MARKETING MATERIAL
Gap Analysis Usage Gap Market Potential Existing Usage Distribution Gap
Product Gap Competitive Gap Market Gap Analysis Beyond the Trends
Product Modification Corporate Response Financial Performance
Investment Potential Human Factors Materials Supply Cannibalism Time
Marketing Response Price & Quality Distribution Patterns Seasonality
Creating New Products Customers Innovative Imitation Product Development Process
Strategic Screen Qualitative Screen Make or Buy Financial Analysis
Concept Test Product Development Product Test Test Market Risk
9436 MARKETING Chapter 6
- New Products
Introduction
In 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, as are the
subsequent screening and testing stages, to ensure that the --
very real --risk is minimized.
Major caveats are, firstly, 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 one common element of life-cycle theory and portfolio
management that is uncontroversial --indeed, is almost
universally accepted --is that products or services which remain
unchanged will sooner or later die. The consumers' tastes or
circumstances may change, or the product may be superseded. The
inevitable outcome is that any organization that plans to be
around for more than a few years has to move into the area of
`new product development', even if it is only to redevelop its
existing product or service, so that its life-cycle is
indefinitely extended.
'Indeed, it should be noted that the most successful new
product development typically revolves around the revitalization
of existing products'. Launches of totally new products
generate the drama, but the profit is more likely to come from
the more mundane relaunches. Rothwell and Gardiner - 1 -
illustrate the point with a diagram (figure 8.1).
In this chapter, as elsewhere in this book, the term `product'
includes services and non-profit activities. In the service
sector, just as in the manufacturing sector, there is a
continuing need to develop the offerings that are made to
customers or clients, even though there is normally much less
activity in terms of new product development to be observed in
the service sector.
(Fig 8.1 near here)
The need for totally new products or, perhaps more realistically,
for additions to existing lines, may have emerged from the
portfolio analyses, in particular from the use of the Boston
Matrix (see chapter 7). The gaps in the projected cashflow
demonstrated by that exercise could have provided sufficient
stimulation. More probably, that need will have emerged from the
regular process of following trends in the requirements of
consumers. At some point a gap will have emerged between what the
existing products offer the consumer and what the consumer
demands. That gap has to be filled if the organization is to
survive and grow.
To locate such a gap in the market the technique of gap
analysis can be used. In figure 8.2 the thick descending line
shows what the profits are forecast to be for the organization as
a whole. The rising dotted line shows where the organization (in
particular its shareholders) 'wants' those profits to be.
The shaded area between these two lines represents what is called
the planning gap: this shows what is needed of new
activities in general and of new products in particular.
The planning gap may be divided into four main elements:
(Fig 8.2 near here)
The relationship between these is best illustrated
diagrammatically:
This is the gap between the total potential for the market and
the actual current usage by all the consumers in the market.
Clearly two figures are needed for this calculation:
market potential
existing usage
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, but some of the macro-forecasting techniques,
which were discussed in chapter 5, may assist in making this
`guesstimate' more soundly based.
The maximum number of consumers available will usually be
determined by market research, but it may sometimes be calculated
from demographic data or government statistics. Ultimately there
will, of course, be limitations on the number of consumers. The
cosmetics market, for example, is currently limited to most women
and girls over the age of 12. But it also needs to be considered
whether the boundaries will not shift in the future. Not so long
ago the lower age boundary was something over 16 years. Who is to
say that men will not at some time in the future also take up
cosmetics? After all, they have in recent years taken up the use
of perfume, albeit suitably camouflaged as `aftershave'.
For guidance one can look to the numbers using similar products.
Those wishing to sell the newly developed compact disc must have
paid great attention to the existing sales of record and cassette
decks. Alternatively, one can look to what has happened in other
countries. It is often suggested that Europe follows patterns set
in the USA, but after a time-lag of a decade or so. The increased
affluence of all the major Western economies means that such a
lag can now be much shorter.
