Chapter 9 (Marketing) PDF

9 OBJECTIVES OUTLINE Developing New Products and Managing the Product Life Cycle OBJECTIVE 9-1 Explore how companies find and develop new product ideas. OBJECTIVE 9-2 Define the step...

9 OBJECTIVES OUTLINE Developing New Products and Managing the Product Life Cycle OBJECTIVE 9-1 Explore how companies find and develop new product ideas. OBJECTIVE 9-2 Define the steps in the new product development process and the major considerations in managing this process. OBJECTIVE 9-3 Describe the stages of the product life cycle and how marketing strategies change during a product’s life cycle. OBJECTIVE 9-4 Discuss two additional product issues: socially responsible product decisions and international product and services marketing. CHAPTER I­n the previous chapter, you learned how different marketing strategies and tactics. Finally, we wrap up our marketers manage products and brands. product discussion by looking at two additional considerations: PREVIEW In this chapter, we examine two additional social responsibility in product decisions and international prod- product topics: developing new products and managing prod- uct and services marketing. ucts through their life cycles. New products are the lifeblood of For openers, consider Google, one of the world’s most in- an organization. However, many new products fail. So, the first novative companies. Google seems to come up with an almost part of this chapter lays out a process for finding and growing unending flow of jaw-dropping new technologies, products, and successful new products. Once introduced, marketers then want services. The company’s entire culture encourages, supports, their products to enjoy long and happy lives. In the second part of and rewards innovation. At Google and its parent company the chapter, you’ll see that every product passes through several Alphabet, innovation isn’t just a process. It’s in the very spirit of life-cycle stages, and each stage poses new challenges requiring the place. GOOGLE (...er, ALPHABET): The New Product Moon Shot Factory G oogle is wildly innovative. Over the past decade and worldwide online search stands at a breathtaking 86 percent— a half, it has become a top-five fixture in every list of a virtual Google-opoly. Its grasp on mobile search is even stron- most-innovative companies. Google simply refuses ger at 95 percent. Google also dominates in paid search-related to get comfortable with the way things are. Instead, advertising revenue, which accounted for a large majority of the company’s $257 billion in revenues last year. And Google it innovates constantly, plunging into new markets and taking is growing at a blistering rate, with revenues nearly doubling on new competitors. in just the past three years. Google began as an online search company with a mission But Google is now much more than just an online search “to organize the world’s information and make it universally and advertising company. In Google’s view, information is a accessible and useful.” In that mission, Google has been spec- kind of natural resource—one to be mined, refined, and uni- tacularly successful. Despite formidable competition from gi- versally distributed. That broad perspective gives Google’s ants Microsoft, Yahoo!, and China’s Baidu, Google’s share of engineers and developers a blank canvas, a broad brush, and M09_KOTL9364_19_GE_C09.indd 282 25/02/23 2:23 PM  CHAPTER 9 | Developing New Products and Managing the Product Life Cycle 283 plenty of incentive to innovate. At many companies, new prod- uct development is a cautious, step-by-step affair that might take years to unfold. In contrast, Google’s freewheeling new product development process moves at the speed of light. In the time that it takes most competitors to refine and approve an initial idea for a major new product or service, Google has already implemented it. Google’s famously chaotic innovation process has un- leashed a seemingly unending flurry of diverse products, many of which are market leaders in their categories. Although diverse, many of these innovations are tied in one way or another to Google’s internet-related information mission. Google’s megahits include an email service (Gmail), proj- ects for mapping and exploring the world (Google Maps and Google Earth), a cloud-based suite of office products (Google Google and parent company Alphabet are wildly innovative. The Docs, Google Sheets, and Google Slides), a cloud file storage company’s innovation machine is renowned for producing new service (Google Drive), an online payment service (Google product “moon shots,” futuristic long shots that, if successful, will Pay), a photo-sharing service (Google Photos), a mobile op- profoundly change how people live. erating system (Google Android), a suite of cloud computing VovanIvanovich/Shutterstock services (Google Cloud), and a cloud-friendly internet browser (Chrome). more diverse, Google created a parent holding company called Although Google has traditionally focused on software- Alphabet to contain them all. based innovations, it now has a strong presence in hardware, Google is the largest Alphabet company—it continues to with smartphones, tablets, and laptops (Pixel); connected house information- and internet-related software and hard- smarthome devices (Google Nest); AI virtual assistant and ware products. But along with Google, Alphabet provides smarthome speakers (Nest Mini, Nest Audio); and a set of an independent home for the company’s more far-reaching small, wireless ear buds (Pixel Buds). Google connects its projects and businesses. These include what Alphabet calls hardware and information worlds by infusing the hardware “moon shots”—futuristic, breathtakingly idealistic long shots with sophisticated algorithms and artificial intelligence. For that, if successful, will profoundly change how people live. To example, Google’s Pixel phone can turn standard snapshots foster moon shots, the company created X—a secretive inno- into beautiful portraits by blurring everything but the fore- vation lab and kind of technology wonderland charged with ground subject. And Pixel Buds are more than just wireless developing things that seem audacious, even for Alphabet. headphones—they interface with Google Assistant and put The X innovation lab is Alphabet’s incubator for earthshak- Google Translate front and center, letting people talk to others ing projects that may or may not pay for themselves in the long in multiple languages. run. To get the green light at X, a project must address a huge Nearly a decade ago, Google acquired Nest Labs to es- problem that affects millions or even billions of people, pro- tablish a presence in the Internet of Things (IoT) market. pose a radical solution, and require a breakthrough technology The subsequent development of Google Home and Google to bring about that solution. The goal is to hatch new Googles. Assistant added voice control and AI technology to Nest’s Those stringent requirements “cause us to throw out more than fast-growing smarthome presence. Nest now includes its own 99 percent of our ideas,” says X’s director, whose official title is expanding portfolio of stylish smart speakers and home con- Captain of Moonshots. He differentiates X from Google. “We trol and monitoring devices, along with “Works with Nest” are a creativity organization, not a technology organization.” smart products from other companies. With its portfolio of Secreted