Presentation on theme: "Developing New Market Offerings"— Presentation transcript:
1 Developing New Market Offerings Who should ultimately design the product? The customer, of course.
2 Meeting ObjectivesIn this meeting, we focus on the following questions:What are customer value, satisfaction, and loyalty, and how can companies deliver them?What is the lifetime value of customers?How can companies both attract and retain customers?What is database marketing?
3 Meeting ObjectivesWhat challenges does a company face in developing new products?What organizational structures are used to manage new-product development?What are the main stages in developing new products, and how can they be managed better?What factors affect the rate of diffusion and consumer adoption of newly launched products?
4 Loyalty The Value Proposition A deeply held commitment to re-buy or re-patronizea preferred product or service in the future despitesituational influences and marketing efforts havingthe potential to cause switching behavior.The Value PropositionThe whole cluster of benefits the company promisesto deliver
5 Measuring Satisfaction Periodic surveysCustomer loss rateMystery shoppersMonitor competitive performance
6 Product and Service Quality Quality is the totality of features and characteristicsof a product or service that bear on its abilityto satisfy stated or implied needs.QualityConformancePerformance
7 Total Quality Management TQM is an organization-wideapproach to continuouslyimproving the quality ofall the organization’s processes,products, and services.
8 Maximizing Customer Lifetime Value Customer profitabilityCustomer equityLifetime valueEstimating Lifetime ValueAnnual customer revenue: $500Average number of loyal years: 20Company profit margin: 10Customer lifetime value: $1000
9 Drivers of Customer Equity Value equityBrand equityRelationship equityFramework for CRMIdentify prospects and customersDifferentiate customers by needs and value to companyInteract to improve knowledgeCustomize for each customer
10 CRM Strategies Reduce rate of defection Increase longevity Enhance share of walletTerminate low-profit customersFocus more effort on high-profit customers
11 Mass vs. One-to-One Marketing Average customerCustomer anonymityStandard productMass productionMass distributionMass advertisingOne-way messageEconomies of scaleOne-to-OneIndividual customerCustomer profileCustomized market offeringCustomized productionEconomies of scopeShare of customer
12 Customer RetentionAcquisition of new customers can cost 5 times more than retaining current customers.The average customer loses 10% of its customers each year.A 5% reduction to the customer defection rate can increase profits by 25% to 85%.The customer profit rate increases over the life of a retained customer.
14 Reducing Customer Defection Define and measure retention rateDistinguish causes of customer attritionEstimate profit loss associated with loss of customersAssess cost to reduce defection rateGather customer feedbackForming Strong Customer BondsAdd financial benefitsAdd social benefitsAdd structural ties
15 Database Key Concepts Using the Database Customer databaseDatabase marketingMailing listBusiness databaseData warehouseData miningUsing the DatabaseTo identify prospectsTo target offersTo deepen loyaltyTo reactivate customersTo avoid mistakes
16 Developing New Market Offerings Six categories of new productsNew-to-the-world productsNew product linesAdditions to existing product linesImprovements and revisions of existing productsRepositioningCost reductions
17 Challenges in New-Product Development Incremental innovationDisruptive technologiesWhy do new products fail?A high-level executive pushes a favorite idea through in spite of negative research findings.The idea is good, but the market size is overestimated.The product is not well designed.
18 Challenges in New-Product Development The product is incorrectly positioned in the market, not advertised effectively, or overpriced.The product fails to gain sufficient distribution coverage or support.Development costs are higher than expected.Competitors fight back harder than expected.
19 Challenges in New-Product Development Factors that tend to hinder new-product developmentShortage of important ideas in certain areasFragmented marketsSocial and governmental constraintsCost of developmentCapital shortagesFaster required development timeShorter product life cycles
20 Organizational Arrangements New-product deployment requires specific criteria – one company established the following acceptance criteriaThe product can be introduced within five yearsThe product has a market potential of at least $50 million and a 15 percent growth rate.The product would provide at least 30 percent return on sales and 40 percent on investment.The product would achieve technical or market leadership.
21 Organizational Arrangements Budgeting For New Product Development3M’s approach:15% ruleEach promising idea gets an “executive champion”Expect some failuresGolden Step awards handed out each year
22 Organizational Arrangements Organizing New-Product DevelopmentProduct managersNew-product managersHigh-level management committeeNew product departmentVenture teamsStage-gate systemGatekeepers make one of four decisions:GoKillHoldRecycle
23 Steps in New Product Development Idea GenerationIdea ScreeningSteps in New Product DevelopmentConcept Develop & TestMarketing StrategyProduct DevelopmentMarket TestingCommercialization
24 Idea Generation Interacting with Others Sales representativesIntermediariesProduct championTechniques for stimulating creativity in individuals and groupsAttribute listingForced relationshipsMorphological analysisReverse assumption analysisNew contextsMind-mapping
25 Idea Screening Idea manager Idea committee Two types of errors in screening ideasDROP-errorGO-error
26 Product-Idea Rating Device Relative WeightProduct ScoreProduct RatingProduct Success Requirements(a)(b)(c = a x b)Unique or superior product.40.8.32High performance to cost ratio.30.6.18High marketing dollar support.20.7.14Lack of strong competition.10.5.05Total1.00.69 Rating scale: poor; fair; good. Minimum acceptance rate: .61
27 Concept Development and Testing Product ideaProduct conceptConcept developmentCategory conceptProduct–positioning mapBrand conceptConcept TestingRapid prototypingVirtual realityCustomer-driven engineering
28 Concept Development and Testing Questions to measure product dimensionsCommunicability and believabilityNeed levelGap levelNeed-gap scorePerceived valuePurchase intentionUser targets, purchaseoccasions, purchasingfrequencyConjoint AnalysisExample: five design elementsThree package designsThree brand namesThree pricesPossible Good Housekeeping sealPossible money-back guarantee
29 Marketing Strategy Target market’s size, structure, and behavior Planned price, distribution, and promotion for Year 1Long-run sales and profit goals and marketing-mix strategy over timeBusiness AnalysisEstimating Total SalesSurvival-age distributionEstimating Cost and ProfitsBreak-even analysisRisk analysis
30 Product Development Quality Function Deployment (QFD) Customer attributes (CAs)Engineering attributes (EAs)Customer testsAlpha testingBeta testingConsumer preference measures:Rank-orderPaired-comparisonMonadic-rating
31 Market Testing Consumer-Goods Market Testing Seeks to estimate four variablesTrialFirst repeatAdoptionPurchase frequencySales wave researchSimulated Test MarketingControlled Test MarketingTest MarketsHow many test cities?Which cities?Length of test?What information?What action to take?Business-Goods Market Testing
32 Commercialization When (Timing) Where (Geographic Strategy) First entryParallel entryLate entryWhere (Geographic Strategy)To Whom (Target-Market Prospects)How (Introductory Market Strategy)Critical path scheduling (CPS)
33 The Consumer-Adoption Process Consumer-loyalty processMass-market approachHeavy-usage target marketingStages in the Adoption ProcessInnovationInnovation diffusion process
34 The Consumer-Adoption Process Adopters of new products move through five stagesAwarenessInterestEvaluationTrialAdoptionFactors Influencing the Adoption ProcessReadiness to Try New Products and Personal Influence
35 Adopter Categorization on the Basis of Relative Time of Adoption of Innovation
36 The Consumer-Adoption Process Personal influenceCharacteristics of the InnovationRelative advantageCompatibilityComplexityDivisibilityCommunicabilityOrganizations’ Readiness to Adopt Innovations