International Operations Management

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

2. Global Product Launch • Product Management • New product projects • 13 key activities in a typical new product project • Reasons for new product failures • Product launch strategy • What is an effective product launch strategy • Major considerations • Global product launch • Additional considerations in the global context • Why most product launches fail (with short cases)

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

4. New product Vs. Current product Conceptualizing Sustaining Developing Current Products Commercializing New Products Launching Finalizing Disposing Testing

5. New product projects (NPPs)

6. Global Product Launch • Product Management • New product projects • 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 strategy • Global product launch

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 6th & 7th activities • 6th: Product development • This 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 tests • This is when the new product is tested in-house under controlled or laboratory conditions. • In-house product tests are usually called α tests.

13. 8th & 9th activities • 8th: Customer product tests • In 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 sell • This 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.

14. 10th, 11th, 12th and 13th activities • 10th: Pre-commercialization business analysis • This 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-up • The start-up of full-scaled production/operations. • 12th: Market launch • The official launch of the new product. • 13th: Full scale production

15. Reasons for new product failures • Poor marketing research “A lack of thoroughness in identifying real needs in the marketplace, or in spotting early signs of competitors girding up to take the offensive.” “We decided what our marketplace wanted in this new product without really asking that market what its priorities on.”

16. Reasons for new product failures • 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.

17. Reasons for new product failures • Insufficient marketing effort • Assuming 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.

18. Reasons for new product failures • 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.

19. Global Product Launch • Product Management • New product projects • 13 key activities in a typical new product project • Reasons for new product failures • Product launch strategy • What is an effective product launch strategy • Major considerations • Global product launch • Additional considerations in the global context • Why most product launches fail (with short cases)

20. Product Launch

21. 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.

22. 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.

23. 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.

24. Major considerations in product launch • Logistics and inventory flow of materials from the manufacturer to the end customer • Pay 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.

25. Global Product Launch • Product Management • New product projects • Product launch strategy • What is an effective product launch strategy • Major considerations • Global product launch • Additional considerations in the global context • Why most product launches fail (with short cases) * Part of the slides are written based on the article “Why most product launches fail” by Joan Schneider and Julie Hall.

26. 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.

27. 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.

28. Why most product launches fail • 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.

29. Why most product launches fail • 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.

30. Why most product launches fail • 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.

31. Why most product launches fail • 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.