The maximum potential individual usage, or at least the maximum
attainable average usage (there will always be a spread of usage
across a range of customers), will usually be determined from
market research figures. It is important, however, to consider
what lies behind such usage. One consumer panel produced some
very high averages when one of the panel members decided to feed
her flock of turkeys on a specific brand of porridge oats: the
resulting dramatic increase in usage was included in the overall
results.
The existing usage by consumers makes up the total current
market, from which market shares, for example, are calculated. It
is usually derived from marketing research, most accurately from
panel research such as that undertaken by A. C. Nielsen but also
from 'ad hoc' work. Sometimes it may be available from
figures collected by government departments or industry bodies;
however, these are often based on categories which may make sense
in bureaucratic terms but are less helpful in marketing terms.
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. The original market for video-
recorders was limited to the professional users who could afford
the high prices involved. It was only after some time that the
technology was extended to the mass market.
In the public sector, where the service providers usually enjoy a
`monopoly', the usage gap will probably be the most important
factor in the development of the activities; although, as we
shall shortly see, the product gap should not be ignored. But
persuading more `consumers' to take up family benefits, for
example, will probably be more important to the relevant
government department than opening more local offices.
The usage gap is most important for the brand leaders. If any of
these has a significant share of the whole market, say in excess
of 30 per cent, it may become worthwhile for the firm to invest
in expanding the total market. The same option is not generally
open to the minor players, although they may still be able to
target profitably specific offerings as market extensions --as
Amstrad and Compaq have in their particular new extensions to the
PC market.
All other `gaps' relate to the difference between the
organization's 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.
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 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. Equally, if the product is limited to certain
outlets, just as some categories of widely advertised drugs are
limited by law to pharmacies, then other outlets will not be able
to sell them. A more likely outcome is that, not being the market
leader, a brand will find its overall percentage of distribution
limited. The remedy for this is simply to maximize distribution.
Unfortunately, maximizing distribution is not quite as easy as it
sounds, except for the obvious market leaders. It is true that
additional salesforce effort, backed by suitable sales
promotional activities, should be able to increase distribution
somewhat, although there will still have to be some balance
between the benefits to be gained and the costs to be incurred.
But the prime barrier to distribution will probably be the
resistance of the distribution chains to stock anything other
than the bestsellers. This can partially be overcome in the short
term by offering better terms and higher margins, so that the
distributors make more on each sale. But the distributors have
long since learned that their biggest profits come from
concentrating on the main brands. They, above all, live by the
80:20 Rule.
The product gap, which could also be described as the segment or
positioning gap, represents that part of the market from which
the individual organization is excluded because of product or
service characteristics. This may have come about because the
market has been segmented and the organization 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 organization has not thought about
its positioning, and has simply let its offerings drift to where
they now are.
The product gap is probably the main element of the planning gap
in which the organization can have a productive input; hence the
emphasis on the importance of correct positioning in chapter 6.
What is left represents the gap resulting from your competitive
performance. This competitive gap is the share of business
achieved among 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. Needless to
say, it is not a factor in the case of the monopoly provision of
services by the public sector.
The competitive gap represents the effects of factors such as
price and promotion, 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 is 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 them in line with
overall company strategies. It is very likely to direct you to
fresh product or market strategies, and to the need to develop
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', and
using the multidimensional `mapping' described in chapter 6)
which the company could profitably address, regardless of where
its current products stand.
Many marketers would, indeed, question the worth of the
theoretical gap analysis described earlier. Instead, they would
immediately start proactively to pursue a search for a
competitive advantage, say.
AUDIT 8.1
Carry out a gap analysis on your organization's ranges of
products or services.
What total gap is there in future profit projections? (In the
non-profit sector, what gap is there in the future provision of
services for clients?)
Does this come from overall usage, distribution, `product' or
competitive position?
What do you think needs to be done to rectify this gap?
Even the widening of perspective described in the previous
section does not, however, cover the major developments in
markets which result in quantum leaps, which overturn the long-
standing positions in those markets. These brilliant innovations,
IBM's development and marketing of the 360 range of computers,
which established its dominant position, or Henry Ford's
invention of the assembly line, typically cannot be deduced from
extrapolation of existing trends (and will often fly in the face
of them, to become the subject of derision from more sensible
experts).
Indeed, even after the idea has emerged, it often cannot be
adequately explored by market research; since the respondents,
the general public, have no understanding (based upon previous
experience) of what it may mean. Educating the customer is
frequently the first objective of such product or service
launches.
For instance, as described by Carol Kennedy, - 5 - even after
3M's laboratory technician, Spencer Silver, had discovered the
glue now used on `Post-It Notes' and his colleague, Arthur Fry,
had made the intellectual leap of applying this to the `Notes'
themselves:
Conventional test marketing still failed, however, until the two
executives took a hand. Enthusiasts themselves for the product,
they realized its potential indispensability would only be
appreciated if it got physically into the hands of potential
customers. They gave away wads of little notepads to secretaries,
receptionists, bank clerks and businessmen, saying `Here, try
this', and watched people becoming literally addicted to the
product.
The role of the product champion, the executive who drives the
development of the product (often against the odds) is frequently
a critical element of new product success.
These dramatically innovative new `products' have had major
impacts in a number of markets. Their influence, in these
markets, has been vastly greater than that of the evolving
products or services; `supernovas' outshining the `stars'. What
is more, as we have seen, they follow few of the rules of
conventional marketing. Even market research is of little use in
the basic decisions (although it still is of considerable use in
helping to determine the exact details of the launch). The main
requirement is for faith in the new development. The most
successful organizations try to create the sort of environment in
which such creativity is nurtured. They also foster the attitude
of mind which will quickly recognize the merits of such
outstanding innovations.
As a result of the lack of conventional marketing input to these
important new developments, a number of practitioners, as well as
some academics, have recently tended to play down the importance
of conventional marketing. That is a mistake. With the distorting
benefit of hindsight, we tend to notice the few major
developments. We do not see the many hundreds of failures, which
were just as sincerely believed in by their creators.
(Fig 8.5 near here)
Booz, Allen and Hamilton's 1981 research - 6 - measured the
proportions as follows:
NEW TO THE WORLD PRODUCTS (entirely new markets) 10%
NEW PRODUCT LINES (new products in existing markets) 20%
ADDITIONS TO EXISTING LINES 26%
IMPROVEMENTS IN/REVISIONS TO EXISTING PRODUCTS 26%
REPOSITIONING (existing products in new segments/markets) 7%
COST REDUCTIONS (similar performance at lower cost) 11%
They continue, to show the role of these new products graphically
(figure 8.5).
'Above all, it should be remembered that, despite the glamour
of the new product process, it is the plodding (steadily
regenerated) `cash cow' which continues to dominate even the
`development' process in most markets'.
In practice, most `new' products are modified existing ones. How
many times have you seen a television commercial that tells you
`New Brand X now has added Y!'? Such changes are incremental,
often barely even that, and follow somewhat different rules to
genuine new products. Typical modifications may include:
'Feature modification'. Sometimes called `functional
modification', this approach makes changes (usually minor ones)
to what the product or service does. Manufacturers of compact
disc players added `programming' and remote control to these
basic devices --to make them marginally more attractive to users
(but a margin that gave them a competitive advantage).
Frequently, the main element of the modification will simply be a
change in packaging. It may, though, be expanded into the major
message needed to rejuvenate a jaded advertising campaign.
'Quality modification'. As consumers grow more
discriminating, many suppliers (often led by their Japanese
competitors) have gradually increased the quality of the basic
product. This may be more difficult to convey to consumers,
particularly if the product already has a bad image. However, it
can be very powerful if successful --as the Jaguar Car Company
demonstrated in the 1980s.
'Style modification'. This is perhaps the most frequent
modification; at least in style-conscious industries (which
covers a very wide range; from Coca-Cola through to IBM PCs). An
`old-fashioned' product may be unsaleable in some markets;
although it may find a niche in more conservative ones.
