Product Innovation & New Product Development Strategies PDF

**PRODUCT INNOVATION & NEW PRODUCT DEVELOPMENT STRATEGIES** INNOVATION AND NEW PRODUCT DEVELOPMENT STRATEGIES: -------------------------------------------------- Innovation is producing, assimilating and successfully exploiting a novelty, in economics and / or social contexts, in a way that provid...

**PRODUCT INNOVATION & NEW PRODUCT DEVELOPMENT STRATEGIES** INNOVATION AND NEW PRODUCT DEVELOPMENT STRATEGIES: -------------------------------------------------- Innovation is producing, assimilating and successfully exploiting a novelty, in economics and / or social contexts, in a way that provides unprecedented solutions to problems, and responds to the need of people and society. Innovation can be both a process and the result of this process. - *CLASSIFICATION*: Innovation can be developed in any of the following contexts: - Product - Process & logistics - Marketing - Organization / institutional [PRODUCT] A good or service that is new or significantly improved. This includes significant improvements in technical specifications, components and materials, software in the product, user friendliness or other functional characteristics. *3 TYPES OF PRODUCT INNOVATION:* 1. **INCREMENTAL**: It involves adding new features to a product. It is done to maintain competitive advantage through small changes, continuous improvements, short product development cycles, and low risk. EXAMPLE: New version of smart phones or cars. 2. **DISRUPTIVE**: It reacts to the target market and aims to provide customers with the best customer experience. Develop concepts never seen before or improve a lot the existing ones. In addition, it is also characterized by exploring new technologies and by its high level of risk and uncertainty. EXAMPLE: Streaming services (Netflix, Spotify), online distribution (Amazon), 3D Printing. 3. **RADICAL**: It brings drastic changes to its product or positioning. It is a significant and transformative advance in technology, business models, processes or products that create substantial change in the industry or society. High level of risk and uncertainty. EXAMPLE: Electric car, electrification and autonomy, photovoltaic panel... [PROCESS: ] Improve existing production processes or development of new ones. A method involving significant changes in product design and delivery. The traditional process of the industry was: Manufactured and assembled finished furniture. Ikeas innovation process changing to furniture disassembled and assembled by the customer. A new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and / or software. [MARKETING: ] A marketing innovation consists of the application of a new marketing method that could involves significant changes in the design or packaging of a product, or its positioning, or its promotion / communication or its pricing. (4p's) [ORGANIZATION / INSTITUTIONS: ] Consist in developing new forms of management, new structures, and new systems that will allow us to improve business efficiency. The innovations will consist in the creation and / or improvement of technical knowledge to improve the sector's competitiveness. They are usually members of cluster companies, universities and governments. Examples: MAZ Sachsen [CORE INITIATIVES:] Innovation is very important in the creation of new products. Let's see some possibilities innovating in the "core". - Innovations based on modulation - Innovations based on price - Innovations based on packaging - Innovations based on design - Innovations based on the development of complements - Innovations based on making customer lives easier MODULATIONS: - Variations in any fundamental characteristic of a product or service - Advantages: They allow products to be better adapted to segments and increase the size of the markets. Example: - DaVinci: Basic Ice Cream product milk, sugar, fats and stabilizers. The modulation is DaVinci: variations of the basic product: chocolate, fruits flavors... PRICE: - Expansion of the unit purchase options (amount/volume/frequency) - Target: Increase consumption by addressing individual purchase needs PACKAGING: - Create new products by changing the container, in order to target different markets / consumers preferences. The basic product remains the same. - Modifies consumer perception of our product and helps reach out to more customers. DESIGN: - Create new products by modifying the external appearance. - It attracts a new audience that responds to new styles and different positions. COMPLEMENTS: - Added complementary ingredients or additional services to basic product or service - Useful in the mature stages of products to upgrade the interest of consumers MAKING CONSUMERS LIVES EASIER: - Apart from spending money, purchasing is an investment of time and resources, as well some risk taking. - Companies try to make life easier for their customers. Before inventing something new, check what others have done before. Let's check it out! [OTHER CREATIVE TECHNIQUES TO CREATE INNOVATIVE PRODUCTS]: - REPLACEMENT: - Eliminate one or more items from the product and replace them. It also consists of mimic aspects of other products. - Eliminate one or more items from the product and replace them. Sometimes it also consists of mimic aspects of other products. - REVERSION: - To say the opposite or add "NO" to one or more items from the product or service. - Pilot Frixion, a pen that can be erased (and it is not a pencil) - The opposite of a Gin, it is a non-alcoholic Gin (ex: Tanqueray) - COMBINATION: - Add one or more items to the product or service by holding the rest. - Add one or more items to the product or service y holding the rest. - EXAGGERATION: - Exaggerated way down one or more items form the product or service - ELIMINATION: - Removing one or more items from the product or service - A car with one wheel less - Milk without lactose (Lactel) - REORDERING: - Changing the order or sequence of one or more items from the product / service. **NEW PRODUCT DEVELOPMENT:** INTERNATIONAL EXPANSION STRATEGIES: ----------------------------------- 1. Drivers and targets 2. Standardization vs adaptation 3. Ways / stages [DRIVE AND TARGETS: ] Drivers for internalization: - Saturation of local markets (market share) - Good finance = Develop international market - Falling markets - Economic crisis - Globalization of markets - Increased demand in other countries Targets: - Diversify risks: The risks are divided into 2: - Management - Profit and losses - Reduce costs - Growth: - If your company growth your cost decreasing (the economy increases productivity through improve the experience cost and R+D+I) - Extended products life cycle (introduction, growth, maturity and decline) [STANDARDIZATION VS ADAPTATION] However, the first question that arises is: ¿Should companies adapt their products to local markets? Or it is not necessary because the markets are standards. So, as a consequence, how do I do it? Standard products or adapted products. This is not an issue when a company sells commodities, such as chemicals, metals, industrial machinery. Commodity goods are not adaptable products. *PRODUCT STANDARDIZATION:* - The need of the planets or companies tend to meet - Homogenous preferences of the markets - It is intended that consumers sacrifice their specific needs +-----------------------------------+-----------------------------------+ | ADVANTAGES | DISADVANTAGES | +===================================+===================================+ | - