MARKETING MATERIAL

9072 – Marketing Practice 12 New Products

Chapter 12

NEW PRODUCTS 

Before coming to grips with new products strategy you must first put it in perspective. In particular, you must put behind you some of the myths which stand in for theory in this field. Much as the stereotype of the salesman which would have us believe that success comes from a concentration on new prospects rather than by supporting existing customers, so a number of these marketing myths would have us believe that the future lies only in developing new products and not through investment in existing ones.

PRODUCT LIFECYCLE

One possible reason for this is that the concept of the 'life-cycle', which was discussed in Chapter 3,  has become a very important element of marketing theory. As a result, it is incorporated as a basic assumption in many other theories, including, those relating to new product introduction. Not least, it is now accepted as a basic fact of life by many managers; and fuels the drive for change (especially in terms of new product launches) in as many markets. I would remind you, though, that its supposed universal applicability is largely a myth - but it does have most applicability in terms of new products.

introductory stage

At this first stage of a product's life, the supplier can choose from a number of strategies; but in essence these range from 'penetration', where the supplier invests (typically in terms of promotion; but possibly by a low price - which is discussed later in the section on pricing) to gain the maximum share of a new market, through to 'skimming', where the maximum short term profit is derived (typically by a high price; justified in terms of the uniqueness of the new product or service) from the 'innovation', before others cash-in on the new market.

growth stage

By the beginning of this stage customers have become aware of the product or service and its benefits. Accordingly, usage is growing, often rapidly. More people want it, and want to use more of it. During this stage, the suppliers often have to increase the capacity of their plant and run promotional campaigns to consolidate and extend their share of the new market. In the process they frequently make substantial investments, which usually absorb what profit is being made; so that this part of the life-cycle is not normally expected to be a profit generator - and may even demand further net investment.

In recent years, another feature of this phase has been the battle for distribution; where, in particular, there has been a concentration of retail distribution into the hands of a few major operators, especially those running supermarkets. It is vital to the success of a brand to obtain the widest possible distribution, so there will probably be much energy expended on negotiations with these key players.

maturity

No market or market can grow forever; and eventually all the significant, potential uses will have been developed. The sales curve will flatten, and the market or product will have reached maturity.

The majority of products or services currently in the market place are at this stage, and, as we have seen, much of the theory and practice of marketing revolves around this 'steady state'.

decline stage

Eventually the whole market may decline or other newer products may be introduced which are themselves a substitute for the established product. The product or service thus goes into a terminal decline - though this decline can last for years. This is the stage where uncritical use of the PLC causes the most problems; for the PLC implies that you should constantly look for the onset of the decline phase, so that you may change your strategy to take account of this. As we have seen earlier, however, the rule, for successful brands, is longevity rather than imminent decline. The effect of the PLC may, therefore, be to persuade the manager to see an short-term dip as a long-term decline; resulting in the onset of an inappropriate milking strategy - and premature withdrawal!

Thus, the problem is that, again as we saw earlier, this model does not reflect reality.

THE MAIN REASON FOR DESCRIBING IT, THEREFORE, IS TO WARN YOU NOT TO USE IT. IT IS PROBABLY THE MOST WIDELY KNOWN THEORY IN MARKETING, AND (WITH ITS USE OF THE ANALOGY OF THE HUMAN LIFE CYCLE) THE MOST SEDUCTIVE ONE. BUT MANY LEADING MARKETERS NOW RECOGNISE THAT IT CAN EASILY GIVE THE WRONG SIGNALS!

On the other hand, the first two stages do to a degree reflect reality (and are especially relevant to new product development - though the logistic curve described later offers a better model). In addition, in one sense these myths do serve one useful purpose; for they emphasise the basic need to keep abreast of changing customer requirements. In another sense, however, they distort reality - for the 'new product' of these myths is typically the new to the world discovery, usually creating a new market.

The practice of new product development is rather different. Our research shows that, in the United Kingdom at least, almost two thirds of organisations put less than 10% of their total new product development effort into 'new products in new markets'. The bread and butter of new product development is, much more prosaically, 'existing products development' on which two thirds of organisations reported that they spent more than 20% of their development effort (the greatest share recorded by any category we looked at).

This emphasis on the further development of existing products is fully justified when you look at the results of our research into the long-term record of brand leaders in the UK FMCG market[1]. The most immediately obvious result from this analysis is the dominance of the brand leaders. The first three brands on (unweighted) average took 82% of the 'most used' penetration in 1969 and 72% in 1989. The first brands by themselves took 46% in 1969 and 39% in 1989. A reflection - perhaps - of the value of the brand name, and/or of the (resulting) domination by the well-resourced large corporations, is the fact that no less than 99 of the brands appeared in two or more markets/segments; between them providing almost half of the total number of products in the leading (first to third) positions. 

