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How to Improve Success Rate of New Product/Service Commercialization. Krannert School of Management Purdue University October 21, 2009 Tom Wagner (BSIM’67). Presentation Topics. Why this is important? Five marketing illustrations. Five key determinants of commercial success. Summary.

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how to improve success rate of new product service commercialization

How to Improve Success Rate of New Product/Service Commercialization

Krannert School of Management

Purdue University

October 21, 2009

Tom Wagner (BSIM’67)

presentation topics
Presentation Topics
  • Why this is important?
  • Five marketing illustrations.
  • Five key determinants of commercial success.
  • Summary.
  • Take-aways.
the challenge of top line revenue growth in today s economy
The Challenge of Top Line Revenue Growth in Today’s Economy
  • “Investors see little reason to hold stocks. We need to see better revenues and top-line growth” ( Jon Brorson, Director of Equities at Northern Trust)
  • Revenue growth contingent upon economic growth is obsolete.
  • New product/services key to revenue growth.
  • Anyone who pursues a Marketing career will have responsibility for new product/service commercialization.
  • Over 30,000 new products are introduced annually but at least 80% of these fail.
mortality of new product ideas
Mortality of New Product Ideas

Number of Ideas

50

Idea Generation and Screening

Business Analysis

Development

Testing

Commercialization

0

Percentage of Time

Source: Booz, Allen & Hamilton, Inc.

why do new ideas fail
Why Do New Ideas Fail?
  • Fail to offer unique benefit…don’t address what customers really want/need.
  • Underestimate competition
  • Idea good but design problems
  • Product costs more to produce than expected
  • Rush to market without well developed marketing plan
  • Move to slowly
move down the thermoplastic compound value chain
Move Down The Thermoplastic Compound Value Chain

Resin

Injection

Molder

Original

Equipment Mfg.

Compounder

Reinforce-

ment

slide11

New Product/Service Planning Process

Strategic

Emphasis

and

Idea Generation

Incremental or

Innovation

Is it Real?

Can We Win?

Is it Worth It?

Validation

Customer

Needs and

Wants.

Vs. Competition

Strategic

Positioning

Features

Benefits

$ Values

Customer

Value Proposition

Features

Benefits

$ Values

new product service strategic emphasis
New Product/Service Strategic Emphasis
  • The best predictors of success are market knowledge and demand-driven products and services.
  • Winners avoid diversification during downturns…they reinforce the core businesses by focusing resources on playing to win on their main field of competition. Diversification dilutes focus just at the time when focus is critical.
slide13

New Product/Service Strategic Emphasis

Market Development

(Medium Risk)

Diversification

(Major Risk)

Market Development

(Medium Risk)

Diversification

(High Risk)

New

Markets:

Product Development

(Medium Risk)

Market Penetration

(Low Risk)

Existing

Market Penetration

(Minimal Risk)

Existing

New

Products/Services:

auto tire technology status in 1975 goodyear reluctant to invest in radials
Auto Tire Technology Status in 1975Goodyear Reluctant to Invest in Radials

Annual Tire

Demand

Bias Ply Tires

Fiber Glass Belted Bias Tires

Steel Belted Radial Tires

1965

1970

1975

1980

1985

1990

1995

2000

goodyear lost share to radial leader michelin
Goodyear Lost Share to Radial Leader- Michelin

Annual Tire

Demand

1965

1970

1975

1980

1985

1990

1995

2000

u s airline industry
U.S. Airline Industry
  • Typical Incremental Differentiation by Traditional Large Airlines:
    • American, Continental, United, Delta/Northwest, U.S Air had combined $23 billion operating losses in 2008.
  • Southwest Chose Innovative Business Model:
    • Low fares, shorter flights, city-to-city (not hubs), no frills, fastest flight turnaround, only Boeing 737, flexible work rules.
    • Hugh Success…operating Income of $450 million in 2008.
innovation
Innovation
  • “Mankind has already achieved all that it is capable of inventing”
innovation20
Innovation
  • “Mankind has already achieved all that is capable of inventing”
  • Henry J. Elllsworth, Commissioner of the U.S. Patent Office, circa 1900
slide23

