MARKETING MATERIAL
In traditional marketing texts this is also one of the more important chapters. In this text its role is (again possibly controversially) more peripheral. The student objectives are:
1. To understand what the mainstays of traditional new product strategy are, and what theoretical frameworks underpin them.
2. To understand what shortcomings are inherent in these theories, and the problems they may pose.
3. To understand how these theories may be used in practice without risking these problems.
This chapter is, once more, important since constant redevelopment of the product or service, and to a lesser extent development of new ones, is essential to maintain competitive advantage. Again, though, it is also important for negative reasons. Thus, it also encapsulates some important marketing principles which have been assumed, by business academics and consultants alike, in recent years.
The key objective, again possibly controversially, is to put these assumptions in their true context.
[Acetate 6.01]
In traditional theory, at least, the first stage in developing new products or services is to undertake a 'gap analysis'; to establish what the new offering will need to provide. This need may well be best met by a 'feature modification' of an existing product or service; and most 'new product development' is, in fact, incremental development of existing brands rather than totally new offerings.
Following the usual (Western) approach, a new development has first to be judged against corporate needs - and then against the product factors which the organization can handle. The 'creative' steps of developing new products are also described in some depth, as are the subsequent screening and testing stages - to ensure that the very real risk is minimized.
Major caveats are, first, that brand stability implies there should be more emphasis on the further development of existing brands than on totally new ones - contrary to conventional teaching - and, secondly, that the Japanese approach is to launch many more 'new products' without following any of the stages of testing described here.
The main point to make at the start of this chapter is a controversial one; and one, therefore, that you may choose not to make. It is that new product development in its purest form (the development of completely new products - which is the way it is normally taught) is much less important than is usually claimed - and indeed is a minor activity for most organizations.
[Acetate 6.02]
On the other hand, constant redevelopment of the existing mainline products or services is vitally important, to maintain competitive advantage in a constantly changing world. Such redevelopment, though, uses a rather different set of techniques from those normally taught. In particular, its emphasis is on incrementalism (with as much emphasis on image as on physical product) where more traditional approaches put considerable emphasis on breakthroughs (and related techniques such as generating ideas).
[Acetate 6.03]
This is a quite sophisticated theory for an essentially simple problem. We cannot make our targets (usually in this context described in terms of sales volumes), so where is the shortfall coming from and how can we rectify the situation? The analysis is traditionally split into a number of areas:
[Acetate 6.04]
Although this should be simple, the description in the text took some time to develop - since most other texts have versions which are confusing for the student; so I will not comment further here, for fear of complicating matters yet again, except for two points:
1) There can be a number of approaches to the subject - leading to even more possibilities for confusion.
2) In any case, the technique is probably inflated (even in my text) beyond its true value to most organizations. The number of pages it takes to describe are far more than its practical use justifies. It really is as simple as asking where the shortfall lies; and the answers (no matter how elaborate) are likely to be not much more sophisticated (though the exercise of looking at each of the categories separately can be illuminating - and the insight this offers may justify the whole exercise).
At least gap analysis has the virtue that to a large extent it revolves around redevelopment of the existing position of the organization.
It is quite often only the very innovative new product - a breakthrough following an inspired leap into the dark - which is able to overcome the built-in defences of the existing brand leaders and change the market structures. We have seen that this is very rare; continuity is much more likely. These breakthroughs typically do not emerge from conventional marketing activities. One reaction by some business schools to the problem this poses has been to play down the importance of marketing.
This is probably just as short-sighted as pretending that new product development is one of the most basic business functions. As the figures from Booz, Allen & Hamilton (which are from 1981, but still the best available) show, pure new product development is a minor activity, even within 'product development' as a whole - but the other 90% are quite susceptible to marketing approaches:
[Acetates 6.06 and 6.07]
activity
Your students may need some convincing at this point, so it is as well to get them to select one or two (FMCG) areas and then to explore what has been (as evidenced by the supermarket shelves and advertising, say) the true picture of new product launches. How many totally new products have been launched, and how many changes to existing products have there been? Which of these has captured the volume sales in the market?
In keeping with the theme that incremental redevelopment (or improvement) of existing products has a major role to play, this section looks at the most repetitive of these processes:
[Acetate 6.08]
activity
Another useful exercise to conduct at this stage is to look at one major market, say that for detergents, and see how (based upon the students' own memories) the products have developed. The changes can be categorized under the headings on ther acetate (or any others if necessary). This should give an insight into how such incremental changes emerge - and, hopefully again, how unimportant are totally new products (though that may be something of a cheat where major markets, with massive investments by their sitting tenants, are less susceptible to such breakthroughs).