Perhaps the most significant outcome, however, was the length of brand life. The majority (53%) of the 150 brand leaders in 1969 remained the brand leaders in their respective markets/segments in 1989. Indeed, of the 451 brands holding the first three positions in 1969 (and accounting for 82% of 'most used' penetration) 91% were still alive two decades later - and 68% remained in fourth place or better!  

There were just 19 totally new brands which (from this list of 150 markets) reached the brand leader position in the twenty years to 1989 - a period when there was intense new product activity in these FMCG markets. Though there were relatively few brands involved there is some anecdotal evidence, judged subjectively, of factors which might be observed during the introduction and growth stages of the life cycle. Almost all of these 19 totally new brands reaching the position of brand leader by 1989 appeared to incorporate a significant degree of new technology; for example Duracell offering longer-life batteries or Gillette Aerosol Shaving Foam replacing cream products. Some of this was also, though, in the form of new formulations to match changed consumer tastes (with Heinz slimming soups replacing biscuit products) or even of image (with the more exotic L'Oreal replacing the relatively mundane Amami as a hair setting product). 

On the other hand, the power of existing brand names was also reflected in the fact that existing, 'extended', brands took first place in 60% of the new markets/segments added between 1969 and 1989. 

The first requirement in deciding your new product strategy is, therefore, that you decide just what category of 'new product development' you are to undertake. It should be clear to you by now that in almost all cases the priority should be given to development of EXISTING products. It is this category that I will, accordingly, address first. 

DEVELOPMENT OF EXISTING PRODUCTS 

In most markets customer requirements change over time, perhaps due to social (or fashion) factors or - perhaps more likely - to technological changes in the market. These changes may be relatively slow for long-established brands or very rapid for some fashion products. It is imperative, therefore, that you develop your existing products in line with these changing requirements. This is just as true for long-established brands as new ones, though - because the changes are slow - there is a danger that these new requirements are overlooked. If you do not develop existing brands in a regular, and rigorous, manner you may find yourself the victim of 'Position Drift'.

POSITION DRIFT 

You will remember the positioning map which was the key element behind our approach to product/service strategies;

 You will also remember that you should use this map to position your brand as close to the ideal as is possible for the segment(s) you wish to address (and hopefully dominate). The problem is that this shows only a static picture. Over time 'position drift' can significantly change the picture. This may come about for three main reasons;

1) CONSUMER DRIFT

As consumer tastes change the segment (cluster) which contains them will shift its position. Its centre of gravity will move - and is size may change as consumers switch to other, perhaps newer, segments.

The position of your brand relative to the ideal position, within this cluster, will reflect this drift.

2) COMPETITOR DRIFT

Alternatively, your competitors may shift their positions - so that your own relative position, your competitive advantage, may become less than optimal.

This may pose a particular problem if you are trying to target several segments with just one brand, since any move to respond to a competitive threat in one segment may leave the rest of the segments exposed.

3) EGO DRIFT

Perhaps the most prevalent drift of all, however, occurs where 'brand managers' (or their advertising agencies) gratuitously reposition their own brand in a less optimal location. This is usually justified on the basis that consumers are bored with the existing messages, and an exciting new approach is needed. The real reason often is that members of the management team, frequently persuaded by an agency creative team itching to make their own distinctive mark, are themselves bored.

The biggest problem caused by drift, of any of these types, is that it usually occurs so slowly that it is not noticed by the brand manager - in the timescales that he or she works to the changes are imperceptible. It is for this reason that: 

It is likely, therefore, that most product/service packages will need to be redeveloped, from time to time, to compensate for this drift.  

In the 'rational' approach to strategy this repositioning takes place as part of the planning process - typically on an annual basis. The stages of this are well known. A good summary of this approach was outlined by Argenti[2]:

1. TARGET         -clarify corporate objectives

SETTING            -set target levels of objectives                                                                                   

2. GAP                 -forecast future performance on  current strategies

ANALYSIS         -identify gaps between forecasts and targets                                                                   

3. STRATEGIC   - external (environmental) and internal appraisal

APPRAISAL       -identify corporate advantage

                            -redefine targets in light of stage 3 information                                                                                   

4. STRATEGY    -generate strategic options

FORMULATION   -evaluate strategic options                                       (against targets and internal/external appraisals)

                                -take strategic decision

5. STRATEGY                                                           

IMPLEMENTATION    -draw up action plans and budgets

                                        -monitor and control 

Such rational planning does have an important place in the strategy process; and we will return to this at the end of the book.  

