New Product Development Process

Targeting and Segmentation

Food Marketing APEC 4451Fall Semester 2010

Food Marketing APEC 4451Fall Semester 2010

Dennis J. Degeneffe The Food Industry Center

University of Minnesota

Why Introduce New Products?

• The Case For Introducing New Products– “Organic Growth” - Shareholder value– Competitive Position – Capacity Utilization

• The Case Against Introducing New Products – Risk – the odds against success

• High Odds of Failure*• High Cost of Failure

– “Cannibalization” of existing business.

• Therefore introducing new products is a risky business!

New Product Development Process

• A systematized approach for the development of new products to manage risk.

• A general approach that is followed by most major consumer goods companies.– Includes the infusion of creativity…– … and the rigor of evaluative decision

points – or “Stage Gates”

Concept Testing

Test Marketing

New Product Development Process

Opportunity Identification

Idea Generation

Concept Development

Product Development

Positioning Development

STM Confirmation

Advertising Testing

Concept Testing

Test Marketing

Overall Process is made up of 8 stages.

Commercialization

Concept Testing*

Test Marketing*

New Product Development Process

Opportunity Identification

Idea Generation

Concept Development

Product Development

Positioning Development

Commercialization

*”Stage Gates”

STM Confirmation

Advertising Testing

… Some are “developmental” sages, and some are “evaluative” stages.

Developmental Stages

About how to …• Is more constructive than evaluative - provides guidance.

• Fosters creativity and innovation

• Generates ideas

• Obtains insights from consumers/customers on what they want.

Stage Gates

• Evaluative stages –“go/no go” decisions• Requires an objective assessment of the marketing initiative prior to

proceeding further:– Will it fit:

• Manufacturing system• Distribution system• Consumer/Customer expectations• Brand equity

– Will it likely sell – What kind of financial resources will it require– Will it provide an adequate pay-back/return on investment (ROI)

• Often involves Marketing Research Testing to answer these questions.

• Usually involves a meeting with Senior Management

Opportunity Identification

• Secondary Research - Data that has been previously gathered for a more general purpose.– Secondary market information– Trend information– Can come from a lot of directions:

• Consumers• Competitors• Technologists

• Primary Research – or “Custom Marketing Research”

Sources of Information::

9

Types of Secondary Data

• External Secondary Data:– Government data– Trade and industry associations– Publications– Reference Sources– Internet sites– Libraries/archives– Commercial databases (E.g. National Eating

Trends)

– Don’t forget the Food Institute Student Learning Service!!!

General Market Data Datamonitor Mega-Trends

• Convenience – Quick meals• Health – 90% of Americans feel improving health is

important• Age Complexity – Greater spending power among

children/teens, Growing senior population• Gender Complexity – Blurring of traditional gender

roles• Lifestage Complexity – Empty nesters, “boomerang

children”• Individualism & Customization – “Custom tailored

solutions”• Sensory Experience• Comfort Seeking• Connectivity – Social media

1994 Strategic Insights at Pillsbury

• Mom’s life is a hassle– 9-5 job– No time to plan or prepare meals– Fussy kids– Off to soccer practice

• Important to get kids to eat vegetables– Kids won’t eat vegetables– Stress & guilt

• Opportunity – an easy one dish fully assembled meal that the kids will eat, and adults will enjoy too.

End Game

Who Executes New Product Development Process

• New Product Development Team - a collaborative, cross functional brand management group focused on specific opportunity area, reporting to senior management.

New Product Development

Team

Marketing Manager

Finance

Sales

Advertising Agency

Research & Development

Promotions

Marketing Research

When Does it Begin and End?

Concept Testing*

Test Marketing*

Opportunity Identification

Idea Generation

Concept Development

Product Development

Positioning Development

Commercialization

*”Stage Gates”

STM Confirmation

Advertising Testing

Case - Lunchables

• Lunchables was originally introduced in 1989, by Oscar Mayer (Kraft Foods).

• As a concept it had been around for 10 years before it was introduced…

• Outstanding success story, but not without problems along the way…

The History of Lunchables

• How Lunchables became a 10 year growth engine.

Lunch Combinations Historical Growth Trend

0

100

200

300

400

500

600

700

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Year Ending in March

$MM OM

Category

National Roll Out

End of Year I

Louis Rich Lunch Breaks

Trial Volume Attrition

Lunchables w/Dessert

Fun-Pak (Drink Box)

“Bad Week” Ad Platform Defined

Pizza

Tacos & Nachos

Swirls

Hot Dogs & Hamburgers

Breakfast

Lunchables w/ Spreadable Cheese

Source: A. C. Nielsen

New Product Development Process Key Points

• Introducing new products is a two edge sword.– Big reward, but many times a big risk.– Using the Stage Gate Approach helps manage risk.

• The Stage Gate Approach provides a “road map” for new product development, integrating:– Creativity and innovation – Evaluative Rigor

• It is composed of several stages – some developmental, and some “Stage Gates”

• Determining the consumer target is a key first step.