To return to genuinely new products, the impact of these may be such that the organization has to review what they mean for every aspect of the business:
[Acetate 6.09]
With the exception of the last item, most of these factors should be self-evident to most students. On the other hand, few managers seem to consider all of them when taking important new product decisions.
activity
Again, it is worth considering an example of a reasonably large-scale new product development - for example liquid detergents - and asking the students to think through what is involved (for Lever Brothers, say).
A similar approach can be made to the factors (product/service) which are in the marketing domain:
[Acetate 6.11]
activity
Again these should be reasonably self-explanatory - and the same example (liquid detergent) could be used to explore them. The headings are not necessarily comprehensive, synergy in the sharing of media resources is not shown for instance, but they offer a good starting point.
This was traditionally the core of new product work. The techniques of ideas generation, though, are not specifically the province of marketing; so the standard list of techniques is not included in the text. It is, however, included as an appendix to this chapter of the instructor manual - so that you can provide it as a handout to your students if they have not already covered them on their other courses.
In addition to these, there are a number of sources which are especially important in marketing.
[Acetate 6.12]
Of these perhaps the customer is the most important of all. Using the product or service, he or she often sees better than anyone the improvements needed to make it what it should be. So, keeping in touch with your customers pays dividends on this front. But, of course, the point of contact will be the sales force - who typically are not looking for new products (only an order). Even if they do recognize the new product idea they will find it almost impossible to persuade anyone in the marketing department to take it up: 'Has anyone ever heard of a salesman bringing in a useful new product idea, all you get are crackpot schemes which just waste your time!' Perhaps you can persuade your students to break the mould and tap this rich vein of ideas.
On the other hand, watching what your competitors do, and then doing it better (innovative imitation), is a very effective strategy. It has served some Japanese corporations very well indeed; but to make use of it you need to have the same fast reflexes that they have.
This another of the standbys of teaching new products. Once again, it has its uses; and needs to be taught.
[Acetate 6.13]
This section adds the very important footnote about the Japanese experience. We have yet to see new products entering the market at this sort of rate, or the 'churning' which accompanies it (except perhaps in some of the children's' snack markets; though even there at a very much lower rate). But it is worth keeping an eye on the phenomenon - since if it ever does emerge in the West it will rewrite all the rules of new product launches.
The importance of finding the failures early is clearly shown by the Booz, Allen & Hamilton chart (which, while dated, still reflects the essence of the process):
[Acetates 6.16 and 6.17]
One solution is to test the 'concept' before any of the more expensive stages (especially physical product development) are undertaken. It is a relatively cheap way of putting your toe in the water; but, of course, like the toe test it doesn't tell all. More important, it is often very difficult to test strange concepts, and the more strange (the greater the 'breakthrough') the more difficult it becomes.
People are simply not very good at judging ideas they have not come across before. It takes many months, of high levels of exposure, for most new products to become understood, let alone accepted. So it is asking a lot to simulate this process in as many minutes, which is why the research techniques have become so sophisticated. Even so you must take the results with a very large pinch of salt - and check them as many other ways as you can. If you are very brave, a conviction marketer of the highest order, you may even choose to ignore a firm 'thumbs down' (which may result in you finding a winner which outshines any others - but which involves a very high degree of risk indeed).
Much the same comments apply to this stage; though risks are reduced if the respondents can actually touch the 'product'. But the investment costs will have escalated considerably at this stage - though they will usually still be far below their final level, which is why, once more, it is a worthwhile step.
The ultimate in marketing sophistication used to be reflected in the marketers' use of test markets - which covered tests of promotions and pricing as well as the product (or sometimes the service). They are still a very useful tool for 'guaranteeing' that everything is right before the final investment is made - though, of course, that excludes those many markets where the majority of the investment has been made by this stage (test markets there are just a waste of money and, more important, of priceless time).
The accuracy, and informative value, of the test market increase significantly with its size; so does its cost!
[Acetate 6.19]
Thus, if you want simply to debug the product or service you will use the smallest neighbourhood (and hope your competitors miss what you are doing) or (if an industrial supplier) a test site. If you want to test everything (and perhaps optimize it before launching nationally) a television area may be needed.
Most important of all, though, you will need to know just why you are conducting the test; a warm feeling that the risk has been minimized will not be enough. So the 'Which?', 'What?', How long?' etc. questions described in the text must be asked.
Finally, the test market itself has to be examined in detail. If it does not meet the criteria, especially those listed below, then again you are wasting your money (and time).
[Acetate 6.20]
The penultimate of these is now probably the most important. Change is so rapid in many markets, and innovative imitation so widespread, that you may not be able to give your competitors this leeway - they may get the product to market before you do!
hits