'Image modification'. This may also be associated with style
modification (or `perceived quality' changes), but in essence the
product or service itself remains unchanged; and some image
modifications may actually stress this (Ovaltine and Bovril in
the 1980s, for example). `Image modification' concentrates on
changing the `non-product attributes'; so that consumers feel
that the `total package' has changed. Image is often the most
important element of that package.
AUDIT 8.2
What product or service modifications has your organization
undertaken recently? How were these planned and developed? How
did this compare with the process used for new products?
How much development effort is expended upon such modifications,
as compared with that on totally new products?
How much of the overall business is accounted for by `brands'
regularly modified in this way? How much by recently (within the
last five years, say) launched new products?
What `product' modification plans does your organization make?
What should it do?
Assuming that the gap analysis has shown the need for a specific
new product or service, or for some marketing activity to improve
performance in some other area, the next stage will be to
determine whether such a product or service, or activities, can
be `profitably' developed.
The first consideration will be how it `meshes' with the existing
activities undertaken by the organization. The context for this
examination should be that of the formal `corporate strategy';
the statement of where the organization has decided it is going.
Some of the `internal', corporate, factors which may, therefore,
need to be taken into account in the further investigations will
be:
Production capabilities
Financial performance
Investment potential
Human factors
Materials supply
Cannibalism
Time
Production Capabilities
Whether the new product or service can actually be produced will
depend upon what is available within the organization. Adding
extra demand on to equipment which is already being run close to
full capacity may either place impossible demands on production
or lead to a disproportionately large investment. The existing
plant may in any case be unsuitable, or simply located in the
wrong place. One furniture plant, picturesquely situated in the
centre of an old town, was tripled in capacity --at considerable
cost --only for it to be discovered that the bridge across the
river, which was the plant's only possible entrance and exit,
could only handle double the original output. As a result, a
third of the expensive new capacity was forced to remain idle.
The limitations on services might at first sight appear to be
less serious; although expansion of local branch premises, if
needed, may not be a trivial matter. But the constraints imposed
by the availability of human resources, especially those
involving specialist skills, may prove to be just as severe.
This is, in large part, what the Boston Matrix is about. The
question to be asked is whether the organization can afford the
proposed changes. This is not just a matter of potential profits,
but of cashflow. The extra investments in stock and debtors, let
alone in plant or promotion, may be too much for a strained
cashflow or departmental budget to support.
The Boston Matrix relates to cash generation for investment, from
internal cashflows. This represents the usual form of investment
for most larger organizations: the stock market has declined in
importance as a primary source of investment funds. On the other
hand, in some situations external finance (now more usually
obtained from banks rather than the stock market) will be needed.
The standing of the organization with the financial community
then becomes an important factor.
This phenomenon is particularly problematic for those medium-
sized businesses which are still too small to challenge the major
players effectively; but which have grown to have overheads which
mean that they can no longer survive as small `niche' players.
New product policy is particularly important in this situation;
as are mergers and acquisitions --which may (at least in theory,
but not always in practice) offer a more immediate solution.
As described above, the availability of manpower may be a factor,
and will become an increasingly important one with the
demographic changes which are taking place. The chances are that
new developments will require skilled personnel, who are becoming
increasingly difficult to recruit. It may just be possible for
the existing workforce to be retrained, but this would mean that
the marketing plans may have to take the organization's training
capabilities into account.
The availability of raw materials or components, or subcontracted
services, may be critical. Producers increasingly depend on
outside suppliers for the greater part of the final product or
service that they are assembling. Even the insurance broker
depends upon the underwriters who will do business with him or
her, and the fast food outlet will have a whole range of
suppliers; from the wholesale butchers who provide the meat to
the employment agencies which constantly cope with the high staff
turnover. If suppliers are scarce, or erratic, they will pose
major problems.
One often neglected factor is how much of the new brand's
business will come from those of existing brands. Such
`cannibalism' - 7 - must be taken into account where there is
any degree of overlap; and if the organization is building on its
strengths there often will be (and should be) significant
overlap.