Rational, once a year, decision-making is, however, the exception rather than the rule - though it provides most of the content of traditional management text books. The reality is that much of strategy is set by small decisions taken, as the need arises, through the year. These small decisions then  accumulate to dictate the overall strategy when this comes to be formalised, in written form, at the end of the year. 

The result is the 'logical incrementalism' described by Quinn[3]. As described by him, though, this incremental approach to setting strategy has other implications: 

 In more detail, these stages are:

 1. Scanning - since the trigger for the incremental change in strategy is a change in the environment, this approach is very dependent upon sensing the signals which indicate such changes in the environment - hence the rigorous approach to environmental analysis needed. 

2 Information Networks - a consequent requirement is that managers build the widest possible networks (of human contacts not just computers) to obtain the input which will tell them what is happening in their environment and, more important, to help them sense when change is likely to be needed - the human neural network is a very good analogy for this. 

3. Generation of Alternatives- it might seem that incrementalism would imply instant decisions: 'shooting from the hip'. Yet a key requirement, observed by successful managers, is that they develop a range of alternative solutions which they then think through, often a length, with their colleagues before committing themselves to any one approach. 

4. Building Credibility - having taken the personal decision, this may be started - by CEOs for instance - by making symbolic moves (by, say, a very public commitment to a new philosophy). It is often accompanied by moves to legitimise new viewpoints -  for example by setting up workshops (or retreats)  to talk through the issues; preferably off site, so that they are not interrupted (but also so that they are symbolically divorced from the present work). 

5. Tactical Moves - even then, the changes may first be introduced as (experimental) tactics rather than strategy - this is where incrementalism can be used to bypass opposition which might otherwise emerge against a formal announcement of the change in strategy. 

6. Political Support - these new moves will still, though, require the building of political coalitions if they are to be sustained; committees and task forces are favourite devices for developing such support. At the same time opposition will need to be neutralised. 

7. Creating Commitment - when the strategy is finally in place then it is necessary to actively build commitment to it throughout the organisation.

The importance of this concept emerges in two contexts. The first is that managers moving into the rational phase of the annual planning process need to be aware of the limitations posed by the legacy of incremental decisions which have built up since the last annual exercise.  

The second is that an understanding of this process helps you put such incremental decision-making in perspective. Most important of all, it alerts you to the fact that it is happening - all the time. 

Taking the example of positioning, as and when position drift is detected the wise brand manager will react immediately; he or she will recognise that such response cannot wait for the annual plan. If they understand the implications of logical incrementalism, however, they will inject some of the rational thinking which is supposed to lie at the heart of the annual planning process - the key to logical incrementalism is, indeed, that it is a logical process. In this way it can be just as rational as the traditional process. It is not the same as the random decision-making which infects many organisations. Because it recognises the reality that decisions are driven by real events rather than a theoretical planning process, it may indeed be rather more effective.

One of the hidden implications of the above processes, which reflects my own experiences of much of such decision-making (and is supported by significant amounts of research data), is that making of strategy is a much more diffused process than most managers think. One aspect which is most often stressed in relation to logical incrementalism is that of timing - the decisions take place almost randomly throughout the year rather than tidily during the annual planning process.

A less obvious implication still is that the process is not limited to senior management alone, as traditional theory would suggest. In practice, the process is spread through a number of layers of management - with different degrees of involvement depending upon what particular incremental aspect of strategy is under review. This has major implications for managers throughout the organisation, who before probably did not realise just how important was their contribution.

This wider involvement is formalised in Japanese corporations:

This takes the form of signing a ringi - a document detailing the decision. All those affected by the decision have to agree that they support the decision,  by adding their signature to the ringi,  before the decision can receive approval.  

A somewhat similar process may be seen in some Western organisations where approval of ('sign-off by') key departments must be obtained before certain types of decision are approved. The important differences in Japan are that all significant decisions are handled in this way, and that all the managers (at least) affected have to sign the ringi. Thus, where in the West the sign-off process might involve five or six signatures at most, in Japan it will typically require fifty or more signatures.

This may seem an unduly lengthy process, and indeed it does usually take longer than in the West - though, having been through the process many times, obtaining the signatures of many of  the managers more peripherally involved becomes almost a formality (albeit an important one).