behind X’s curtain are numerous exotic projects, thermostats, security systems, doorbells, locks, Wi-Fi routers, such as Tidal (underwater cameras designed to achieve sustain- and smoke alarms, as well as compatible devices that include able fish farming), Mineral (a crop-inspecting robotic buggy everything from light bulbs and mattresses to ovens, Nest has that can troubleshoot, treat, and feed crop plants individually), the potential to help consumers Taara (high-speed data transmission run their entire homes. via beams of light), and the Everyday Google’s unfettered inno- Robot Project (AI robots that can assist Google’s famously chaotic innovation vation process has also taken humans with everyday challenges). the company down paths far process has unleashed a seemingly Many X projects have graduated, afield from its main information unending flurry of diverse new products. becoming full-fledged Alphabet com- mission—everything from self- panies. There’s Waymo, the self-driving But at Google, innovation is more than driving cars to Earth-imaging car project that’s on a mission to make satellites and even an effort a process. It’s part of the company’s it safe and easy for people and things to to increase human life spans. DNA. “Where does innovation happen at move around. Medical technology proj- With so many ventures and in- Google? It happens everywhere.” ect Verily creates health-care devices, novations becoming more and such as glucose-monitoring contact M09_KOTL9364_19_GE_C09.indd 283 25/02/23 2:23 PM  284   PART 3 | Designing a Customer Value–Driven Strategy and Mix lenses that could help identify cancer cells. Chronicle employs In the end, at Google and parent company Alphabet, inno- sophisticated analytics tools that can predict and fight cyber- vation is more than a process—it’s part of the company’s DNA. crimes before they happen. And Wing now employs its fleet of “Where does innovation happen at Google? It happens every- drones to deliver packages in Finland, the United States, and where,” says a Google research scientist. Australia, where it has made over 50,000 deliveries, including 1,200 roast chickens. Talk to Googlers at various levels and departments, and one pow- erful theme emerges: These people feel that their work can change Lesser-known Alphabet companies include investment the world. The marvel of Google is its ability to continue to in- arms GV (funding for bold new startups) and CapitalG (fund- still a sense of creative fearlessness and ambition in its employees. ing for long-term tech projects), Calico (research into fighting Prospective hires are often asked, “If you could change the world age-related disease and increasing life spans), and Brain (AI using Google’s resources, what would you build?” But here, this research and applications). According to Google co-founder isn’t a goofy or even theoretical question: Google wants to know Larry Page, Alphabet’s goal is “to keep tremendous focus on because thinking—and building—on that scale is what Google the extraordinary opportunities” that exist and will exist within does. When it comes to innovation, Google is different. But the Google and the other companies. difference isn’t tangible. It’s in the air—in the spirit of the place.1 AS THE GOOGLE STORY SUGGESTS, companies that excel at developing and managing new products reap big rewards. Every product seems to have a life cycle: It is born, goes through several phases, and eventually dies as newer products come along that create new or greater value for customers. (Remember that here, as elsewhere in the text, we define products broadly to include services and experiences.) This product life cycle presents two major challenges: First, because all products even- tually decline, a firm must be good at recognizing when a product is nearing the end of its life cycle and developing new products to replace fading ones (the challenge of new product development). Second, a firm must be good at adapting its marketing strategies in the face of changing tastes, technologies, and competition as products pass through stages (the chal- lenge of product life-cycle strategies). We first look at the problem of finding and developing new products and then at the problem of managing them successfully over their life cycles. Author New products are the Comment lifeblood of a company. As New Product Development Strategy old products mature and fade away, OBJECTIVE 9-1 Explore how companies find and develop new product ideas. companies must develop new ones to take their place. For example, Apple’s A firm can obtain new products in two ways. One is through acquisition—by buying a whole iPhone and iPad have been around company, a patent, or a license to produce someone else’s product. For example, Google got for more than a decade and are top- into the smarthome market by acquiring Nest and into mobile navigation by acquiring Waze. selling products in their categories. The other is through the firm’s own new product development efforts. By new products we Yet Apple has to keep them mean original products, product improvements, product modifications, and new brands that refreshed by regularly launching more the firm develops through its own product development. Many of Google’s products and ser- sophisticated and refined models. vices were developed this way. In this chapter, we concentrate on new product development. New products are important to both customers and the marketers who serve them: New product development They bring new solutions and variety to customers’ lives, and they are a key source of com- The development of original products, pany growth. In today’s dynamic environment, many companies rely on new products product improvements, product for the bulk of their growth. For example, new products have almost completely trans- modifications, and new brands through the formed Apple in recent years. The iPhone and iPad—introduced little more than a decade firm’s own product development efforts. ago—are now the company’s two biggest-selling products, together bringing in more than 60 percent of Apple’s total global revenues. And to remain competitive, Apple releases a steady stream of new products and new versions of existing ones.2 Yet innovation can be expensive and risky. New products face tough odds. For ex- ample, by one estimate, of the more than 30,000 new products introduced every year, 95 percent fail.3 Why do so many new products fail? There are several reasons. Although an idea may be good, the company may overestimate market demand. The actual product may be poorly designed. Or it might be incorrectly positioned, launched at the wrong time, priced too high, or poorly advertised. A high-level executive might push a favorite idea despite downbeat marketing research findings. The costs of product development may be higher than expected, the company may run out of money in its effort to widely market the product, or competitors may fight back harder than expected. So companies face a problem: They must develop new products, but the odds weigh heav- ily against success. To create successful new products, a company must understand its consum- ers, markets, and competitors and develop products that deliver superior value to customers. M09_KOTL9364_19_GE_C09.indd 284 25/02/23 2:23 PM  CHAPTER 9 | Developing New Products and Managing the Product Life Cycle 285 Author Companies cannot just Comment hope to stumble across The New Product Development Process good new products. Hope is not a OBJECTIVE 9-2 Define the steps in the new product development process and the strategy. Instead, companies must major considerations in managing this process. develop a systematic new product development process. Rather than leaving new products to chance, a company must carry out strong new prod- uct planning and set up a systematic, customer-driven new product development process for finding and growing new products. Figure 9.1 shows the eight major steps in this process. Idea Generation Idea generation New product development starts with idea generation—the systematic search for new The systematic search for new product product ideas. A company typically generates hundreds—even thousands—of ideas to ideas. find a few good ones. Major sources of new product ideas include internal sources and external sources such as customers, competitors, distributors and suppliers, and others. Internal Idea Sources Using internal sources, the company can find new ideas through many sources. Companies must carefully create organizational structures, processes, and cultures that create an en- vironment where new thinking is part of everyday operations. Such efforts can take many forms: Establishing R&D Research Centers. Companies can develop new product ideas through their own R&D. For example, Ford operates four large “D-Ford” innovation and mobility centers—in London, Shanghai, Detroit, and Palo Alto—where it searches for “new, modern solutions for our overstressed transportation systems...to help shape the un- known future.” Its Palo Alto center alone is home to 300 engineers, designers, and scientists working on everything from driverless cars to Works with Nest apps that let consumers control home heating, lighting, and appliances from their vehicles. The center is focused on “bringing the best of Silicon Valley to accelerate the realization of smart vehicles for a smart world.”4 Similarly, Chick-fil-A has set up three large innovation centers. The first, called Hatch, is an idea hatchery where Chick-fil-A staff and partners explore new ideas in food, design, and service. “It’s a place to explore and imagine the future in order to hatch new food and restaurant ideas and bring them to life.”5 Harnessing Internal Creativity. Beyond its formal internal R&D processes, a company can pick the brains of its own people—executives, salespeople, scientists, engineers, and manufacturing staff—just about everybody in the organization. Many companies have de- veloped successful internal social networks and intrapreneurial programs that encourage employees to develop new product ideas. Consider Google’s “Area 120”:6 Google has long allowed employees to spend up to a fifth of their work time on projects that might later benefit the company. This famous “ 20% time” program has birthed many New product development starts with highly successful innovations, including Gmail, Google News, and the Cardboard VR head- good new product ideas—lots of them. For example, Google’s Area 120 in-house set. But as employees’ day jobs became more demanding, many found that the time spent new product incubator has received more on personal projects became more of an add-on to their normal work hours than a part of than 1,000 new product pitches from them. That is, “ 20% time” became “ 120% time.” To encourage continued internal innovation, Google employees. Concept Marketing Idea Idea development strategy generation screening and testing development The remaining steps reduce the number of ideas and develop only the best ones into profitable products. Of the more than 1,000 new product ideas Business Product Test Commercialization pitched to Google’s Area analysis development marketing 120, only 50 have been accepted. FIGURE 9.1 Major Stages in New Product Development M09_KOTL9364_19_GE_C09.indd 285 25/02/23 2:23 PM  286   PART 3 | Designing a Customer Value–Driven Strategy and Mix Google set up Area 120, an in-house innovation incubator that lets selected employees focus full time on their dream projects. Google employees pitch their project ideas to Area 120 leaders. If selected, the employees leave their previous jobs and receive Google-wide technological expertise and full financial support to turn their ideas into real businesses. Area 120 has received more than 1,000 project pitches and spun off over 50 projects. Successful projects include Tables (a Google Cloud–based col- laborative database program), Stack (an app that digitizes information and extracts important insights), Byteboard (a platform for interviewing software engineers using real-life ex- amples), and AdVR (a platform for managing advertisements in virtual reality). Conducting Focused Hackathons. Many companies spon- sor periodic internal “hackathons,” in which employees take a day or a week away from their day-to-day work to de- Internal new product ideas: To encourage continued internal velop new ideas. Such hackathons are legendary at Facebook. innovation, Google set up Area 120, an in-house innovation incubator that lets selected employees devote full time to their During a Facebook hackathon, “a few hundred of our engi- dream projects. neers unleash their talents in epic, all-night coding sessions Hero Images Inc./Alamy Stock Photo and often end up with products that hit the internal and external versions of the site within weeks,” says one Facebook employee. The social media giant’s hackathons have produced major innovations such as the “Like” button and friend tagging. Such events not only produce fresh new ideas, they can also boost employee morale and engagement. As the employee explains, “the cama- raderie, productivity, and occasional insanity of hackathons have helped make Facebook what it is.”7 Recognizing “Hidden” Ideas. R&D projects may lead to unexpected discoveries that do not serve the purpose of those projects. However, managers must be encouraged to think broadly about other applications for the discoveries. For example, old timers at 3M love to tell the story about 3M R&D scientist Spencer Silver, who started out to develop a super- strong adhesive.8 Instead he came up with one that didn’t stick very well at all. Silver sent the apparently useless substance on to other 3M researchers to see whether they could find something to do with it. Nothing happened for several years. Then 3M scientist Arthur Fry had an idea. As a choir member in a local church, Mr. Fry was having trouble marking places in his hymnal—the little scraps of paper he used kept falling out. He tried dabbing some of Mr. Silver’s weak glue on one of the scraps. It stuck nicely and later peeled off without damaging the hymnal. Thus were born 3M’s Post-it Notes, a product that is now one of the top-selling office supply products in the world. As 3M notes about the product: “Looking back, the birth of our Canary Yellow phenomenon reminded us of a valuable lesson: perse- verance or persistence can be just as important as inspiration when it comes to bringing an idea to life.” Using Technology to Generate Ideas. Today, technology platforms can help managers efficiently generate, churn through, and evaluate thousands of product design ideas that meet required specifications. For example, when Delfast express delivery service in Kyiv, Ukraine, needed new ideas for an optimal vehicle for delivering small parcels quickly, it turned to software from design technology firm Autodesk.9 At first, there