New Product Management (3)

Chapter 3: Opportunity Identification & Selection – strategic planning for new products

Strategy is the foundation for new products management & serves as a loose harness for the integration of all the people & resources used in generating new products. Bausch & Lomb almost lost its market position when its managers concentrated too much on improving old products. Being forced to review their strategy, they found many more opportunities.

Much innovation is done by very small firms – their focus, their ease of communication & cooperation, their clear dependence on some strength that has to succeed if the firm is to succeed. They are a working unit that larger firms imitate.

New product people act as a company within a company. They do everything the company as a whole would do*: develop & allocate a budget, do financial analysis and projections, assign & implement tasks & responsibilities, and etc. A new products strategy charts the group decision (what markets areas they should be looking for new business in). This new products strategy is called the product innovation charter (PIC).

New product strategy inputs

Corporate leaders make many strategy statements. Top-level statements like this guide a whole firm, and are parts of something called mission statement (Kellogg’s president insists that the firm was in the cereal business – every new product team had to put restriction into any team mission statement they wrote; only in recent years that its corporate strategy was changed). Corporate strategy affects product platforms & individual product projects. A platform can be a technology, a design, a subsystem – anything that can be shared by one or more product families (Chrysler LH car platform resulted in Concorde & Intrepid models, and famous author’s name on the cover is also a type of platform). Firms find that it is not efficient to develop a single product (it may cost $3 billion to develop a new car), so marketers try to spread these costs over several models (product families that share similarities in design, development, or production process). However, Customers often want distinct products, while common products produce the greatest cost efficiencies – therefore, the firms need to decide on the level of commodity to attain. Planning for product platforms is difficult work; there need to be excellent cross-functional communication, serious top-management involvement & support. BMW continue to develop each model individually, believing that sharing a common platform would hurt its cars’ appeal.

As brands are normally billion $ assets, brand platforms are normally personally driven by CEOs. Brands can serve as the launching pad for scored of products, and any team using a platform brand must conform to the strategy of that brand. Brand equity is the value of an established brand. The measurements through market research tell the amount of free promotion & integrity the brand equity brings to a new item that uses it. A poor product concept will not succeed just because of a good brand name, and may indeed damage the brand’s equity. There is also a category platform (product type or customer) – most marketing effort is conducted at category group level. A strategic business unit is also a platform.

Firms are trying hard to look for new opportunities, it takes time and money – They essentially audit the firm & any environment relevant to it. Opportunities can come from many different sources: underutilized or new resources, mandates originating external to the firm or internal mandates.

Non-corporate strategic planning: Although many strategic planning comes from the top down, much also come from the heads of functions (marketing, technical, production, and finance, as well as suppliers & Customers). The greatest functional inputs come from marketing, where ongoing planning utilizes a range of techniques designed to give sharper market focus & new positioning. A variation of product-market matrix: risk in changing in use/ user mode and risk in change in operations or marketing mode. Inputs can also start at the lower level of activity & influence upwards, as when a new product is so successful it drives corporate strategy to change (pharmaceutical firm can be so successful in new proprietary food product that a new division & strategy was created).

The Product Innovation Charter (PIC) – it reminds us that the strategy is for products, not processes & other activities (should be in writing but it often is not). It is for innovation and it is indeed a charter. PIC can be thought as a kind of mission statement, but applied at a micro level within the firm and adapted to new product activities. Most firms have PIC, though it may not go by that name, and PIC works – firms with PIC were found to outperform others in new product performance. PIC consists of:

1) Background – keys ideas from the situation analysis, reasons for preparing PIC
2) Focus – clear technology & market dimension which should match & have good potential
3) Goal-objectives – what the project will accomplish (short & long term). Evaluation measurements.
4) Guidelines – any rules/ requirements imposed by the situation/ upper management.