TargetingAnd Segmentation

• Fundamental Elements of Marketing Positioning:–Target – The Who–Benefit – The When–Frame of Reference – The context – With respect to what–Support - The How

Example of Positioning Statement:To “Time Pressured Moms”…

Hamburger Helper is a great way to get an fresh hot meal onthe table in only a few minutes, that the entire family will love. That is because Hamburger Helper includes all the fixins – just add it to one pound of hamburger, simmer and serve.

Fundamental Importance of Targeting

Ways to Segment Consumers

• Geography – Southeast, Metro areas, etc.

• Demographics – Households with children, Seniors, etc.

• Lifestage – College students, expecting moms

• Behavior – Heavy brand users, competitive brand users

• Attitudes…

Attitudinal Segmentation

Benefits of Attitudinal Segmentation: – The basis for why consumers behave the

way they do – the driving motivation behind behavior.

– Provides the insight to develop effective Marketing programs.

• Products• Services• Advertising

Targets?

HWE2001 Consumer Segments

17%

16%

12%13%14%

14%

14%

Study found seven different types of consumers

Mainstream Nurturing Cooks

Healthy Traditional

Cooks

Healthful ExplorersWeary ProvidersFood On Demand

Mobile Munchers

Traditional Recipients

Excerpts from ADA Conference

Example: Pillsbury How America Eats Study (2000)

How America Eats Food Segment Profiles

Mainstream Nurturing CooksMainstream Nurturing Cooks•• Nurture their family through foodNurture their family through food•• Meal time = quality timeMeal time = quality time•• Good taste is #1 considerationGood taste is #1 consideration•• Want to make the occasion specialWant to make the occasion special

Healthy Traditional CooksHealthy Traditional Cooks•• Also nurtures through foodAlso nurtures through food•• Emphasis is on balanced nutritionEmphasis is on balanced nutrition•• Favor wholesome, traditional foodsFavor wholesome, traditional foods•• Discourage snacking Discourage snacking

Weary ProvidersWeary Providers•• Dinner time is family timeDinner time is family time•• Meals are a balancing act, and stressfulMeals are a balancing act, and stressful•• Prefer easy, quick, familiar foodsPrefer easy, quick, familiar foods•• Tend to cater to kids tastesTend to cater to kids tastes

Each Segment has a distinctly different approach to eating.

Healthful ExplorersHealthful Explorers•• Actively trying to eat healthyActively trying to eat healthy•• Focus on quality/freshnessFocus on quality/freshness•• Creative & Experimental tastesCreative & Experimental tastes•• Frequently too busy to cook, need easily Frequently too busy to cook, need easily

accessible alternativesaccessible alternatives

How America Eats Food Segment Profiles, Continued

Traditional RecipientsTraditional Recipients•• Want good tasting, wholesome traditional foodWant good tasting, wholesome traditional food•• Rely on someone else to prepareRely on someone else to prepare

Mobile Mobile MunchersMunchers•• Busy, active, onBusy, active, on--thethe--gogo•• Meals and snacking blur togetherMeals and snacking blur together•• Looking for portable foodsLooking for portable foods

Food on DemandFood on Demand•• Other activities tend to have a higher priorityOther activities tend to have a higher priority•• Do enjoy foodDo enjoy food•• Food must be easy, accessibleFood must be easy, accessible•• …or not at all.…or not at all.

Each Segment has a distinctly different approach to eating…

HWE2001 Consumer Segments

17%

16%

12%13%14%

14%

14%

Food Segment Summary

Mainstream Nurturing Cooks

Healthy Traditional

Cooks

Healthful ExplorersWeary ProvidersFood On Demand

Mobile Munchers

Traditional Recipients

LoveBalance

FreshCompromiseLater

GrazingCatered

Food Is …

Scratch Pie ala ModeScratch Pie ala Mode Lighter Fruit TartLighter Fruit TartFrozen PieFrozen Pie

Pie to GoPie to Go Good Pie Good Pie -- Any PieAny Pie

Mainstream Mainstream Nurturing CooksNurturing Cooks Healthful ExplorerHealthful ExplorerWeary ProviderWeary Provider

Traditional Traditional RecipientsRecipientsMobile Mobile

MunchersMunchers

More Examples

Weary Providers Mobile Munchers

Healthy Traditional CooksMainstream Nurturing Cooks

Examples

Approaches to Attitudinally Based Market Structure

• Consumer/Customer Segmentation – Identify groupings of consumers with similar attitudes out of a diverse population.

• Need States – Identify product usage situations with similar set of consumer needs. The When

• Affinity Segmentation – Identify groups of consumers with similar degrees of commitment to a brand.

Dinner Need States – The When

Kid Pleasing Dinners Traditional Family Meals Budget Stretchers

Healthful Dinners Time Constrained DinnersQuality Time Dinners

Need State Examples

Affinity Consumer Structure

• Divides consumers up into groupings with varying strengths of commitment to the brand:– Devoted … Staunchly loyal to the brand.– Adopters … Use the brand along with others.– Acceptors … Willing to try the brand, or infrequent user.– Available … Know little or nothing about the brand.– Rejecters … Brand is irrelevant, no intention to try it.

• Identifies the proportion of the volume coming from each group

• Identifies reasons for their commitment level.

Key Points

• Targeting, and rationale is one of the most critical elements in New Product development.

• Targets should have some attitudinal element in order to be effective.

Hint …hint (class project).