appeared to be only two options—motorcycles or bicycles. But motorcycles are expensive and bicycles demand that couriers be in good physical shape—not all of them could pedal all day long. So Delfast looked into ideas for equipping its delivery team with electric bikes. “An electric bicycle is basically a computer on wheels,” says a Delfast product engineer. “This type of transport perfectly fits into the modern digital economy infrastructure.” However, the per- formance characteristics of existing electric bicycles failed to meet Delfast’s requirements— they were too slow, lacked range, and were not durable enough. Technology saved the day. Delfast used Autodesk software—which harnesses enormous computing power to create complex designs—to find and evaluate new design prototype ideas. It ended up with a whole new model of electric bicycle, one that outperformed all others on the market. The new design was so popular with customers that Delfast has now transitioned from a parcel delivery service into a manufacturer of cutting-edge electric bicycles. M09_KOTL9364_19_GE_C09.indd 286 25/02/23 2:23 PM  CHAPTER 9 | Developing New Products and Managing the Product Life Cycle    287 Repurposing Existing Products. Few consumers realize that Clorox, now a popular household laundry, cleaning, and disin- fecting brand, began its life as a commercial, i­ndustrial-strength bleach. Only later did the company recognize the potential of the home market. It then diluted, reformulated, and repack- aged the product to address the home market.10 Given the risks associated with launching entirely new products, companies must first examine whether any of their existing products can be modified and relaunched to enter new markets or appeal to untapped customer segments. Unbundling Existing Offerings. One of the easiest ways to create a new, standalone product is to unbundle an existing collection of offerings. For example, the popular Craftsman brand rechargeable stand-up work light was initially sold only as part of a bundle that included a hand drill, batteries, and Using technology to generate ideas: Delfast uses high-tech software platforms to find and evaluate new electric bicycle other equipment. At some stage, Craftsman marketers realized design prototypes, transforming itself from a parcel delivery that although the stand-up work light was very popular, many service into a manufacturer of cutting-edge electric bicycles. customers already owned a drill and batteries. Others were Ivan Okyere-Boakye Photography/Alamy Stock Photo unwilling to purchase the entire bundle just to obtain the light. In response, the brand launched the stand-up work light as a separate product, which then flew off the shelves. External Idea Sources Companies can also adopt a variety of approaches to glean new product ideas from the external environment. These include the following. Seeking Insights from Suppliers and Distributors. Suppliers and distributors can con- tribute a range of ideas.11 Suppliers often work with a range of companies and industries. That puts them in a position to tell the company about new concepts, techniques, and materials that can be used to develop new products. At the other end of the supply chain, retailers and distributors are close to the market and can pass along insights related to emerging consumer product problems, evolving consumer needs, and potential product designs and innovations. For example, with its “Foot the Bill” customization program, ac- tion footwear and apparel brand Vans partnered with small independent retailers to create custom shoe and apparel designs that best represented the stores and their local communi- ties. The program began as an effort to support small retailers struggling to navigate the COVID-19 pandemic and its devastating impact on small businesses. Net proceeds from “Foot the Bill” merchandise went directly to each of the retail partners involved. In its first year, the program sold 20,962 pairs of custom Vans globally and raised over $4 million for the participating retailers.12 Learning from Competitors. Competitors can provide new product insights. Companies watch competitors’ ads to get clues about their new products. They buy competing new products, take them apart to see how they work, analyze their sales, and decide whether they should bring out a new product of their own. For example, TikTok’s bite-sized video clips took Generation Z viewers by storm, offering perfect snip- pets that fit their ­information-processing styles and their quest for variety. In response, Instagram released its own direct TikTok competitor—Instagram Reels. Users can use Reels to record 15-second videos, set them to music, and share them as an Instagram Story. As one reviewer noted: “In almost every functional way, Reels is TikTok, but built into Instagram.”13 When learning from competitors, companies must be careful not to violate competitor patents or copyrights. And new offerings must be equal to or better than the competitor’s. For example, Reels remains an also-ran to TikTok in the minds of most TikTok users. Learning from Innovation Leaders outside the Industry. In their quest for new product ideas, companies often focus within their own industries. But the most powerful ideas often come from external leaders in other industries. For example, an airline can learn only so much about how to improve customer service by examining the operations of M09_KOTL9364_19_GE_C09.indd 287 25/02/23 2:23 PM  288   PART 3 | Designing a Customer Value–Driven Strategy and Mix other airlines. However, the airline can reap a wealth of unexpected and valuable insights on how to elevate its services by examining how organizations such as Disney theme parks and the Ritz-Carlton hotels create great customer experiences. In fact, at the Disney Institute, Disney formally trains executives from other companies how to elevate their customers’ experiences. The institute’s training programs champion “the Disney way of thinking, with insights that are universally applicable and specifically adaptable.”14 Learning from Customers. A company’s products ultimately serve the needs of custom- ers. Not surprisingly, customers can be a rich, broad, deep, and arguably most important source of ideas for product innovations. Companies often use customer surveys and in- terviews to collect ideas for developing new products and redesigning existing products. However, some of the most valuable insights about customers’ unexpressed needs and pain points come from techniques such as ethnographic research by which researchers un- obtrusively observe customers as they go about their daily lives. For example, engineers at home appliance maker Dyson noted that customers were vacuuming more intensively during the COVID-19 pandemic, driven by the desire to maintain safe and hygienic home environments.15 In response, Dyson built a laser into the Slim Fluffy cleaner head attachment of its V15 Detect vacuum cleaner. The laser light reveals hard-to-see hair, dust, and other dirt on floors that can be targeted for removal. In addition, Dyson incorporated carbon fiber filaments into the cleaner head to pick up microscopic particles that are then sized and counted up to 15,000 times per second. The dust that enters the vacuum also hits an acoustic sensor, which converts the result- ing vibrations into electric signals. The vacuum then displays the measured dust size and quantity readings from these inputs