Focus – it takes focus to unlock the necessary power of innovation to convert limited resources into a strong competitive thrust. Core competencies are an excellent place to start the search for charter arena (focus) definitions. We can narrow the focus by targeting & segmentation. It is achieved by using 4 types of strengths or leverage capabilities: technology, product experience, C franchise, and end-use experience. Licensing or acquisition can also be used to acquire technologies or market strengths. However, relying solely on technology is risky (we are not sure if it is what Customers want). Letting Customers stated wants drive product is unlikely to work well, except when there is enormous unmet needs and very slow-reacting competitors (Fujitsu bet on technology & lost, while NEX bet on C needs & won). There are 3 market drivers:

i) Technology drivers – the most common technological strengths are in the laboratories

ii) Market drivers – 2 market sources: Customer group and end-use. The best new product ideas are based on customer problems, and these served as the heart of the concept generation process. Service firms find customer-focus comfortable as their operations involve customer as an actual co-producer of the service. They simply involve C as an integrated partner in the new product development process. A variation on the single- customer focus is mass customization – where we offer all Customers a product of their individual choice. As for the focus on end use (skiing would lead to new lodges, new slopes, new travel package, and services for lodge owners)

iii) Combinations: Dual-drive – Penn Sports put their tennis ball technology to making ling of ball toys for dogs, Toto use global-satellite technology on being golf course superintendents, and Gap use a dual drive of EU styles & American women. The best option is a balanced or dual-drive strategy.

Goals & Objectives – anyone working on product innovation ought to know the purpose because work can change in so many ways if the purpose changes. Goals are longer-range, general direction of moment (market dominance), whereas objectives are short-term, specific measures of accomplishment (25% market share in 5 yrs). There are three types of goals & objectives: profit, growth, and market status (market share).

Guidelines (rules of the road) - There may be managerially imposed, or consensus thinking of team members (certainly strategic)

i) Degree of innovativeness – first-to-market (pioneering) is a risky strategy. There are 3 ways to get into it: state-of-the art breakthrough often used by pharmaceutical (but most 1st-to-market product do not extend the state of the art; instead they tweak technology in a new way). Leverage creativity (most common) – thinking up creative applications to arrive at new product. Applications engineering – the technology may not be changed at all, but the use it totally new. Adaptive product – taking one’s own or a competitive product & improving it in some way. Adaptation alone is also risky. The pioneer often obtains a permanent advantage; if other things are equal, the 1st product in a new market gains an average market share of around 30%. The 2nd firm can take over the market if its adaptation is clearly superior. Imitation (or emulation) – wait to see winners emerge from pioneers & early adopters. Also has its risk as a firm cannot wait too long to enter the market as the earliest firm may have established loyal customer bases & ties to the supply networks & distribution channels (there is also patent, trademark, copyright problem).

ii) Timing – 4 options: 1st (pioneering), quick 2nd (tries to capture a good 2nd-share position, perhaps making no significant improvement or just enough to promote – have to enter before the innovator is successful. It is often seen as a forecaster of how successful the innovator will be), slower (safer as a firm knows the outcome of the pioneer’s efforts & has time for meaningful adaptation – but good marketing opportunities may be taken by quick 2nd), and late (usually a priced entry keyed to manufacturing skills.

iii) Miscellaneous guidelines – some firms recognize weaknesses (a pharmaceutical firm may say “It must be patentable” A smaller firm may say “All products must be part of the system”). There is also product integrity – all aspects of the product are internally consistent (Honda was successful in putting a new steering system in a coupe with sporty image, while Mazda failed when putting it in a 5-door hatchback, positioned for safety).

How to prepare PIC?

First, look for opportunities inside or outside the firm (potential options in technologies/ marketplaces are surrounding us), then evaluate, rate, and rank them (most valuable creative skill in product innovation is the ability to look at a building an operation, or a department & visualize how it could be used in a new way). Then fill out the PIC forms: focus, goals, and guidelines.

The new product’s strategic fit

With a written PIC, upper management must approve them and it must fit as a part of the firm’s overall business strategy – it should provide an appropriate balance to other products already being offered, before allocating any scare financial resources to it (many firms use product-portfolio approach).