One of the factors often overlooked in any process of innovation
is just how long it may take. For instance, IBM may be able to
develop a new feature for an existing product and bring it to the
market in a few months, but developing and testing even the
simplest complete mainframe is likely to take between three and
five years; and bringing in a new technology (a new `generation'
of computers) is likely to need a development period nearer to a
decade.
AUDIT 8.3
Think back to some recent `products' launched by your
organization. How did they match the `production' capabilities,
financial performance, human factors and `materials' supply?
If some of the `products' did not match all of these
requirements, why do you think they were launched? Should they
have been?
At a more detailed level, the `mesh' with the existing marketing
factors will need to be considered:
Match with existing ranges
Price and quality
Distribution patterns
Seasonality
Match with Existing Ranges
`New products' will be easier to sell if they complement the
existing ranges. Then they will be able to build on existing
distribution patterns, and may even be able to capitalize upon
existing awareness and favourable consumer attitudes. The `new
products' may possibly help sell more of the existing ones,
because they make the range more comprehensive. A range of
slimming foods will benefit from new additions; since these offer
a wider choice for the consumer, who may have become bored by the
narrower selection previously available. They may also obtain a
larger display (`facings') at the point of sale, up to the point
beyond which the retailer will not stock additional packs.
There has to be at least a rough comparability with the existing
products or services, in terms of consumer perceptions of what
price (and quality) range the organization lies in. This is
particularly true of introducing a cheaper product into a high-
quality range. The buyers of the existing range may see this as
reflecting a reduction in quality of their normal products; and
this may have a disastrous effect overall. It may not even help
the new product, for consumers in general may assume that, in
line with the price, quality has been abandoned. In the 1970s,
following merger, the then very successful range of Rover cars
was drowned in the overall mediocrity of the rest of the British
Leyland range --without any noticeable increase in sales of the
cheaper ranges.
At the other extreme, adding a higher-priced product to a cheap
range will probably not be a successful strategy either; for the
obvious reason that it is out of line with the overall strategy,
and is unlikely to meet the needs of the existing customers who
are, presumably, interested in price. Both the Fine Fare
supermarket chain and Fortnum & Mason in the UK were at one time
owned by Garfield Weston. He, wisely, did not publicize this
link, for the simple reason that it probably would have damaged
the sales of both.
Clearly, as we have already seen, if existing channels of
distribution can be used then costs will be minimized; and the
product or service will be built on existing strengths. If new
channels are needed, then development of these may pose
significant costs, and will lead to a learning curve in the
handling of those channels, a factor which is not necessarily
understood by managements.
The ideal organizational trading pattern is an even one, with no
seasonal variation, so that resources may be most efficiently
utilized; without the unproductive problems posed by having to
meet peaks and troughs of sales. A new product or service will,
therefore, ideally not be seasonal; or, even better, be one which
complements existing seasonal patterns --making its peak sales
when the others are in a trough, and vice versa. It was
reportedly for this reason that, many years ago, Walls decided to
complement its range of ice creams, with its summer peaks, by
starting a sausage business, with its peaks in winter.
AUDIT 8.4
Return to the `products' you considered in audit 8.3. How did
these match up in terms of the match with existing range(s),
price and quality, distribution patterns and seasonality?
Again, if some of the `products' did not match all of these
marketing factors, why do you think they were launched? Should
they have been?
Innovation is important (indeed essential) to the future of most
organizations. However, it must be kept in context. Tom Peters
and Robert H. Waterman Jr's - 10 - well-known exhortation still
offers sound advice:
Stick to the knitting ... While there were a few exceptions, the
odds for excellent performance seem strongly to favor those
companies that stay reasonably close to the businesses they
know.
`Focus', as it is now more fashionably known, is a sound policy.
More important, perhaps, is a keen awareness that the future
usually also depends on the existing products (albeit so --
incrementally --changed over time that they would be
unrecognizable to today's customers!).
In this context it is worth nothing that Robert Cooper's
research, - 11 - among 140 companies in Canada, identified five
new product strategy scenarios:
'Technologically driven strategy' (26.2 per cent of firms).