Chips Ahoy! 100 Calorie Pack

  • 100 Calorie Packs have 285% retail price premium.
  • Only 3 years after introduction annual sales are $30 million.
  • Operating margin at least 20% greater than traditional product.
don t neglect innovation for the allure of incremental improvements
Don’t Neglect Innovation for the Allure of Incremental Improvements
  • Organizations intuitively tend to add features to an existing product in response to the perceived wants and needs of customers which often results in incremental improvements that have little impact on customers’ buying patterns.
  • Innovation includes: products, service, business models, net-working, etc.
  • Don’t encourage creativity of creativity’s sake; instead encourage creative solutions to real problems. Innovation is good only if its useful.
  • Great ideas are the beginning, not the end, of business innovation.
sources of new ideas
Sources of New Ideas
  • Customers
  • In-house Research and Development
  • Competitive Activities
  • Universities
  • Consultants
  • External Inventors
  • Management
  • Paying Attention to Unexpected Events
customer focus the center of everything marketing does
Customer FocusThe Center of Everything Marketing Does

Product

Price

Customer

Distribution

Promotion

customer focus
Today’s marketers strive to develop unique strategies by finding unsatisfied customers and offering them superior value.

They don’t sell products…capture customers

Hugh $ are spent on market research to understand customer needs..

Yet everyday, new products and services are introduced only to fail dramatically.

Customer Focus
premier commercialization
“Premier” Commercialization
  • “Premier” was intended to reduce or eliminate the unhealthy side effects for both smoker and people around smoker.
  • R.J. Reynolds commercialized in 1988 after devoting several years and approximately $1 billion to develop and commercialize.
  • “Premier” withdrawn 1989 after smokers complained of charcoal-like aftertaste.
rheingold vs miller high life
Rheingold vs. Miller High Life
  • Rheingold Breweries in Brooklyn, NY developed process to remove starch from beer in 1967.
  • Introduced as “Gablinger’s Diet Beer”
  • Advertisements showed a very fat man shoveling spaghetti into his mouth and downing a Gablinger turned off traditional beer drinkers.
miller lite beer success customer focus
Miller Lite Beer SuccessCustomer Focus
  • Most beer is bought by heavy drinkers
  • A beer that ‘fat’ people could drink and not gain as much weight would NOT be received positively by the market.
  • “Show me a man concerned about his waistline and I’ll show you a poor prospect for serious beer drinking.”
  • Customers said they would be interested in a beer that was less filing BUT still tasted great!
  • Miller Brewing acquired the light beer process when it bought assets of Meister Brau.
  • 1972 Miller Lite was launched as “Everything you wanted in a beer… and less”. Some of the most macho football players in U.S. pushed Miller Lite
  • The low calorie beer category has been one of the most successful food and beverage innovations of the past 25 years even though Miller did not invent the technology.
  • Rheingold is no longer in business.
how to learn what customers want improvements to kawasaki jet ski
How to Learn What Customers WantImprovements to Kawasaki Jet Ski
  • What could be done to improve Jet Ski ride?
improvements to kawasaki jet ski
Improvements to Kawasaki Jet Ski
  • What could be done to improve current Jet Ski ?
  • Existing customers asked for more padding on Jet Ski to make standing position more comfortable.
  • Kawasaki responded with several incremental improvements to original design.
  • Kawasaki lost significant share and its #1 leadership position.
voice of customer technique
Voice of Customer Technique

Face-to-Face interview process

Consumers at each step down the value chain.

Needs and wants expressed in customer’s own words and terminology.

Search for ‘Outcomes’

Prioritized by customers.

