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Developing New Market Offerings

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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 Objectives In 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 Objectives What 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-patronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior. The Value Proposition The whole cluster of benefits the company promises to deliver

5 Measuring Satisfaction
Periodic surveys Customer loss rate Mystery shoppers Monitor competitive performance

6 Product and Service Quality
Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. Quality Conformance Performance

7 Total Quality Management
TQM is an organization-wide approach to continuously improving the quality of all the organization’s processes, products, and services.

8 Maximizing Customer Lifetime Value
Customer profitability Customer equity Lifetime value Estimating Lifetime Value Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000

9 Drivers of Customer Equity
Value equity Brand equity Relationship equity Framework for CRM Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer

10 CRM Strategies Reduce rate of defection Increase longevity
Enhance share of wallet Terminate low-profit customers Focus more effort on high-profit customers

11 Mass vs. One-to-One Marketing
Average customer Customer anonymity Standard product Mass production Mass distribution Mass advertising One-way message Economies of scale One-to-One Individual customer Customer profile Customized market offering Customized production Economies of scope Share of customer

12 Customer Retention Acquisition 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.

13 Describing Market Dynamics
Permanent capture markets Simple retention markets Customer migration markets Building Loyalty Proactive Partnership Basic Reactive Accountable

14 Reducing Customer Defection
Define and measure retention rate Distinguish causes of customer attrition Estimate profit loss associated with loss of customers Assess cost to reduce defection rate Gather customer feedback Forming Strong Customer Bonds Add financial benefits Add social benefits Add structural ties

15 Database Key Concepts Using the Database
Customer database Database marketing Mailing list Business database Data warehouse Data mining Using the Database To identify prospects To target offers To deepen loyalty To reactivate customers To avoid mistakes

16 Developing New Market Offerings
Six categories of new products New-to-the-world products New product lines Additions to existing product lines Improvements and revisions of existing products Repositioning Cost reductions

17 Challenges in New-Product Development
Incremental innovation Disruptive technologies Why 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 development Shortage of important ideas in certain areas Fragmented markets Social and governmental constraints Cost of development Capital shortages Faster required development time Shorter product life cycles

20 Organizational Arrangements
New-product deployment requires specific criteria – one company established the following acceptance criteria The product can be introduced within five years The 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 Development 3M’s approach: 15% rule Each promising idea gets an “executive champion” Expect some failures Golden Step awards handed out each year

22 Organizational Arrangements
Organizing New-Product Development Product managers New-product managers High-level management committee New product department Venture teams Stage-gate system Gatekeepers make one of four decisions: Go Kill Hold Recycle

23 Steps in New Product Development
Idea Generation Idea Screening Steps in New Product Development Concept Develop & Test Marketing Strategy Product Development Market Testing Commercialization

24 Idea Generation Interacting with Others
Sales representatives Intermediaries Product champion Techniques for stimulating creativity in individuals and groups Attribute listing Forced relationships Morphological analysis Reverse assumption analysis New contexts Mind-mapping

25 Idea Screening Idea manager Idea committee
Two types of errors in screening ideas DROP-error GO-error

26 Product-Idea Rating Device
Relative Weight Product Score Product Rating Product Success Requirements (a) (b) (c = a x b) Unique or superior product .40 .8 .32 High performance to cost ratio .30 .6 .18 High marketing dollar support .20 .7 .14 Lack of strong competition .10 .5 .05 Total 1.00 .69  Rating scale: poor; fair; good. Minimum acceptance rate: .61

27 Concept Development and Testing
Product idea Product concept Concept development Category concept Product–positioning map Brand concept Concept Testing Rapid prototyping Virtual reality Customer-driven engineering

28 Concept Development and Testing
Questions to measure product dimensions Communicability and believability Need level Gap level Need-gap score Perceived value Purchase intention User targets, purchase occasions, purchasing frequency Conjoint Analysis Example: five design elements Three package designs Three brand names Three prices Possible Good Housekeeping seal Possible money-back guarantee

29 Marketing Strategy Target market’s size, structure, and behavior
Planned price, distribution, and promotion for Year 1 Long-run sales and profit goals and marketing-mix strategy over time Business Analysis Estimating Total Sales Survival-age distribution Estimating Cost and Profits Break-even analysis Risk analysis

30 Product Development Quality Function Deployment (QFD)
Customer attributes (CAs) Engineering attributes (EAs) Customer tests Alpha testing Beta testing Consumer preference measures: Rank-order Paired-comparison Monadic-rating

31 Market Testing Consumer-Goods Market Testing
Seeks to estimate four variables Trial First repeat Adoption Purchase frequency Sales wave research Simulated Test Marketing Controlled Test Marketing Test Markets How 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 entry Parallel entry Late entry Where (Geographic Strategy) To Whom (Target-Market Prospects) How (Introductory Market Strategy) Critical path scheduling (CPS)

33 The Consumer-Adoption Process
Consumer-loyalty process Mass-market approach Heavy-usage target marketing Stages in the Adoption Process Innovation Innovation diffusion process

34 The Consumer-Adoption Process
Adopters of new products move through five stages Awareness Interest Evaluation Trial Adoption Factors Influencing the Adoption Process Readiness 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 influence Characteristics of the Innovation Relative advantage Compatibility Complexity Divisibility Communicability Organizations’ Readiness to Adopt Innovations

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