A strategy based on technological sophistication, but lacking
marketing orientation and product fit/focus. New products ended
up in unattractive, low-synergy markets; with `Moderate results:
high impact on firm, but low success rate...'
'Balanced, focused strategy' (15.6 per cent of firms). This
'winning strategy' featured a balance between technological
sophistication, orientation and innovation and a strong marketing
orientation. The programme was highly focused, and new products
were targeted at very attractive markets. `By far the strongest
performance...'
'Technologically deficient strategy' (15.6 per cent of
firms). A `non-strategy': weak technology, with low technological
synergy, yet involving new markets, and new market needs. `Very
poor results...'
'Low budget, conservative strategy' (23.8 per cent of
firms). A low level of R&D spending, involving `me-too' products, but with a `stay-close-to-home' approach --high technological synergy, and high product fit/focus. A safe, efficient but undramatic programme. `Moderate results: good success rate and profitability, but low impact...'
'High budget, diverse strategy' (18.9 per cent of firms). A
high level of R&D spending, but poorly targeted; new (highly
competitive) markets to the firm; no programme focus. `Very poor
results...'
The ideal approach, as they identify, is that well-planned one
which nicely balances all these factors (which is, in its own
way, the strategy towards which this book is building). On the
other hand, the authors do seem to dismiss the `conservative
approach' too glibly. This may not have the `impact' (glamour?)
of the other, but if you do not yet know the well-planned,
balanced route, better stay where you are until you can find it!
In the 1960s and 1970s, when marketing was a relatively young
profession, it was often claimed that the best new products were
bound to be those which were specifically created to meet the
needs of the marketplace. This was clearly spelled out by
Professor Corey of the Harvard Business School:
...the form of a product is a variable, not a given, in
developing market strategy. Products are developed and planned to
serve markets. - 12 -
Ideally, such products originated with the market researcher
discovering unsatisfied wants. It is still held to be true that
new product ideas, once they have emerged, should be rigorously
tested against the needs of the market, before the organization's
full resources are committed.
However, marketing practice has since shown that the really
creative ideas can rarely be turned on like a tap, to meet the
market researcher's specifications. They come, instead, from
every direction, sometimes emerging from the least likely of
places. They may come from technical developments in the
laboratories (according to one story, the Sony Walkman was
created by an engineer for his own fun), they may come from the
salesforce, or they may come from practice in other countries or
other industries. 'It turns out that the secret of finding new
products is not to be able to specify them but simply to be able
to recognize them'.
This means, then, that the managers of new products must be
constantly scanning the sources available to them, particularly
the literature, to find these new ideas. The need is, therefore,
for an open mind: the Sony Walkman was eventually shown to Akio
Morita, Sony's chairman, who had the very good sense to back its
commercial development. The NIH (Not Invented Here) syndrome is
the worst enemy of new product development.
Peter Doyle - 13 - makes the very sensible point that:
Perhaps the most common means of building an outstanding brand is
being first into a market.
He adds the very important footnote, however:
This does not mean being technologically first, but rather being
first in the mind of the consumer. IBM, Kleenex, Casio and
McDonald's did not invent their respective products, but they
were first to build major brands out of them and bring them into
the mass market.
By far the greatest sources of new product ideas are customers.
After all, they are the users of the product or service; and the
new uses they make of it, or the changes in specification they
demand, are both the most potent forces on the product
development process and its richest source of ideas.
This customer `information' will normally be received from the
salesforce (or even through correspondence). This may be in the
form of descriptions of what the customer is actually doing with
the `product' (which may indicate new uses for it), or requests
from the customer for specific new products or services.
Eric Von Hippel's research - 14 - (into the rather specialized
area of innovation in the scientific instruments market) reported
that:
... in 81 per cent of all the innovation cases studied, we found
that it was the user who perceived that an advance in
instrumentation was required; amended the instrument; built a
prototype; improved the prototype's value by applying it; and
diffused detailed information on the value of the invention...