The gain is in commitment. Where Western decisions are the start of building the necessary commitment to deliver the effective implementation, the Japanese have already covered this stage. As a result their implementation phase is usually much shorter than in the West; and, as the implementation phase is normally far longer than the decision-making one, in terms of the overall process they make significant gains in time. Perhaps even more important, it forces them to gain active commitment from all involved, where the Western equivalent may just demand grudging commitment - with all the implications for effective implementation that implies.

This, then addresses the commitment on the wider scale, but at the other extreme there is also another, individual, commitment which is often needed: 

The pressures applied by such a champion, using all the stages described earlier, may result in a decision going against the odds and, more important, being more effectively implemented than an equivalent one emerging from an anonymous consensus.

This is most often described in terms of the 'product champion' - the manager who pushes for his or her pet product. This has its negative aspects, since it may lead to non-viable products being launched (the Concorde airliner was a classic example of this), but effective management control by senior management (especially if there is a Ringi system in place,  should be able to resist such obvious no-hopers. The positive aspect is that many, if not most, of the great product breakthroughs (and strategic breakthroughs) can be traced back to one individual champion.

One outcome of this requirement, therefore, is the need to find such a product champion. Fortunately, it is usually possible to find someone in the organisation who has a strong interest (for reasons of self-advancement if no other) who can be persuaded to take on at least part of the role. A more important corollary is that you should never neglect an existing product champion unless he or she poses impossible problems. Such enthusiasm is rare, and is a valuable commodity which no organisation can afford to throw away.

Even though logical incrementalism is very different to the traditionally described theory it is still a very rational approach to management; and one where the manager is still very much in control. Although this is much closer to reality than traditional theory it still neglects one very important aspect; which is that a considerable amount of strategy emerges as a result of  unpredictable changes in the environment rather than from rational control by management. This emergent strategy means that managers are forced to follow courses of action which they had not planned.

EMERGENT STRATEGY

This is most clearly illustrated by a diagram;

This diagram very clearly shows how the intended strategy, decided upon traditionally or incrementally, is overtaken by events in two main ways. One, which will probably be recognised by the organisation is that of unrealised strategy, where it proves impossible to implement the chosen strategy in practice.

Less obvious is the emergent strategy which is decided by events in the external environment; and, thus, forced upon the organisation. This may not necessarily be recognised, in its totality, by the organisation - since many of its implications may be hidden. As markets become more complex, however, such emergent strategies are becoming more common.

Many organisations see both these processes in terms of failure - they have been forced, usually by unpredictable events, to abandon their own strategy. There is, accordingly, a tendency for these unwelcome facts to be ignored until they are so obvious that they cannot be avoided. This is a major error. Such deviations must be recognised (probably through one or other form of environmental analysis coupled with networking) as soon as possible- so that the organisation can react in good time.

A much more powerful approach is, though, to be proactive; so seize upon these deviations as the basis for future developments. What needs to be recognised is that:

where even successful deliberate strategies may not ideally match market needs but may achieve their targets by sheer force (especially where conviction marketing lies behind them). emergent strategies are, thus, likely to be vigorous ones.

There are two main approaches to capitalising on such emergent strategies. The first of these, favoured in the West, is the umbrella strategy. This is a form of very positive delegation, in that the overall strategies, the umbrella, are very general in nature - and allow the lower level managers, who are closest to the external environment, the freedom to react to these changes.

A much more direct, and hence even more powerful, approach is that favoured by the Japanese corporations. they integrate emergent strategies with their own. indeed it is arguable that, in terms of marketing, to a large extent they use emergent strategies instead of their own deliberate strategies. This is evidenced as much by an attitude of mind as by any other feature. They deliberately go out to look for symptoms of such emergent trends which can be detected in the performance of their own products. More than that, though, they often deliberately launch a range of products rather than a single one to see which is most successful. It is almost as if they deliberately seek out the emergent strategies by offering the best environment for them to develop - the very reverse of the Western approach which seeks to avoid them! The Japanese then go on to build on these emergent strategies with a number of very effective tools - most of which are designed to overcome the major problem which accompanies emergent strategies, that they emerge on the scene much later than deliberate ones (and are likely to be visible to all the competitors at the same time) so that TIME is the essence. Thus, time management techniques (including parallel development along with flexible manufacturing and JIT) which have been developed by the Japanese offer them a significant competitive advantage in handling such emergent strategies.

It is forced to rethink its complete strategic position from this new viewpoint. It is most obvious in the field of science (and indeed the term 'paradigm shift' was coined by Thomas Kuhn to describe the dramatic changes which take place in science when a new set of theories, the new paradigm, supersedes the old set).