on an LCD screen, giving the user real-time feedback. Beyond reassurance, these innovations also reduce the need for tedious and unnecessary cleaning. Yet other external idea sources include trade magazines, shows, websites, and semi- nars; government agencies; advertising agencies; marketing research firms; university and commercial laboratories; patent and copyright filings; and inventors. Crowdsourcing Crowdsourcing More broadly, many companies are now developing crowdsourcing or ­open-innovation Inviting broad communities of people— new product idea programs that can span internal and external sources. Through customers, employees, independent crowdsourcing, a company invites broad communities of people—customers, employees, scientists and researchers, and even the independent scientists and researchers, and even the public at large—into the innovation public at large—into the new product process. Tapping into such a breadth of internal and external sources can produce unex- innovation process. pected and powerful new ideas. Companies large and small, across all industries, are crowdsourc- ing product innovation ideas rather than relying only on their own R&D labs. For example, Ben & Jerry’s ran a “Do the World a Flavor” cam- paign, an online video game on the company’s website and social media by which fans could create and name new flavors. Food container giant Tupperware recently sponsored the Clever Container Challenge, a crowdsourcing contest seeking ideas for integrating Internet of Things technologies into food containers for future smart kitchens. It asked for “easy to use but technologically advanced” designs for affordable, reus- able containers that provide real value in storage and preventing waste, whether in the kitchen or on the go. And Under Armour sponsors an annual crowdsourcing competition called the Future Show Innovation Challenge, in which it invites entrepreneurs and inventors from around the nation to submit new product ideas, with finalists pitching their products in a splashy, Shark Tank–like reality TV setting. “We need to be humble enough to know that the next great thing might come from some kid playing college football who happens to have a better idea,” says Under Armour’s innovation chief.16 Thus, truly innovative companies don’t rely only on one source Crowdsourcing: Food container giant Tupperware sponsored the Clever Container Challenge contest seeking or another for new product ideas. Instead, they develop extensive in- ideas for integrating Internet of Things technologies into novation networks that capture ideas and inspiration from every pos- food containers for future smart kitchens. sible source, from employees and customers to outside innovators and Tupperware Brands Corporation multiple points beyond. M09_KOTL9364_19_GE_C09.indd 288 25/02/23 2:23 PM  CHAPTER 9 | Developing New Products and Managing the Product Life Cycle    289 Idea Screening The purpose of idea generation is to create a large number of ideas. The purpose of the suc- Idea screening ceeding stages is to reduce that number. The first idea-reducing stage is idea screening, Screening new product ideas to spot which helps spot good ideas and drop poor ones. Product development costs rise greatly good ones and drop poor ones. in later stages, so the company ultimately wants to go ahead only with those product ideas that will turn into profitable products. Many companies require their executives to write up new product ideas in a stan- dard format that can be reviewed by a new product committee. The write-up describes the product or the service, the proposed customer value proposition, the target market, and the competition. It makes rough estimates of market size, product price, development time and costs, manufacturing costs, and rate of return. The committee then evaluates the idea against a set of general criteria. One marketing expert describes an R-W-W (“real, win, worth doing”) new product screening framework that asks three questions.17 First, Is it real? Is there a real need and desire for the product, and will customers buy it? Is there a clear product concept, and will such a product satisfy the market? Second, Can we win? Does the product offer a sustain- able competitive advantage? Does the company have the resources to make such a product a success? Finally, Is it worth doing? Does the product fit the company’s overall growth strategy? Does it offer sufficient profit potential? Typically, the company should be able to answer yes to all three R-W-W questions before developing the new product idea further. ­Concept Development and Testing Product concept An attractive idea must then be developed into a product concept. It is important to A detailed version of the new product distinguish between a product idea, a product concept, and a product image. A product idea stated in terms that are meaningful idea is an idea for a possible product that the company can see itself offering to the market. to the consumer. A product concept is a detailed version of the idea stated in terms that are meaningful to the consumer. A product image is the way consumers perceive an actual or potential product. Concept Development Suppose a company is grappling with how to bring a relatively new product or service to market. Consider Honda’s HondaJet Elite business jet: Honda is the world’s largest manufacturer of motorcycles and internal combustion engines. And it’s the eighth-largest automobile manufacturer. However, its Honda Aircraft Company (HondaJet) subsidiary, founded in 2006, is less well known. HondaJet launched its first air- craft in late 2015. Today the striking HondaJet Elite is the world’s most popular dual en- gine business jet aircraft. With its striking over-the-wing mounted dual engines, the HondaJet Elite has a range of 1,653 miles and a maximum speed of 486 miles per hour and can accommodate seven people including the crew. By 2021, the COVID-19 pandemic and other environmental and competitive forces had shaken the traditional commercial airline industry, creating both challenges and opportunities for HondaJet. Now, looking ahead, HondaJet’s task is to evaluate potential target markets, develop alternative product concepts, and assess the attractiveness of each concept to targeted con- sumers.18 HondaJet might explore the following possibilities: Concept 1. Serve the traditional corporate executive jet market with the existing HondaJet Elite. This repre- sents “business as usual.” Concept 2. Serve the multinational corporate executive jet market with a larger, longer-range jet capable of in- tercontinental travel. Concept 3. Serve wealthy individuals and families who increasingly distrust commercial air transportation Concept development and testing: The striking HondaJet Elite has with a luxury version of the HondaJet Elite. a range of 1,653 miles and a maximum speed of 486 miles per hour and Concept 4. Serve the growing air taxi market with a no- can accommodate seven people including the crew. frills, efficient aircraft, which could be either a redesigned Honda Motor Company Ltd via Getty Images HondaJet Elite or an entirely new aircraft design. M09_KOTL9364_19_GE_C09.indd 289 25/02/23 2:23 PM  290   PART 3 | Designing a Customer Value–Driven Strategy and Mix Concept Testing Concept testing Concept testing calls for testing new product concepts with target consumers. The con- Testing new product concepts with a cepts may be presented to