1. Marketing Tools for Marketing Managers (May 1998). Penn State University 1 New Product Design G Role of design in new product development G Conjoint Analysis for product design G Designing a hotel exercise G Xerox conjoint study

2. Marketing Tools for Marketing Managers (May 1998). Penn State University 2 Where companies want to put their efforts in new product development: u Getting our new products to the market on time, as planned (76% of companies interviewed). u Improving the appeal of our new products to customers (73%). u Developing our new products faster from concept to introduction (68%). u Developing products that are easier to manufacture, sell, install, and service (61%). u Reducing costs/investments related to new product development and introduction (47%). u Reducing the payback period of our new products (47%). u Increasing the number of new products (44%) Arthur D. Little Worldwide Survey

3. Marketing Tools for Marketing Managers (May 1998). Penn State University 3 Breakdown of Success Factors: Process versus Environment Source: Robert G. Cooper, Winning at New Products (1993)

4. Success measured using four factors: (1) whether it met or exceeded management’s criteria for success, (2) the profitability level (1-10 scale), (3) market share at the end of three years, and (4) whether it met company sales and profit objectives (1-10 scale). Source: Robert G. Cooper, Winning at New Products (1993 ) New Product Management (Spring 1998), Penn State University 4

5. Source: Robert G. Cooper, Winning at New Products (1993) New Product Management (Spring 1998), Penn State University 5

6. Source: Robert G. Cooper, Winning at New Products (1993) New Product Management (Spring 1998), Penn State University 6

7. Source: Robert G. Cooper (1993) New Product Management (Spring 1998), Penn State University 7

8. Marketing Tools for Marketing Managers (May 1998). Penn State University 8 Value of Good Design 80% of a product’s manufacturing costs are incurred during the first 20% of its design (Varies with product category).

9. Marketing Tools for Marketing Managers (May 1998). Penn State University 9 A way to understand and incorporate the structure of customer preferences into the new product design process. In particular, it enables one to evaluate how customers make tradeoffs between various product attributes. The basic output of conjoint analysis are: A numerical assessment of the relative importance that customers attach to attributes of a product category The value (utility) provided to customers by each potential feature of a product What is Conjoint Analysis?

10. Marketing Tools for Marketing Managers (May 1998). Penn State University 10 Why is Conjoint Analysis Useful? G Designing new products that enhance customer value G Forecasting sales/market share of alternative product concepts G Identifying market segments for which a given concept has high value G Identifying the “best” concept for a target segment

11. Marketing Tools for Marketing Managers (May 1998). Penn State University 11 Measuring Importance of Attributes When ordering a computer, how important is… Circle one Not Very Important Price 1 2 3 4 5 6 7 8 9 Performance 1 2 3 4 5 6 7 8 9 Reliability 1 2 3 4 5 6 7 8 9 Delivery time 1 2 3 4 5 6 7 8 9

12. Marketing Tools for Marketing Managers (May 1998). Penn State University 12 Should we offer our business travelers more room space or a fax machine in their room? Should we offer more leisure-time activities (sauna, exercise room, tennis courts) or more food related services (several dining options, vending machines, in-room kitchen facilities)? Given a target cost for a product, should we enhance product reliability or its performance? Should we use a steel or aluminum casing to increase customer preference for the new equipment? How Do We Resolve These “Design” Questions?

13. Marketing Tools for Marketing Managers (May 1998). Penn State University 13 Attributes Price (4 options) Delivery_terms (4 options) Perf. specs Delivery timePrice Exceed by 20% 6 months$600k Exceed by 5% 9 months$700k Meet specs 12 months$800k Short by 5% 15 months$900k Delivery terms Installed, 2-year guarantee Installed, 1-year guarantee Installed, service contract FOB seller, service contract A total of 256 (4x4x4x4) different offerings can be designed from these options! An Example Conjoint Study: Air Pollution Control Equipment Performance specs (4 options) Delivery time (4 options)

14. Marketing Tools for Marketing Managers (May 1998). Penn State University 14 Data for Conjoint Analysis: Paired Comparisons DeluxeMid-levelmodel Performance specsExceed by 20%Exceed by 5% Delivery time12 months6 months Price700k700k Delivery termsInstalled, 1 yearInstalled, service contract Which do you prefer? Which one would you buy?