He found that the pattern was repeated in the process equipment
industry, but it was not universal (two of his students found
that the reverse was true in parts of the polymers industry,
where it would have been difficult for users to undertake the
development).
He continued to make a plea for separating `all users' into
`routine users' and `innovative users', with extra effort devoted
to the latter (in view of their importance for product
innovation).
Theodore Levitt - 15 - points out that, despite the rhetoric,
most so-called innovation in the field of product development is
actually imitation:
... by far the greatest flow of newness is not innovation at all.
Rather it is 'imitation'. A simple look around us will, I
think, quickly show that imitation is not only more abundant than
innovation, but actually a much more prevalent road to growth and
profits. IBM got into computers as an imitator; Texas Instruments
into transistors as an imitator: Holiday Inns into motels as an
imitator ... In fact, imitation is endemic. Innovation is
scarce.
Peter Drucker - 16 - also explains the advantages of this
principle:
Like being `Fustest with the Mostest', creative imitation is a
strategy aimed at market or industry dominance. But it is much
less risky. By the time the creative imitator moves, the market
has been established and the new venture has been accepted.
Indeed there is usually more demand for it than the original
innovator can easily supply. The market segmentations are known
or at least knowable. By then, too, market research can find out
what customers buy, how they buy, what constitutes value for
them, and so on. Most of the uncertainties that abound when the
first innovator appears have been dispelled or can at least be
analyzed and studied
What they do 'not' add is that the Japanese are perhaps the
most successful exponents of this technique. For instance, as
reported by Pascale and Athos, - 17 - Matsushita deliberately
adopts a policy of `followership'. This has most clearly been
demonstrated by the company's domination of the video-recorder
market using its VHS format (together with its Panasonic and RCA
brands) to displace the original (arguably more technically
innovative, Betamax brand) pioneered by Sony; so that Matsushita
now has more than two thirds of this market.
Sony learned an important lesson in defence from this experience.
Only six months after it launched its revolutionary palm-sized
camcorder, Matsushita launched an even lighter look-alike. Within
weeks, on this later occasion, Sony hit back by launching two new
models; one even lighter still and the other with new features.
It was able to do this because it had invested in 'parallel
development' --it had been developing the next generation of
product even while it was still introducing the previous one.
Kotler and Fahey - 18 - provide the wider picture:
Succinctly stated, Japanese marketing revolves around the
management of product market evolution. They manage not only the
product life cycle of individual products, but the evolution of a
complex of product lines and items. They carefully choose and
sequence the markets they enter, the products they produce, and
the marketing tactics they adopt.
An alternative approach, still based upon `imitation', is to find
(by market research) what are the major problems associated with
existing products in a market; and then develop a product which
resolves these (or at least resolves those which are seen by
consumers as having the highest priority). However, this approach
will not work against the majority of brand leaders.
AUDIT 8.5
How does your organization search out ideas for new products or
services?
More specifically, think back to one of your company's recent
launches (or, better still, hunt out any internal news items
about one). Where, from the evidence, do you think the `product'
idea came from?
Having found an idea, how does your organization assess the
viability of the new product(s) or service(s)?
With the benefit of hindsight (i.e. what you have learned so far
in this module), how would you change or adapt your
organization's procedures?
The Product Development Process
For the purposes of this chapter, the complete development process
can be conveniently split into a number of stages:
Scanning
Idea generation
Strategic screen
Concept test
Product development
Product test
Test market
Launch
The importance of formalizing the process is highlighted by
Booz, Allen and Hamilton's comment - 20 - that: `According to
our survey results, companies that have successfully launched
new products are more likely to have had a formal new product
process in place for a longer period of time.'
The first two of the above activities, `scanning' and `idea
generation', have already been described. The others are
outlined below.
Much of the subsequent process comprises steps which are
designed to minimize the risk. Indeed, the very next stage is
that of the initial screening of these ideas. The contexts for
this screening process are the corporate and marketing
strategies. We examined the requirements imposed by these in some
detail at the beginning of this chapter. The potential new
`products' which have been found are now simply matched against
these requirements. This can be handled as a two-stage process.