consumers symbolically or physically. Here, in more detail, is group of target consumers to find out HondaJet’s Concept 3: if the concepts have strong consumer An efficient yet luxurious travel option for the family. Get to where you want to go on your own appeal. time and on your own terms. Avoid airport lines and congestion. Breathe your own sanitized air. There is plenty of room for you, your kids, your family pets, and your luggage. HondaJet’s unique design lets you travel responsibly, safely, and in luxury. Firms routinely test new product concepts before developing new products. For ex- ample, HondaJet might give targeted family consumers a description and picture of the proposed new product Concept 3, tentatively named the “HondaJet-FamilyV.” After being exposed to the concept, consumers can be asked to react to it by answering reactions simi- lar to those in Table 9.1. The answers to such questions across concepts will reveal which concepts have the strongest appeal. The last question asks about the consumer’s intention to buy. The company could project these answers to the full population in this target group to estimate sales volume. However, the estimate is always uncertain because people do not always carry out their stated intentions. Marketing Strategy Development Multiple concepts may test strongly with their corresponding target segments. In that case, the company must decide whether to advance a single concept or multiple concepts into the next stage. It must balance the market potential associated with the different concepts with the resources available to implement the concepts. Suppose that, in addition to the current Concept 1 positioning, the research reveals a Marketing strategy development small but profitable market for Concept 3. The next step is marketing strategy develop- Designing an initial marketing strategy ment, designing an initial marketing strategy for introducing the HondaJet FamilyV. for a new product based on the product The marketing strategy statement consists of three parts. The first describes the target concept. market; the planned value proposition; and the sales, market-share, and profit goals for the first few years. Thus: The target market includes very high-income individuals, couples, or families seeking effi- cient, quick, and luxurious transportation. Targeted customers will have a net worth exceeding $25 million or regular annual incomes of more than $5 million. The HondaJet FamilyV will be positioned as a platform that provides efficient, flexible, time-saving, and luxurious transporta- tion on demand. The HondaJet FamilyV will help owners avoid the crowds, packed seating, and unhealthy air associated with commercial airline travel. The company will aim to sell 20 aircraft in the first year, at a loss of not more than $5 million. In the second year, the company will aim to sell 50 aircraft at a profit of $35 million. The second part of the marketing strategy statement outlines the product’s planned price, distribution, and marketing budget for the first year: Customers can choose between a regular-range version, which offers a range of 1,437 nautical miles at a list price of $6 million, and a long-range version that adds 500 miles of range at a list price of $6.5 million. HondaJet’s sales force will sell directly to targeted consumers and will be paid a salary and a sales performance–based commission. The marketing budget will Table 9.1 | Questions for the “HondaJet FamilyV” Concept 1. How well do you understand the concept of a personal jet for you and/or the family? 2. Do you believe the claims about the HondaJet FamilyV aircraft? 3. What are the most relevant benefits of the HondaJet FamilyV to you and your family? 4. What are your concerns related to the HondaJet FamilyV? 5. When would you prefer to use the HondaJet FamilyV as opposed to commercial airline transportation? 6. What improvements to the HondaJet FamilyV would you suggest? 7. Who would be involved in the decision to buy the HondaJet FamilyV? 8. Given the price and features, would you buy the HondaJet FamilyV (definitely, probably, probably not, definitely not)? M09_KOTL9364_19_GE_C09.indd 290 25/02/23 2:23 PM  CHAPTER 9 | Developing New Products and Managing the Product Life Cycle    291 include $2 million allocated to high-end luxury magazines such as RobbReport and $3 million split 30-40-30 among national media, online and social media marketing, and local event mar- keting. One million dollars will be allocated to building a high-quality customer prospect da- tabase for the sales force. HondaJet will spend an additional $200, 000 on marketing research to develop deeper insights into the targeted segment and the relevant drivers of customer satisfaction. The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and marketing mix strategy: We intend to capture a 60 percent long-run share of total global personal jet unit sales and an after-tax return on investment of 20 percent. To achieve this, product quality will start high and improve over time. Price will be raised in the second and third years if competition and the econ- omy permit. The total marketing budget will be raised each year by about 10 percent. Marketing research will be reduced to $100, 000 per year after the first year. ­Business Analysis Once management has decided on its product concept and marketing strategy, it can evalu- Business analysis ate the business attractiveness of the proposal. Business analysis involves a review of the A review of the sales, costs, and profit sales, costs, and profit projections for a new product to find out whether they satisfy the projections for a new product to find company’s objectives. If they do, the product can move to the product development stage. out whether these factors satisfy the To estimate sales, the company might look at the sales history of similar products and company’s objectives. conduct market surveys. It can then estimate minimum and maximum sales to assess the range of risk. After preparing the sales forecast, management can estimate the expected costs and profits for the product, including marketing, R&D, operations, accounting, and finance costs. The company then uses the sales and cost figures to analyze the new prod- uct’s financial attractiveness. Product Development Product development For many new product concepts, a product may exist only as a word description, a draw- Developing the product concept into a ing, or perhaps a crude mock-up. If the product concept passes the business test, it moves physical product or a detailed service into product development. Here, R&D or engineering develops the product concept into blueprint to ensure that the product idea a physical product or a detailed service blueprint. The product development step, how- can be turned into a workable market ever, now calls for a huge jump in investment. It will show whether the product idea can offering. be turned into a workable product. The R&D department will develop and test one or more physical versions of the product con- cept. R&D hopes to design a prototype that will satisfy and excite consumers and that can be pro- duced quickly and at budgeted costs. Developing a successful prototype can take days, weeks, months, or even years depending on the product and prototype methods. Often, products undergo rigorous tests to make sure that they perform safely and effec- tively or that consumers will find value in them. Companies can do