15. Marketing Tools for Marketing Managers (May 1998). Penn State University 15 Data for Conjoint Analysis: Full-Profile Ratings or Rankings ProductPerf_spec Del_time Price Del_terms Example bundle Preference number score 1Exceed_20% 6_months $600k Inst_2yr 100 2Exceed_20% 9_months $700k Inst_ser 80 3Exceed_20% 12_months $800k FOB_ser 40 4 Exceed_20% 15_months $900k Inst_1yr 20 5 Exceed_5% 6_months $700k Inst_1yr 70 6 Exceed_5% 9_months $600k FOB_ser 75 7Exceed_5% 12_months $900k Inst_ser 65 8Exceed_5% 15_months $800k Inst_2yr 70 9Meet_specs 6_months $700k Inst_ser 50 10Meet_specs 9_months $900k Inst_2yr 20 11Meet_specs 12_months $600k Inst_1yr 40 12Meet_specs 15_months $700k FOB_ser 30 13Short_5% 6_months $900k FOB_ser 5 14Short_5% 9_months $800k Inst_1yr 10 15Short_5% 12_months $700k Inst_2yr 10 16Short_5% 15_months $600k Inst_ser 0

16. Marketing Tools for Marketing Managers (May 1998). Penn State University 16 Example Part Worth for Attributes

17. Marketing Tools for Marketing Managers (May 1998). Penn State University 17 Example Part Worths for Attribute Options

18. Marketing Tools for Marketing Managers (May 1998). Penn State University 18 U(P) =  a ij x ij a i=1 k j=1 P:A particular product/concept of interest U(P):The utility associated with product P a ij :Utility associated with th jth level (j = 1, 2, 3...k j ) on the ith attribute k j :Number of levels of attribute i m:Number of attributes x ij :1 if the jth level of the ith attribute is present in product P 0 otherwise Conjoint Utility Computations

19. Marketing Tools for Marketing Managers (May 1998). Penn State University 19 G The relevant market consists of products P 1, P 2,...P N. Some of theses may be existing products and, others concepts being evaluated. G (Assume) Each consumer will prefer to buy the product with the highest utility among those available Then forecasted market share for products P i is given by: Where K is the number of consumers who participated in the study Market Share Forecasts

20. Marketing Tools for Marketing Managers (May 1998). Penn State University 20 G Market consists of three products and three customers Product Market Share Computation (Air Pollution Control Equipment) Waste watchThermatrixWahlco Performance specs Exceed 5% Exceed 20%Meet Specs Delivery time 9 months 9 months6 months Price $800k $900k$600k Delivery terms FOB_ser Inst_1YrInst_ser

21. Marketing Tools for Marketing Managers (May 1998). Penn State University 21 Market Share Computation: (Air Pollution Control Equipment) Sunoco Mattel ICI Base 0 0 0 Meet specs 5 10 10 Exceed 5% 35 0 40 Exceed 20% 40 0 50 12 months 20 5 3 9 months 30 20 8 6 months 40 10 10 $800k 5 20 2 $700K 8 35 5 $600K 10 50 10 Inst_ser 6 5 10 Inst_1Yr 8 10 20 Inst_2Yr 10 20 30 Customer’s Utility

22. Marketing Tools for Marketing Managers (May 1998). Penn State University 22 Computed Utility for Products Market Share Computation: (Air Pollution Control Equipment) Waste Watch ThermatrixWahlco Sunoco 70 78 61 Mattel 40 30 75 ICI 50 78 40 G Maximum Utility Rule: If we assume customers will only buy the product with the highest utility, the market share for Thermatrix is 2/3 and 1/3 for Wahlco. G Share of preference rule: If we assume that each customer will buy each product in proportion to its utility relative to the other products, then market shares for the three products are: Waste Watch: 30.3% Thermatrix: 34.8 Wahlco: 34.9

23. Marketing Tools for Marketing Managers (May 1998). Penn State University 23 Situations Where Conjoint Analysis Might Be Valuable G The new concept involves important tradeoffs affecting design, production, marketing, or other operational variables. G Product/service is realistically decomposable into a set of basic attributes. G Product/service choice tends to be high involvement. G Factorial combinations of basic attribute levels are believable. G Desirable new-product alternatives can be synthesized from basic alternatives. G Product/service alternatives can be realistically described, either verbally or pictorially. (Otherwise, actual product formulations should be considered). G Perceptions of hypothetical combinations are reasonably homogeneous across members of the target group.