This simply involves qualitative study of the ideas; to examine,
at the broadest level, whether they are in conflict with the
overall corporate or marketing strategies. This need not demand
major effort, since the key characteristics of the new `product'
will usually be obvious; as will those of the relevant parts of
the strategies --always assuming that the organization takes
notice of its own planning documents. A match or mismatch should,
thus, be fairly obvious.
This is also the stage at which the decision either to `make' or
`buy-out' is likely to be taken. Traditionally, organizations
only offered the products or services which they themselves
`manufactured'. In recent years, on the other hand, many
organizations have adopted a wider perspective; and have marketed
products (either in part or totally) made by other organizations;
because those other organizations had the special expertise
necessary or simply because their costs were lower.
If the qualitative screen reveals no significant problems, the
acid test --at this early stage --is to forecast the financial
performance of the new brand. The best way to achieve this is to
prepare a dummy profit and loss statement, together with the
associated balance sheet and the traditional further analyses
such as cashflow. With the advent of spreadsheets on personal
computers this should now be a relatively simple process;
especially if a standard `skeleton' is already available.
The great potential benefit of such spreadsheets, but one which
is rarely capitalized upon, is the ability to carry out `What
if?' tests very easily. This means that there should no longer be
any excuse for not examining all of the alternatives.
This carefully controlled approach has generally been successful
in the West; where there may be heavy penalties, to brand or
corporate image in particular, in backing failures. In Japan,
however, the reverse is often true. Rather than screening out
potential failures, 'many' new products may be launched (as
many as 1000 new soft drinks a year, for example). This process,
called `product churning', apparently works well in Japan,
because their corporations develop new products in a half to a
third of the time, and at a quarter to a tenth of the cost, of
their Western counterparts. In addition, the Japanese public has
been persuaded to accept, indeed to want, new developments at
this break-neck pace.
'Research has shown that more than 80 per cent of new product
ideas fail'. The proportion which never make it into
development is probably at least as high so that, overall,
possibly less than 5 per cent of new product ideas are
successful. It is important, therefore, that the 95 per cent of
failures are culled as early as possible, before large sums are
invested in them.
The most widely quoted, and indeed definitive, research has been
that conducted by Booz, Allen and Hamilton. - 21 - Figure 8.9
shows the `mortality' rate at various stages of the new product
process. This shows that, in 1981, only one in seven new product
ideas resulted in a successful new product introduction. It is
perhaps even more interesting that this was a dramatic
improvement on their equivalent survey of 1968; when the success
rate was only one in 58.
It appears that this dramatic improvement may have come about
because
(Fig 8.9 near here)
(Fig 8.10 near here)
of the improvement in screening procedures at the earliest stage
of the new product process --an improvement which may, in part,
have been stimulated by that earlier report. Indeed, in the later
report they note that the success rate of new products once
launched had not varied (at 65 per cent). Beyond this, their
research showed a number of factors contributing to the success
of new products (figure 8.10). They also found a significant
`learning curve' (`experience effect'), where each doubling of
the number of new products introduced apparently led to a decline
in the cost of introduction by 29 per cent.
The `concept test' is the first true consumer filter to be
applied. At least in theory, it should be applied before any
significant amount of product development is undertaken;
particularly as such development can be very expensive (perhaps
hundreds of millions of dollars for a new pharmaceutical). The
test is usually undertaken by conventional market research. The
aim is simply to find ou4 from consumers what their attitudes to
the new `pr/duct' would be; and (the acid test) whether they
would be likely to buy it. This is easier said than done, because
consumers will not usually be able to draw upon existing
experiences. They have enough difficulty communicating how they
feel about brands that they have actually purchased.
Market researchers use a battery of different techniques to try
to overcome the problem. They may produce dummy versions of the
product. More likely, they may produce a rough commercial,
perhaps just in `story-board' form; since this also reflects the
difficulty of conveying the concept to the consumers --always a
major consideration for a really innovative
product. The better finished the vehicle used to carry the
concept, the mo