Responsibility for developing solution rests with supplier, not customer.

slide36

Examples of Probing

  • Tell me more about …
  • Why did that please you ?
  • Why do you believe …..?
  • Why did you select …..?
  • Why is that significant ?
  • Why do you suggest that ……?
  • Why would that be an improvement ?
  • What do you mean by ….?
  • What keeps you awake at night?
  • Why do you buy from us?
  • Please be more specific when you say….
slide37

Organizing and Prioritizing Customer Feedback

  • Eliminate duplication
  • Separate needs and attributes from opinions, solutions, and numerical values
  • Assemble like attributes and return to customers and ask to prioritize
slide38

Pitfalls to Avoid

  • Offer solutions when problems are raised
  • Encourage customer to discuss needs or attributes in terms of our products and services and not theirs
  • Judgmental tone, ie. Why did you do that?
  • “Functional Fixedness” – instead probe for outcomes
  • Imply we are going to fix their problems within weeks
  • Interrupt customer
  • Ask questions without interest and sympathy
  • Poor eye contact
  • Settle for opinions and solutions rather than probe to uncover true needs and attributes
advantages of voc survey technique
Advantages of VOC Survey Technique

Traditional survey methods ask for solutions, but..

Customers have limited frame of reference

“Me Too” solutions offered

Incremental improvements and not bold changes

VOC probes for Outcomes

VOC helps establish Values since there can be a huge gap between what customers want and what they are willing to pay for.

yamaha personal watercraft asked for outcomes
Yamaha Personal Watercraft Asked for ‘Outcomes’
  • Faster learning curve
  • More stability
  • Longer rides without fatigue
  • Multiple riders
personal watercraft using outcomes results in new innovative design
Personal Watercraft – Using ‘Outcomes’ Results in New, Innovative Design
  • Faster learning curve
  • More stability
  • Longer rides without fatigue
  • Multiple riders

Yamaha and Sea-Doo (Bombardier) gained significant share

slide42

New Product/Service Planning Process

Strategic

Emphasis

and

Idea Generation

Incremental or

Innovative

Is It Real?

Is It Worth It?

Can We Win?

Validation

Customer

Needs and

Wants.

Vs. Competition

Strategic

Positioning

Features

Benefits

$ Values

Customer

Value Proposition

Features

Benefits

$ Values

move down the thermoplastic compound value chain43
Move Down The Thermoplastic Compound Value Chain

Resin

Injection

Molder

Original

Equipment Mfg.

Compounder

Reinforce-

ment

validation questions
Validation Questions
  • Is It Real?
    • Market size
    • Customer needs and wants
  • Can We Win?
    • Sustainable competitive advantage
    • Pricing levels
    • Sales projections
  • Is It Worth It?
    • Investment
    • Variable and fixed costs

Pre-tax income

    • Level of risk
    • Corporate return on investment goals
    • Impact on external relationships
    • Management priority vs. other growth opportunities
is it real
Is It Real?
  • Over $200 million sales in U.S. market.
  • Projected growth of 7%/yr due to stiffness and impact strength advantages over other resins.
  • Automotive and Appliance largest uses.
  • None of the current compounders had captive raw material supplies.
  • Automotive and Appliance OEM’s always looking for lower price.
  • Compounding technology well established.
is it worth it
Is It Worth It?
  • Initial investment of $3 million.
  • Projected variable costs of $.60/lb.
  • ROI of 10%, assuming ave. price of $.75/lb
  • Could strain relationships with traditional customers, ie the current compounders.
can we win
Can We Win?
  • Market price not totally defined but uncovered some contracts as low as $.60/lb and likely to proliferate to other molders.
  • Competitive compounders operated very large, highly automated facilities which we were not willing to duplicate.
  • Relationships at automotive and appliance OEM’s BUT not at immediate target customers – molders.
  • Conclusion: Can not win…cancel project
slide48

New Product/Service Planning Process

Strategic

Emphasis

and

Idea Generation

Incremental or

Innovative

Is it Real?

Can We Win?

Is it Worth It?

Validation

Customer Needs

and Wants vs.