24. Marketing Tools for Marketing Managers (May 1998). Penn State University 24 Conjoint Study at Xerox Color Printer/Finisher Module Study Purpose of Study To determine the equipment capabilities most needed in a digital production printing/copying environment.

25. Marketing Tools for Marketing Managers (May 1998). Penn State University 25 G Determine the “tradeoffs” individuals in production management and supervisory positions were willing to make with respect to Black & White digital production printing and copying equipment. G Collected data via a PC-based interview. G Obtained additional information relating to respondents’ current environment through self-administered paper and pencil survey. G Respondents were pre-recruited by telephone. Those meeting the necessary qualifications and who agreed to participate, were invited to a central location where the interview was administered. Each respondent was paid $75 to participate. Conjoint Study

26. Marketing Tools for Marketing Managers (May 1998). Penn State University 26 Sample Size/Composition A total of 159 interviews were conducted among respondents as follows: Commercial Printer48 CRD/In-Plant47 Quick Printer45 Service Bureau 9 Form Printer 5 Book Printer 4 Other 1 TOTAL 159

27. Marketing Tools for Marketing Managers (May 1998). Penn State University 27 All Respondents were required to meet the following qualifications : u Production/General Manager in charge of printing or copying u Extremely/Very familiar with work process in shop u Have primary/shared responsibility in purchase decision process for new production printing or copying equipment u Print 800,000 or more impressions or pages in average month u Willing to participate in study Sample Size/Composition (Contd..)

28. Marketing Tools for Marketing Managers (May 1998). Penn State University 28 Attributes and Options PRINT QUALITY 1. Indigo (Sample K) 2. Xeikon (Sample L) 3. GTO-DI (Sample M) 4. Breakthrough (Sample N) 5. Tetra (Sample O) SERVICE and SUPPLIES COST per PAGE 1. $25 for 1,000 full color pages 2. $35 for 1,000 full color pages 3. $50 for 1,000 full color pages 4. $75 for 1,000 full color pages 5. $125 for 1,000 full color pages EQUIPMENT PURCHASE PRICE 1. $200,000 2. $250,000 3. $300,000 4. $400,000 5. $500,000 SERVICE CONTRACT 1. Flat fee with unlimited print volume 2. Lower flat fee plus a fixed cost/page 3. Flat fee plus a graduated cost/page 4. None-Service billed on time & materials basis

29. Marketing Tools for Marketing Managers (May 1998). Penn State University 29 Attributes and Options OPERATOR vs. SERVICE TECHNICIAN 1. 80% of service hrs by trained operator/20% by service tech. 2. 50% of service by trained operator/50% by service tech. 3. 0% of service hrs by trained operator/100% by service tech. PRINT SPEED 1. 35 PPM Simplex (BW&C)/70 PPM Duplex (BW&C) 2. 70 PPM Simplex and Duplex (BW&C) 3. 100 PPM Simplex (BW&C)/200 PPM Duplex (BW&C) 4. 70 PPM Simplex (BW&C)/140 PPM Duplex (BW&C) 5. 100 PPM Simplex and Duplex (BW&C) SYSTEM CONFIGURATION 1. Printing device incorporates on-line screening 2. Printing device incorporates on-line finishing 3. Printing device incorporates on-line scanning AND finishing SERVICE ACTIONS 1. 5 service actions/1,000,000 prints 2. 10 service actions/1,000,000 prints 3. 15 service actions/1,000,000 prints 4. 20 service actions/1,000,000 prints