The important implication of this theory is that a paradigm shift is a discontinuous process (rather like catastrophe theory). There is no gentle move from one viewpoint to the other taking place over a lengthy period. Instead there is a nearly instantaneous, almost violent, shift from one to the other.

The reason for this is the investment (in terms of management commitment) in the previous paradigm.

a) Blindness - most basic of all, they simply will not see them, or will persuade themselves that they do not apply to their own position (thus the British motorcycle industry convinced itself that the Japanese were only making small bikes, which was a different market and no threat to themselves!).

b) Misinterpretation - or the signals may be forced to fit the existing paradigm.

c) Opposition - but, if the signals are too obvious to ignore, then the management may fight it by a number of means. These may include calling on the basic philosophies of the organisation (the new paradigm is a 'heresy'), developing highly political defences within the organisation against them and/or partially assimilating those elements which can be accepted by the existing paradigm.

The above tools may represent stages which take place before the new paradigm overpowers the old. Assuming its overthrow is inevitable these delays in recognition may be very damaging, and are often fatal. Even if the new paradigm is eventually accepted, there is likely to be, as shown in the diagram below, a period of 'paradigm dissonance' when the organisation is demoralised and its confidence sapped.

Unfreezing an organisation which is caught in such a trap is not an easy task. It may involve political moves to encourage dissent, particularly by more junior managers, but it often requires a very strong lead from the CEO - and often the appointment of outsider (and a charismatic one) to provide this new lead.

The paradigm freezes everyone in the organisation. Groupthink is a related process which only applies to a group of managers; though, as these are often the executive team, it may be difficult to separate the effects of the two.

Based upon his research into the 'Bay of Pigs' adventure by President Kennedy, Irving Janis[4] derived a number of symptoms which may be detected when groupthink is taking place;

The first group of these relates to how they choose to see the outside world, and may be similar to those involved in a paradigm shift:

a) Invulnerability - excessive optimism about their (illusory) position

b) Blindness - collective avoidance (rationalisation) of unwanted warnings

c) Moral Superiority - unquestioned (but unwarranted) belief in their ethical position

d) Stereotyped Enemies - black and white, good versus evil

The remainder, however, relate to how the group (and individuals within the group) organises itself to combat these 'enemies':

e) Pressure - on any group member who dissents

f) Self-Censorship - of anything which deviates from the group consensus

g) Unanimity - an illusion that there is no possible dissent within the group

h) Mindguards - some members of the group may set themselves up to police the rest

The key impact of groupthink is the extent it divorces the group from reality. Once you have seen it in action, which fortunately is rare (in terms of a full manifestation), you will probably never forget this almost manic abandonment of reality (and the accompanying damage to the organisation) - but lesser manifestations can be seen in more humdrum management situations (the well known 'yes-men' syndrome can have similar effects).

To put all of the above theories into a more practical, or at least simpler, light: marketing simply requires you to adopt the most realistic view of the world around you - keeping your eyes open to all the changes which are happening. These changes may relate to what is happening with your customers, or with your competitors, or in the wider external environment - but you need to incrementally create common-sense strategies which take account of them, in order to ensure that the investment in your product/service package(s) is protected and developed.

In general, therefore, the thrust of development for existing products should be clear - especially if you are fortunate to own one of the market leaders. If, however, you are dissatisfied with your position, and are willing to consider the investment - probably a very substantial one - needed to improve that position, then you may wish to employ gap analysis as a tool:

GAP ANALYSIS

This represents a very crude approach to gap analysis - but one which has a degree of immediacy for many companies. The bottom line shows what the profits are forecast to be, for the organisation as a whole. The upper  line shows where the organisation, and in particular its shareholders, want to be; and, almost inevitably, that will require an ascending line, implying growth in profit - success demands as much! The shaded area, between these lines, represents what is often also called the 'planning gap'; and this shows what is needed of new activities in general and of 'new products' in particular.

In 'gap analysis' this gap is seen to come from four main causes;

USAGE GAP

DISTRIBUTION GAP

'PRODUCT' GAP

COMPETITIVE GAP

The relationship between these is best illustrated by the following bar chart;

USAGE GAP

This is the gap between the total potential for the market and the actual current usage by all the consumers in the market. Clearly there are two figures needed for this calculation;

Market Potential - the most difficult estimate to make is probably that of the total potential available to the whole market, including all segments covered by all competitive brands. It is often achieved by determining the maximum potential individual usage, and extrapolating this by the maximum number of potential consumers. This is inevitably a judgement rather than a scientific extrapolation.

