New Products are Critical for Growth

IRI analysis of 240 product categories (92-94)Examination of the 164 products with 3+ point increase in dollar share

Reasons for growth:New Product Initiative 80.5%•New Brand/New Category 29.5•New brand/Old Categories 8.0•Line extension 17.5•New items 25.5

Other Marketing Programs 19.5%•Re-stage 4.7•Increase Distribution 5.4•Other 9.4

Most new product fail

72 % of new product introductions fail

Based on analysis of all 1992 introductions from the top leading national advertisers (P&G, Pepsico, Nestle, Kellogg, Warner Lambert, Phillip Morris, J&J, Grand Met, Sterling)

Most Companies Lose Money on New Products

Launch 10 new products @ $15 MM = $150 Millions

Expected 2.25 to be winners @ $50 MMcontribution over 3 years = $113 Millions

Net loss = $37

Assunption: Sales > $25MM =>50 MM contribution over three years

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%

Under 25 25-50 50-100 100-200 200+

Very Few Brands are “Mega” Succeses

2 Year Sales $ Millions

Source:IRI New Product Success Story

Issues for this Section

•What is a product

•Why to innovate and How to do it

•What is a brand and How it can be managed

What is a product?

Core product

Actualproduct

Augmented product

What is a product line ?

A product line is a group of products that are closely related because they perform a similar function, are sold to the same customer groups, are marketed through the same channels, or make up a particular product range

Product Mix:Procter and Gamble

Detergents Toothpaste Bar Soap Disposable Diapers

Paper Tisue

Ivory Snow

Dreft

Tide

Cheer

Oxydol

Dash

Bold

Gain

Era

Solo

Gleem

Crest

Denquel

Ivory

Kirk’s

Lava

Camay

Zest

Safeguard

Coast

Pampers

Luvs

Charmin

White Cloud

Puffs

Banner

PRODUCTPRODUCT LINE LINE LENGTHLENGTH

PRODUCT-MIX WIDTHPRODUCT-MIX WIDTH

What is a New Product?

?????

Why Innovate?

• Establishing a competitive advantage• Changing strategic direction • Enhancing corporate image• Improving financial return • Increasing R&D effectiveness• Leveraging Marketing effectiveness

What drives a sustainable advantage?

• Customer benefits

• Unique

• Sustainable

• Profitable

How does a market grow?

Market Growth

Convert non users

Create new segments

Greater revenues from existing consumers

Increase awareness

Incentive purchase

Geographic

New channels

New users

Heavier or more frequent

Trading up

New Product development process (1)

1. Opportunity identification

2. Design

3. Testing

4. Introduction

5.Life-cycle management

Reposition

Harvest

Life cycle managementMarket Response AnalysisCompetitive monitoring and defence

IntroductionLaunch planningTracking the launch

NoGo

NoGo

NoGo

Go

Testing Advertising and product testing Pretest and prelaunch forecasting

Design Customer needs, Sales forecasting, Engineering Positioning, Segmentation, Marketing Mix

Opportunity Identification Market definition Idea generation

Adoption Process

•Awareness•Interest•Evaluation•Trial •Adoption

Influence of Product Characteristics on Rate of Adoption

•Relative advantage•Compatibility•Complexity •Divisibility •Communicability

How to Reduce Market Penetration Cycle Time

• Reach the market first• Preannounce the new product before market availability• Innovate constantly• Occupy the market –multiple brands, positionings, segments, and alliances

Innovate Constantly

737 747 757 767 777

Ava

nzam

enti

600

400

300 300

100

The Boeing Product Line

Migrations

Decision model for Determining Response to a New Entrant

How Aggressive Should the Response

Be?

Is a Response Appropriate?

Ignore no

si

Accomodate the New Entrant

Abbandon the Market

Retaliate in the Same Product Market

What should be the domain of the Response?

Respond in theSame Product Market

Respond in a Different ProductMarket

What marketing initiative should be taken?

When to Enter?

Pioneer Followers

- Consumer learning Free raiding- Switching costs Minore incertezza- Access to customers- Experience effect- Preemption of scarse resources

Minesota vs P&G StarbucksIBM

Product Life cycle

Phases:-Introduction-Growth -Maturity-Decline

Product category, product form, branded product

Introduction stage

• Product Innovation• Skimming vs. Penetration stage• Level of marketing expenditures• Preannouncement• Alliances

Growth stage

• Process innovation• New market segments• New Distribution channels• Price decline

Market awareness of new products over time

100%

Launch Time

When to Eliminate a Product?

NeXT desktop computers.

Introduced in 1988, the product was shipped until 1993 despitePoor market performace.

Over this period NeXT eroded $ 200 Million in investment funds.

Brands are the heart of marketing

• They make things different

• They reduce price sensitivity

Bottom line: If consumers perceive a brand as superior, then they will prefer it and pay more for it

How to brand a product?

Tide, Bold, Daz ; Go, BAIndividual

Kellogg, KraftOverall Family

Ajax, Colgate-PalmoliveLine Family

Kit Kat Ice creamBrand Extensions

How to create successful brands?

• Prioritise quality• Being first• Unique positioning concept • Strong communication programme• Time and consistency

What Have we Learnt ?

• Innovation and New Product Development is critical for growth

• Products must be managed dynamically

• Brands do make things different