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New Products are Critical for Growth

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  1. 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

  2. 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)

  3. Most Companies Lose Money on New Products Launch 10 new products @ $15 MM = $150 Millions Expected 2.25 to be winners @ $50 MM contribution over 3 years = $113 Millions Net loss = $37 Assunption: Sales > $25MM =>50 MM contribution over three years

  4. Very Few Brands are “Mega” Succeses 2 Year Sales $ Millions Source:IRI New Product Success Story

  5. 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

  6. What is a product? Augmented product Actual product Core product

  7. 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

  8. Product Mix:Procter and Gamble PRODUCT-MIX WIDTH PRODUCT LINE LENGTH

  9. What is a New Product? ?????

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

  11. What drives a sustainable advantage? • Customer benefits • Unique • Sustainable • Profitable

  12. How does a market grow? Increase awareness Convert non users Incentive purchase Geographic Create new segments Market Growth New channels New users Greater revenues from existing consumers Heavier or more frequent Trading up

  13. New Product development process (1) 1. Opportunity identification 2. Design 3. Testing 4. Introduction 5.Life-cycle management

  14. Opportunity Identification Market definition Idea generation Go No Design Customer needs, Sales forecasting, Engineering Positioning, Segmentation, Marketing Mix Go No Testing Advertising and product testing Pretest and prelaunch forecasting Go Introduction Launch planning Tracking the launch No Go Life cycle management Market Response Analysis Competitive monitoring and defence Reposition Harvest

  15. Adoption Process • Awareness • Interest • Evaluation • Trial • Adoption

  16. Influence of Product Characteristics on Rate of Adoption • Relative advantage • Compatibility • Complexity • Divisibility • Communicability

  17. 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

  18. Innovate Constantly The Boeing Product Line 600 400 300 300 Avanzamenti 100 737 747 757 767 777 Migrations

  19. Decision model for Determining Response to a New Entrant no Is a Response Appropriate? Ignore si How Aggressive Should the Response Be? Retaliate in the Same Product Market Abbandon the Market Accomodate the New Entrant What should be the domain of the Response? Respond in a Different Produc tMarket Respond in the Same Product Market What marketing initiative should be taken?

  20. When to Enter? • PioneerFollowers • - Consumer learning Free raiding • - Switching costs Minore incertezza • Access to customers • Experience effect • Preemption of scarse resources • Minesota vs P&G Starbucks • IBM

  21. Product Life cycle Phases: -Introduction -Growth -Maturity -Decline Product category, product form, branded product

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

  23. Growth stage • Process innovation • New market segments • New Distribution channels • Price decline

  24. Market awareness of new products over time 100% Launch Time

  25. When to Eliminate a Product? NeXT desktop computers. Introduced in 1988, the product was shipped until 1993 despite Poor market performace. Over this period NeXT eroded $ 200 Million in investment funds.

  26. 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

  27. How to brand a product? Tide, Bold, Daz ; Go, BA Individual Kellogg, Kraft Overall Family Ajax, Colgate-Palmolive Line Family Kit Kat Ice cream Brand Extensions

  28. How to create successful brands? • Prioritise quality • Being first • Unique positioning concept • Strong communication programme • Time and consistency

  29. What Have we Learnt ? • Innovation and New Product Development is critical • for growth • Products must be managed dynamically • Brands do make things different