Existing (Market) Usage - the existing usage by consumers makes up the total current market; from which market shares are, for example, calculated. It is usually derived from market research, most accurately from panel research such as that undertaken by AC Nielsen but also from ad-hoc work. Sometimes it may be available from figures collected by government departments or industry bodies.

The usage gap is thus;

                                USAGE GAP = MARKET POTENTIAL - EXISTING USAGE

This is an important calculation to make. Many, if not most marketers, accept the existing market size, suitably projected over the timescales of their forecasts, as the boundary for their expansion plans. Although this is often the most realistic assumption, it may sometimes impose an unnecessary limitation on their horizons.

This 'usage gap' is most important for the brand leaders. If any of these have a significant share of the whole market, say in excess of 30%, it may become worthwhile for them to invest in expanding the total market.

All other 'gaps' relate to the difference between the organisations existing sales (its market share) and the total sales of the market as a whole. This difference is the share held by competitors. These 'gaps' will, therefore, relate to competitive activity.

DISTRIBUTION GAP

The second level of 'gap' is that posed by the limits on the distribution of the product or service. If it is limited to certain geographical regions, as some draught beers still are, it cannot expect to make sales in other regions. At the other end of the spectrum, the multinationals may take this to the extremes of globalization; where no part of the globe can avoid exposure to their products. Equally, if the product is limited to certain outlets, as some categories of widely advertised drugs are limited by law to pharmacies, then other outlets will not be able to sell them. More likely, perhaps, is that not being the market leader a brand will find its overall percentage of distribution limited. The remedy for this is simply to maximise distribution! Unfortunately, that is not quite as easy as it sounds, except for the obvious market leaders.

PRODUCT (OR SERVICE) GAP

This could also be described as the segment or positioning gap. It represents that part of the market from which the individual organisation is excluded because of product or service characteristics. This may have come about because the market has been segmented, and the organisation does not have offerings in some segments, or it may be because the positioning of its offering effectively excludes it from certain groups of potential consumers, because there are competitive offerings much better placed in relation to these groups. This segmentation may well be the result of deliberate policy. As we have already seen, segmentation and positioning are very powerful marketing techniques; but the trade-off, to be set against the improved focus, is that some parts of the market may effectively be put beyond reach. On the other hand, it may frequently be by default; the organisation has not thought about its positioning, and has simply let its offerings 'drift' to where they now are.

This is probably the main 'gap' where the organisation can have a productive input; and hence the emphasis on the importance of correct positioning in the earlier chapter.

COMPETITIVE GAP

What is left represents the gap resulting from your competitive performance. This is the share of business achieved amongst the similar products, sold in the same market segment, and with similar distribution patterns; or at least, in any comparison, after such effects have been discounted.

It represents the effects of factors such as price and promotion; in terms of both the absolute level and the effectiveness of its messages. It is what marketing is popularly supposed to be about. But, as we have already seen, the product or service itself will still be the prime focus of marketing activity.

Gap Analysis should be uses as a tool to help you examine as thoroughly and objectively as possible your current marketing position and the strategies which you could follow, to improve it. It offers a starting point for developing fresh product/market strategies and alerts you to the need for developing new and improved products.

In the type of analysis described above, gaps in the product range are looked for. Another perspective (essentially taking the 'product gap' to its logical conclusion) is to look for gaps in the market (in a variation on 'product positioning', using the multi-dimensional 'mapping' described in the earlier chapter) which the company could profitably address, regardless of where its current products stand. This is called Market Gap Analysis

Many marketers would, however, question the practical worth of (theoretical) gap analysis. As with most management techniques it has too often been oversold by its supporters.  Instead these practising managers would adopt a more pragmatic approach to development. They would, for instance, immediately start to 'proactively' pursue a search for a competitive advantage!

This approach is most obvious in those industrial markets where some customers naturally undertake a substantial share of application development; that is the work on the uses to which the product or service is put. Sound development strategy in these cases may simply be based upon observing what these customers are doing, and selecting the best solution(s) which emerge - and then translating them to the wider customer set. In the process the required changes to the product or service itself may also emerge - inherent in the demands posed by these new applications.

The same principle can as successfully be applied to consumer products; after all that is what much of marketing research aims to achieve. On the other hand, as for example practised by the Japanese, it can be approached more simply - and directly - and hence much better understood, intuitively, by the manager. Thus, the Japanese take enormous pains to find out what changes their customers want. Often they launch multiple versions of the product or service; the ultimate test of consumer taste - those which sell best represent the customers voting with their wallets. On the other hand, they are fortunate (or wise) in having a Japanese public educated to try the many new products brought to market.

