Chapter 13 Commercialization

Agenda Commercialization stages Alternative strategies: Penetration Roll-out Test marketing: Objectives Arguments against Selecting a launch strategy Importance of communication

Having established that the new product will deliver the promised benefits and that a need still exists for it in the marketplace, the next step in the process is to launch the product and make it available to intended customers. This phase is known as commercialization.

Commercialization stages Complete final plans for production and marketing: Establish patterns for overall direction and co-ordination of the product. Expand product teams to encompass all departments involved. Designate individuals responsible for each part of the commercialization programme. Assure that these individuals work out all programme details to fit co-ordinated plan. Source: Booz, Allen and Hamilton (1968) Once the product has completed testing successfully the outline marketing plan needs to be firmed up. This will include decisions on the branding strategy, legal clearance, i.e. does not infringe patents, copyright or trademarks of others and registration of one’s own legal rights. The key elements of the marketing mix will have been selected and evaluated during the product development and testing phases. The task now is to confirm decisions on the individual mix elements and integrate them into a co-ordinated marketing plan. Key decisions are: product branding, labelling and packaging; pricing – skimming or penetration; distribution – selective or extensive; promotional techniques to create awareness and encourage trial.

Commercialization stages (Continued) Initiate co-ordinated production and selling programmes: Brief all participating personnel. Maintain established programme sequence and schedule. Provide feedback mechanisms for programme corrections.

Commercialization stages (Continued) Check results. Make necessary improvements in product, manufacturing, or sales: Make design changes promptly to correct ‘bugs’. Work continuously for cost reduction and quality control. Shape the product and its programme to meet competitive reaction and changing internal pressures. Maintain necessary team members until the product is a going commercial success, absorbed by established organization.

Launching a new product involves consideration of all the elements of the marketing mix and that combination of price, promotion and place, or distribution, that will optimize the chance of success. Essentially, the choice is between one or other of two basic strategies: Market penetration Roll out

A strategy of market penetration is to be preferred when: There is a strong likelihood of competitive reaction. The new product is relatively easy to clone. The launch company has the resources to finance a large scale effort. Major concerns are promotion and distribution.

A rollout strategy is to be preferred when: The firm has limited resources and needs to grow through organic development. The firm enjoys a sustainable competitive advantage. There is only a limited threat of competitive reaction. Sometimes called a ‘waterfall’ strategy. May follow an ‘oil spill’ approach moving gradually from one area to the next; or a ’pigeon’ approach when target the most attractive markets sequentially irrespective of geography

Where a rollout strategy is feasible some form of test marketing is often recommended.

Test marketing may be defined as a small scale trial of the proposed marketing mix in a sub-market believed to be representative of the larger regional or national market. Its objectives may be both mechanical and commercial.

The mechanical objectives of a test market are to assess arrangements for handling and storing materials, producing and distributing the product in good condition, and monitoring distributor/retailer performance. The commercial objectives of a test market are to evaluate the mix elements working together and provide forecasts of likely sales.

While test marketing is given considerable attention in most marketing textbooks, it should be remembered that these books are usually concerned with fast moving consumer good (FMCG) and large companies operating in mature markets. This represents a minority of all new product launches and is the exception rather than the rule.

Most companies avoid test marketing because: It gives advance warning to your competitors of your Intentions. It allows them to benchmark your product and monitor its performance. It is only possible to measure one mix element at a time. It is virtually impossible to find a test market which is representative of the total market. Proper execution of the preceding steps should have provided clear guidance as to the preferred strategy.

To avoid the risks and costs associated with real test marketing many firms simulate test markets although this may be seen as an extension of the beta or product testing phase. Similarly, major multinational companies may launch in their domestic market first and then rollout into other national or regional markets on the basis of their experience in the home market.

Four basic factors govern the selection of a launch strategy: The degree of novelty Existing familiarity with and position in the intended market Current status of competition and response expected to the launch The resources available The critical thing is to define the market in terms of potential segments, select those to be targeted and then choose positioning within each segment. These choices will influence the choice of marketing mix and the timing of entry – First mover vs fast follower.

Other strategic factors are: Source of competitive advantage Characteristics of the markets to be served Breadth of the segment(s) served Order of entry versus competitors Size of production scale on entry

A successful launch strategy depends heavily upon the firm’s ability to target those customers for whom the product will be perceived as offering the greatest advantage. Innovators fall into three broad categories: People who get added value from being first. People who have a very strong need for the product and are actively seeking a solution to a need. People who can afford to experiment.

Roger’s five characteristics offer a useful approach to identifying the early adopter: Relative advantage Compatibility Complexity Divisibility Communicability

Radically new products may appeal to several different market segments. The marketing decision is which to approach first, i.e. which is likely to be most receptive. This segment must be targeted and a decision made on how to position the product within the segment. Positioning is achieved through the selection of the marketing mix, and especially the communication strategy.

For successful communication to occur four basic conditions must be fulfilled: The message must be so designed and delivered as to gain the attention of the intended destination. The message must employ signs which refer to experience common to source and destination, so as to ‘get the meaning across’. The message must arouse personality needs in the destination and suggest some ways to meet those needs. The message must suggest a way to satisfy the need in the context in which the destination finds himself. Reasons for failure include: Unrealistic forecast of market size/ strength of potential demand Wrong timing due to poor estimate of market ‘climate’. Poor segmentation and targeting Insufficient promotion/distribution to gain awareness and make impact Poor implementation.