Competition

Strategic

Positioning

Features

Benefits

$ Values

Customer

Value Proposition

Features

Benefits

$ Values

segmentation and positioning
Segmentation and Positioning
  • By creatively, segmenting markets, you can spot opportunities.
  • Segmentation is key to target marketing.
  • Positioning refers to how customers think about your proposed brand.
  • Careful positioning can help highlight a unifying theme or benefits that relate to the target market.
  • Positioning ensures that the whole marketing mix is consistent and leads to competitive advantage.
  • With proper positioning, you can convince customers that your offering is unique in the marketplace.
slide51

Italian Tomato Sauce Positioning

Complex, Old World Taste

50%

of Market

Just Heat and

Serve

Extensive

Preparation

Ragu

Simplistic, Tomato Taste

slide52

Campbell Soup Italian Tomato Sauce Positioning

Complex, Old World Taste

Campbell

Soup Goal to

Re-position Old

World Taste

50%

of Market

No Preparation

To Use

Extensive

Preparation

Ragu

Simplistic, Tomato Taste

campbell soup positioning
Campbell Soup Positioning
  • A ready to use sauce with complex, “Old World” taste.
    • Ingredients included diced tomatoes, basil, oregano, garlic, parsley, onion powder not contained in Ragu.
    • Consistent, thicker sauce vs. thin, watery Ragu.
  • Initial “Prego” ad campaign showed skeptical Italian families being won over with the bottled sauce and “It’s in there” tag line.
  • Within several years, Campbell Soup captured 20% of market.
slide54

New Product/Service Planning Process

Strategic

Emphasis

and

Idea Generation

Incremental or

Innovative

Is it Real?

Can We Win?

Is it Worth It?

Validation

Customer

Needs and

Wants.

Vs. Competition

Strategic

Positioning

Features

Benefits

$ Values

Customer

Value Proposition

Features

Benefits

$ Values

slide55

Dollarize ‘Values’

Product and Service Focus

“What do we offer ?”

Features

Benefits

Application Focus

“Why should the customer care ?”

Values in $

Customer Focus

“What is that worth ?”

People buy holes, not drills. The speed at which the holes are drilled, the accuracy of the holes, or the drill’s ability to drill more holes are benefits that can be dollarized

dollarizing
Dollarizing
  • People buy for one of two reasons:
    • To feel good:
      • Intangible vales, ie styles, taste
    • To solve a problem:
      • Avoidance of loss, ie warranty
      • Chance to save cost, grow sales
  • Both the avoidance of loss and the chance for gain can be measured in dollars and cents, or “Dollarized”
  • Dollars and cents are the universal measure used to compare products and services.
dollarizing57
Dollarizing
  • Dollarizing is the act of assessing the differences between your products and competitive products and calculating the financial impact those differences have on your customer.
  • Persuade customers to focus on total costs rather than simply on acquisition price.
  • You must have accurate understanding of what its customers value and what their current costs are.
dollarizing58
Dollarizing
  • Most often the seller is reduced to fighting a price battle because he does not know precisely what his benefit means to the customer or does not know how to translate benefits into dollars and cents.
  • Claiming “lasts longer”, “best quality”, “faster” are over used and ineffective.
  • A seller who can articulate the impact on the customer’s business financial performance will nearly always prevail.
w w grainger dollarizing with pharma labs
W.W. Grainger Dollarizing with Pharma Labs
  • Early 1990’s Grainger Consulting Services was formed to help customers understand total cost of MRO supply management.
  • In 1997 GCS initiated baseline assessment to document in-house MRO management and Pharma Labs agreed to pay GCS $45,000 for this service.
  • GCS showed Pharma Labs how they could reduce following MRO costs:
    • $165,000 through supplier consolidation
    • $ 72,000 in inventory reduction
    • $ 90,000 in lab technician involvement
  • Grainger increased sales to Pharma Labs 7 times.
slide61

Summary

Strategic

Emphasis

and

Idea Generation

Voice of Customer:

Premier Cigarettes

Sea-Doo

Innovation:

Radial Tires

Miller Lite

Southwest

Thermoplastic

Compound

Validation

Thermoplastic

Compound

Strategic

Positioning

Prego vs. Ragu

Dollarizing:

W.W. Grainger

Customer

Value Proposition

take aways
Take-Aways
  • Success of New Product/Service is critical to the growth and sustainability of your business.
  • Don’t settle for incremental ideas but strive for innovations.
  • Uncover and focus on customer “outcomes”
  • Constantly evaluate ideas in terms of: Is it Real, Is it Worth It, and Can We Win before commercializing.
  • Position consistent with desired “outcomes” and voids in competitive offerings.
  • Market “values” and dollarize when possible.
  • New Product/Service commercialization is a continuous process.