their own product testing or outsource testing to other firms that specialize in testing. Marketers often involve actual customers in product development and testing. For ex- ample, Carhartt, maker of durable workwear and outerwear, has enlisted an army of users it calls the Carhartt Crew community, “real [people] wear- ing and working in Carhartt” who help “shape Product testing: The Carhartt Crew community consists of “real [men the future of Carhartt products.” The brand asks and women] wearing and working in Carhartt” who help “shape the future of Carhartt Crew members for their honest opinions Carhartt products.” about the company’s existing and planned prod- VI Images via Getty Images ucts. Members take part in surveys and discussion M09_KOTL9364_19_GE_C09.indd 291 25/02/23 2:23 PM  292   PART 3 | Designing a Customer Value–Driven Strategy and Mix groups, have live chats with Carhartt designers, review new product concepts, and field- test products that they helped create.19 A new product must have the required functional features and also convey the in- tended psychological characteristics. For example, Carhartt taps input from its Carhartt Crew members “to not only ensure that we are still creating the authentic product you asked for but also to create the most functional and dependable product for your current and future needs.” At this and other stages of the innovation and product development process, the com- pany must carefully evaluate whether it can obtain patents and trademarks to protect the entire product, some key features of the product, or even some aspects of the manufac- turing and marketing. Strong patents and trademarks can help protect the product from competition down the road. ­Test Marketing Test marketing If the product passes both the concept test and the product test, the next step is test mar- The stage of new product development keting, the stage at which the product and its proposed marketing program are tested in which the product and its proposed in realistic market settings. Test marketing helps refine and finalize the product and the marketing program are tested in realistic marketing program before investing in a full launch. It might even result in the difficult de- market settings. cision to drop the product. Test marketing lets the company test the product and its entire marketing program—targeting and positioning strategy, advertising, distribution, pricing, branding and packaging, and budget levels. The amount of test marketing needed varies by product. When the required investments or risks are high or when the company is unsure about how to best refine or market the product, a company may do a lot of test marketing. For instance, McDonald’s spent more than three years test marketing its plant-based, meatless McPlant burger. It first tested a meatless burger and associated marketing in several dozen Canadian restaurants, then followed up with tests in eight U.S. restau- rants, and then expanded the tests to 600 locations in the San Francisco Bay and Dallas-Fort Worth areas.20 However, test marketing costs can be high, and testing takes time during which market opportunities may slip by or competitors may gain advantages. For example, while McDonald’s was still doing extensive test marketing on its meatless burger, Burger King went nationwide with its Impossible Whopper after only four months of test marketing in 59 St. Louis restaurants. Thus, the extensive benefits of test marketing must be weighed against the drawbacks. A company may do little or no test mar- keting when the costs of developing and introducing a new product are low or when management is already confident about the new product. For example, companies often do not test-market simple line extensions or copies of competitors’ successful products. Companies may also shorten or skip testing in the face of fast-­ changing market developments. For example, to take advantage of digi- tal and mobile trends, Starbucks quickly introduced a less-than-perfect mobile payments app and then worked out the flaws during the six Test marketing: To figure out if and how to best months after launch. The Starbucks mobile order-and-pay app now ac- market its plant-based, meatless McPlant burger, counts for up to 26 percent of all Starbucks U.S. revenues. “We don’t McDonald’s spent more than three years test marketing think it is okay if things aren’t perfect,” says Starbucks’ chief digital of- the product. ficer, “but we’re willing to innovate and have speed to market trump a James Copeland/Alamy Stock Photo 100 percent guarantee that it’ll be perfect.”21 As an alternative to extensive and costly standard test markets, companies can use controlled test markets or simulated test markets. In controlled test markets, new prod- ucts and tactics are tested among controlled panels of shoppers and stores. By com- bining information on each test consumer’s purchases with consumer demographic and media viewing information, the company can assess the impact of in-store and in-home marketing efforts. Using simulated test markets, researchers measure consumer responses to new products and marketing tactics in laboratory stores or simulated online shopping environments. Both controlled test markets and simulated test markets reduce the costs of test marketing and speed up the process. M09_KOTL9364_19_GE_C09.indd 292 25/02/23 2:23 PM  CHAPTER 9 | Developing New Products and Managing the Product Life Cycle    293 The flexibility of online and mobile marketing allows firms to test market new dig- ital offerings, formats, or marketing approaches quickly and effectively. Using A/B test- ing (see Chapter 4), companies can test their existing web and mobile offerings and sites against alternative designs. For example, consider project management software company Workzone.22 Workzone’s website had a prominent customer review section, which featured customer testimonials alongside a form asking potential customers for contact information by which Workzone could follow up to schedule personal sales calls and software dem- onstrations. However, the bright, colorful presentation of the testimonials and associated customer logos was overshadowing the information request form, distracting site visitors away from providing information needed to take the potential sale forward. Workzone con- ducted an A/B test with an alternative page design in which customer testimonials and logos were cast in less distracting shades of gray. The revised page yielded a 34 percent increase in information form submissions and was adopted. Commercialization Test marketing gives management the information needed to make a final decision about Commercialization whether to launch the new product. If the company goes ahead with commercialization— Introducing a new product into the introducing the new product into the market—it will face high costs. For example, the com- market. pany may need to build or rent a full-fledged manufacturing facility. For a major new consumer product, it may spend hundreds of millions of dollars for advertising, sales promotion, and other marketing efforts in just the first year. For instance, Sony spent an estimated $26 million in a single month on TV advertising to introduce its PS5 game system. Tide spent $150 million on a campaign to launch Tide PODS in the highly competitive U.S. laundry detergent market. And to introduce the original Surface tablet, Microsoft spent close to $400 