Any major new change they introduce must be taken seriously, and immediately evaluated to see if it is a genuine threat to the (position of) the brand. At the same time, where time is the essence of such competition, contingency plans must be prepared (and development work on a response begun).

The main point to remember is that a brand/market leader with a strong position rarely loses that position to even a serious threat - just so long as it delivers an effective counter (usually by imitation) fast enough.

Creative imitation, though, can offer wider benefits. Many ideas can be productively transferred from other fields of human activity.

It is true to say that the seeds of major innovations can usually be seen a number of years (or even decades) ahead. The scientific breakthroughs which lead to new technologies normally follow this rule; but so also do the changes in lifestyles which lead to new consumer demands.

thus leapfrogging it. The Japanese have managed to turn this almost into an art-form, by their mastery of time management in the field of product development. In part this comes from the practices which they have built up in their manufacturing systems - which stress time (JIT, for example) as much as flexibility. What is not appreciated, however, is that these are not production techniques in the Western sense, but are an outcome of many years of training their workforce to apply such approaches. Despite those 'experts' who would promise to instantaneously provide you with these secrets, you would be wise to assume that they take decades (as they did at Toyota), rather than a matter of days, to become effective.

The communications which lie at the heart of these processes are often aided, in the case of product development, by siting the developers in the plant. This may reduce the productivity of the developers, at the early stages, by a notch or two, but it vastly improves the implementation stage - where (as we have seen earlier) the Japanese gain nearly all their advantage.

In the area of product development, however, the Japanese use another technique - parallel development. Western organisations complete one stage of development before they start the next; because they believe, quite correctly, that otherwise development effort may be wasted (as each stage sets unexpected requirements for the next). The Japanese recognise this inefficiency, but believe that the benefit gained, which is a much faster overall development process (with overlap of stages still giving faster times, despite some of the work having to be redone), far outweighs the extra costs - since it gives them market leadership. It should also be noted, however, that more recently some Japanese corporations (Toyota among them) have been reducing the amount of parallel work - because it had become too expensive.

Existing market leaders may take this process a stage further, by having TWO development teams working in parallel. While one is implementing the last stages of the next generation the other is working on the earlier stages of the next generation but one:

If you must indulge in totally new product development - and to be fair a proportion of such new products do enjoy dramatic success (albeit a low percentage of them, far lower than most product developers admit even to themselves) - then there are a number of factors you should address.

Thus, in general there are said to be four basic product strategies for growth in volume and profit (which is what shareholders conventionally demand);

These alternatives were originally, and best, described by Igor Ansoff[5]; and were subsequently developed as the well-known 'Ansoff Matrix';

The most frequently used strategy is, as we have already seen, to take the existing product (or service) in the existing market and try to obtain improved 'penetration' (or more accurately an increased share) of that market. There are two ways this can be achieved;

Increasing sales to existing customers

Finding new customers in the same market

In general, the former means persuading users to use more. This may be achieved by motivating them to use it on more occasions, perhaps by replacing an indirect competitor; inducing, for example, a household to eat beans on toast an extra time each week, instead of fish fingers. It may, on the other hand, simply be to use the product more often without any need to take business from competitors; as Unilever used Timotei to promote the more regular shampooing of hair. Possibly it may be to use more each time; promotions offering '30% more free' may have, as one objective, the intention of persuading customers to get into the habit of using more - two spoonfuls of baked beans on their slice of toast rather than one.

The second category almost invariably relates to taking business directly from competitors, increasing both penetration and market share.

As such 'penetration' is the main objective of much of marketing, almost any of the relevant techniques can be brought into play. Product performance may be improved, Price may be reduced, Distribution may be extended, Promotion may be increased or the marketing mix as a whole may be restructured. All of these, singly or in combination, could be used to improve 'penetration'.

PRODUCT (or service) DEVELOPMENT

This approach, which most closely matches what is thought of as new product development, involves a relatively major modification of the product or service (which will, though, continue to be sold through the same distribution channels to the same general markets);in terms of factors such as quality, style, performance, variety and so on. To be most effective, such developments should extend the 'product' into a new segment, or to a new competitive position in relation to the clusters of consumers.