30. Marketing Tools for Marketing Managers (May 1998). Penn State University 30 Attributes and Options MAINTENANCE 1. 80% of service hours are scheduled/20%unscheduled 2. 50% of service hours are scheduled/50% unscheduled 3. 20% of service hours are scheduled/80% unscheduled OPERATOR TRAINING 1. Operator is fully skilled after one month of full-time training 2. Operator is fully skilled after two weeks of full-time training 3. Operator is fully skilled after one week of full-time training

31. Marketing Tools for Marketing Managers (May 1998). Penn State University 31 Simulation Inputs - Competing Products

32. Marketing Tools for Marketing Managers (May 1998). Penn State University 32 Some Resources for Tracking Developments in Conjoint Analysis G http://www.nevada.edu/~huc/html/conj.html G http://www.sawtooth.com

33. Marketing Tools for Marketing Managers (May 1998). Penn State University 33 A Conjoint Application at Xerox G Early 1980’s: Running out of good sites for typical full-service Marriott hotels. G Idea: new chain for dissatisfied travelers u Business travelers? (6+ trips/midweek) u Pleasure travelers? (2+ trips/stay in hotels/motels) G Hotel chain should: u Offer good value for the money u Have minimal cannibalization of Marriott’s other facilities u Offer market position with competitive advantages G Conjoint Analysis with 50 attributes (2-8 options/attribute)

34. Marketing Tools for Marketing Managers (May 1998). Penn State University 34 Some Hotel Design Features  building shape  landscape design  pool type and location  hotel size  room size &decor  type of heating & cooling  location/type of bathroom  type/location of restaurant  room service  vending services/stores  in-room kitchen  location  atmosphere  type of people (clientele) G External factors G Rooms G Food-related services G Lounge facilities

35. Marketing Tools for Marketing Managers (May 1998). Penn State University 35 Some Hotel Design Features (Continued)  reservations  registration/checkoutl  limo to airport  bellman  message center  secretarial service  car rental  maintenance  sauna  exercise room  racquetball courts  tennis courts  game room  children’s playroom & yard  security guards  smoke detectors  24 hours video G Services G Leisure facilities G Security factors

36. Marketing Tools for Marketing Managers (May 1998). Penn State University 36 Courtyard Marriott: Implementation G From 3 test hotels in 1983, by late 1988, 175 “Courtyard by Marriott” hotels were opened. G Fastest growing moderately priced hotel chain in U.S. G Market share + 4% of that projected by conjoint simulation. G Occupancy rate above industry average. G Grew to 300 hotels by 1994, sales over $1 billion, 14,000 new jobs G Created new market segment (5 new clone chains have been developed).

37. Cheap (<$25)  Amplifies human voice only Hands-free  operation Multiple functions  Light weight  Durable  Listening Enhancer Contributes to benefit  Distracts from benefit 1,000-4,000 Hz operation Standard Batteries Press-mold Manufacture Piezo-Electric Speaker Customer Benefits Technical Aspects What do to After Conjoint Analyis? (“The House of Quality” Concept)

38. Marketing Tools for Marketing Managers (May 1998). Penn State University 38 G Additional qualifications per segment were as follows: u COMMERCIAL PRINTER v Majority of prints produced consist of 4 or more colors v Produce at least some prints in black and white u QUICK PRINTER/CRD v Have 2 or more color copiers or use offset equipment to print in two or more colors v Produce at least some prints in black and white u BOOK PRINTER v Produce at least some output in 2 or more colors u FORM PRINTER v Produce 25% or more of output in 2 or more colors u SERVICE BUREAU v Offer services to outside customers or firms v Process color prints by offset press or color copier v Produce at least some output in 2 or more colors SAMPLE SIZE / COMPOSITION

39. Marketing Tools for Marketing Managers (May 1998). Penn State University 39 Conjoint Exercise Importance Ratings (9-point scale) v Type of Stock for Output v Printer Capabilities for Full Process Color v Printer Capabilities for In-Line Finishing Scanning Location Preference Likelihood to Purchase Ratings (5-point scale) AM MultigraphicsKomori AgfaRyobi CanonScitex HeidelbergXeikon IndigoXerox IBM / Pennant COMPUTER QUESTIONNAIRE