million on an ad- vertising blitz that spanned TV, print, radio, outdoor, the internet, events, public relations, and sampling.23 A company launching a new product must first decide on introduction timing. If the new product will eat into the sales of other company products, the introduction may be delayed. If the product can be improved further or if the economy is down, the company may wait until the following year to launch it. However, if competitors are ready to intro- duce their own competing products, the company may push to introduce its new product sooner. Next, the company must decide where to launch the new product—in a single location, a region, the national market, or the international market. Some companies may quickly introduce new models into the full national market. Companies with international distri- bution systems may introduce new products through swift global rollouts. For example, in one of its fastest-ever global rollouts, Apple launched its iPhone 12 line in more than 50 countries on the same day.24 Author Above all else, new Comment product development Managing New Product Development must focus on creating customer The new product development process shown in Figure 9.1 highlights the important ac- value. Highlighting this focus, a senior tivities needed to find, develop, and introduce new products. However, new product de- Samsung executive noted: “We velopment involves more than just going through a set of steps. Companies must take a get our ideas from the market. The holistic approach to managing this process. Successful new product development requires market is the driver.” a customer-centered, team-based, and systematic effort. Customer-Centered New Product Development Above all else, new product development must be customer centered. When looking for and developing new products, companies often rely too heavily on technical research in their R&D laboratories. But like everything else in marketing, successful new product development begins with a thorough understanding of what consumers need and value. Customer-centered new product Customer-centered new product development focuses on finding new ways to solve development customer problems and create more customer-satisfying experiences. New product development that focuses One study found that the most successful new products are ones that are differen- on finding new ways to solve customer tiated, solve major customer problems, and offer a compelling customer value proposi- problems and create more customer- tion. Another study showed that companies that directly engage their customers in the satisfying experiences. new product innovation process had twice the return on assets and triple the growth in M09_KOTL9364_19_GE_C09.indd 293 25/02/23 2:23 PM  294   PART 3 | Designing a Customer Value–Driven Strategy and Mix operating income of firms that did not. Thus, customer involvement has a positive effect on the new product development process and product success. ­ Sporting goods manufacturer ASICS is a strong proponent of customer-centered new product development. It has used huge amounts of customer input in developing recommendations for specific shoe models that best fit the running styles of their visitors.25 ASICS has conducted studies to learn how customers browse the company website, what they look for, and most impor- tantly, what is lacking in the online customer experience. With questionnaires which ask, for instance, about where, when, and how often the customer will be running, ASICS aims to reinvent products to fit each sport or need of the consumer. ASICS has also created a shopping wizard, Shoe Finder, to personalize customer experiences. According to a senior e-commerce manager, “The whole idea behind the Shoe Finder was to bring our in-store guided selling to the online environment.” The app uses customer inputs on specific questions to get deeper customer insights and provides recommendations of specific models of running shoes that best accommodate the needs and wants of these customers. ASICS has utilized the data gathered from the personalization offered by this shopping wizard to build on their customer profiles and improve their market seg- Customer-centered new product development: ASICS uses mentation and targeting. ASICS puts the customers’ needs huge amounts of consumer input to develop new products and in the foreground of their individual shopping experience streamline customer experience. by listening to and delivering on the demands and expecta- Uwe Deffner/Alamy Stock Photo tions of each consumer. Thus, today’s innovative companies get out of the research lab and connect with custom- ers in search of fresh ways to meet customer needs. Customer-centered new product develop- ment begins and ends with understanding customers and involving them in the process. Team-Based New Product Development Good new product development also requires a total-company, cross-functional ef- fort. Some companies organize their new product development process into the or- derly sequence of steps shown in Figure 9.1, starting with idea generation and ending with commercialization. Under this sequential product development approach, one or a few company departments work to complete each stage of the process before passing the new product project along to the next stage. This orderly, step-by-step process can help bring control to complex and risky projects. But it can also be dangerously slow. In fast-changing, highly competitive markets, such slow-but-systematic product de- velopment can result in product failures, lost sales and profits, and crumbling market positions. To get their new products to market more quickly, many companies use more of a Team-based new product team-based new product development approach. Under this approach, multiple development company departments work closely together in cross-functional teams, overlapping New product development in which the steps in the product development process to save time and increase effectiveness. various company departments work The company assembles a team of people from various departments that stays with the closely together, overlapping the steps new product from start to finish. Such teams usually include people from the market- in the product development process to ing, finance, design, manufacturing, and legal departments. Some teams even include save time and increase effectiveness. supplier and customer representatives. In the sequential process, a bottleneck at one phase can seriously slow an entire project. In the team-based approach, however, if one area hits snags, it works to resolve them while the team moves on with other phases of the project. The team-based approach does have some limitations, however. For example, it sometimes creates more organizational tension and confusion than the more orderly se- quential approach. However, in rapidly changing industries facing increasingly shorter ­product life cycles, the rewards of fast and flexible product development far exceed the risks. Companies that combine a customer-centered approach with team-based new product development gain a big competitive edge by getting the right new products to market faster. M09_KOTL9364_19_GE_C09.indd 294 25/02/23 2:23 PM  CHAPTER 9 | Developing New Products and Managing the Product Life Cycle    295 ­Systematic New Product Development Finally, the new product development process should be holistic and systematic rather