MARKET (EXTENSION) DEVELOPMENT

This involves finding new uses for the existing product or service, thereby taking it into entirely new markets; such as Apple did in persuading customers to use its PCs for 'desk-top-publishing'. Alternatively it may be achieved by moving into other countries; most export operations can be viewed as 'market extensions' in this context.

DIVERSIFICATION

This involves a quantum leap, to a new product and a new market. It consequently involves more risk, and is more normally undertaken by organisations which find themselves in markets which have limited, often declining, potential. One obvious example was the tobacco companies which diversified, often at considerable cost, into areas as diverse as cosmetics and engineering - because they could clearly see the limitations on the future of their existing markets. It can though be a positive move to extend the application of existing expertise; as Amstrad diversified from consumer electronics to home computing and thence to business computing. Beware, however, the diversification which is undertaken simply because the grass looks greener in the new market!

Heinz, for instance, has steadily (and successfully) extended beyond its '57 varieties' core business (which revolved around baked beans and soups). Its 'Weight Watchers' brand is now worth more than $300m in the US. But it should be noted that, in common with many other similarly successful diversifications, this was built on a logical extension of the company's existing strengths.

In his original work, which did not use the matrix form, Igor Ansoff stressed "The diversification strategy stands apart from the other three. While the latter are usually followed with the same technical, financial, and merchandising resources which are used for the original product line, diversification usually requires new skills, new techniques, and new facilities. As a result it almost invariably leads to physical and organisational changes in the structure of the business which represent a distinct break with past business experience."

For this reason, amongst others, most marketing activity revolves around penetration; and the Ansoff Matrix, despite its fame, is usually of limited value - though it does always offer a useful reminder of the options which are open. Its most important lesson, though, is often missed. It is quite simply that RISK increases dramatically the further you move away from your home base in the top left-hand corner of the matrix.

What are rarely discussed in the context of new product development are acquisition strategies (or those for joint ventures). Yet there is normally a lower risk attached to buying a going concern (or developing another form of binding commercial relationship with it) than developing your own offering - though the risk may still be very high.

Whatever route you choose you should be aware of, and be prepared to meet, the levels of investment and long timescales involved. Both of these are significantly higher that most product developers are willing to admit to; even to themselves. Thus a survey by Ralph Biggadike[6] of new corporate ventures by 200 members of the Fortune 500 showed that on average they suffered severe losses through their first four years of operation, and noted that, again on average, they needed eight years before they reached profitability (and it was 12 years before they generated cash flow ratios comparable with the existing businesses)!

More importantly, if despite all the odds against it you are determined to go ahead, Biggadike offers the most important other recommendation to emerge from his research:

This will come as no surprise to those of you who understood my earlier comments on the investment nature of most marketing operations. Genuinely new product development is a very expensive process indeed - and takes a very long time to pay off - though the results then may be spectacular.

One further piece of advice emerges from our own research;

Always assuming that the owners of the market leaders which you must inevitably challenge are not totally incompetent (though there have been some surprising losses of leadership which must be attributed to gross incompetence on the part of the losing managers)

Our results[7], for FMCG brands, show that almost all genuinely new brand leaders have depended such dramatic changes. These are most obvious in terms of physical (technological) changes, but they can just as easily be based on dramatic changes in taste or image.

The one saving grace, for those fortunate enough to already own dominant brand/market leaders, is that

Almost half the new FMCG brand leaders which emerged during the 1970s and 1980s fell into this category[8] -demonstrating, yet again, the power of the brand investment.

Earlier, I stated that the logistic curve offers the best solution to predicting, and then tracking, the post-launch development of new products:

LOGISTIC CURVE

[insert graph of logistic curve]

The great advantage of this curve, as compared with the purely descriptive product life cycle (which aims to illustrate the same exponential growth for new products), is that it can be described by a simple equation:

Rate of Growth (at time 't') = R x Nt x (1 - Nt/Nmax)

where R is the constant which determines the overall rate and Nt  is the number (of users, say) at time 't', compared with Nmax which is the maximum number available in the market.

This may look, to non-mathematicians, a horrendous equation but it only contains three values which need to be inserted and then only multiplied or divided to give a useful result. There are few other equations in management theory which give such practical results for so little effort.

The key fact, which this equation hides, is that the consumer sales curve, say, is likely to start to grow very slowly, until it eventually accelerates rapidly over the central part of the growth period (before once more slowing down as saturation approaches). This, unfortunately, means that during the initial stages of the launch - when many of the critical decisions need to be taken - the sales levels are likely to be so low that it is difficult to measure them without error. This is yet another reason for being absolutely sure of these decisions before you embark on them!

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