneity of social system– cultural norms (religion)– language– ethnic homogeneity– social mobility

• “density” of social system• physical and social mobility within the social system• wealth

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What promotes diffusion in industrial markets?

• homogeneity of customer base• industry concentration/globalization • “intermediate” level of competition• level of professionalization• Mobility of employees

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Takeaway

• Demand for existing similar products might be significantly different than for a new product

• Carefully analyze decision makers and segments, when introducing a new product

• Product Life Cycle largely depends on your customer’s product’s success.

• Do not naturally expect the typical diffusion curve in B2B

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Industrat Stock Prices

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T4 Deal

Firm 2 has announced completion of a KOREX prototype based on Technology 4.

Product Technology Project Res Sus BCost

- 4 PKEA 10000 50 160

Firm 2 is offering the following standard licensing contract to any interested party:

Annual fee: $500,000, royalty: 10%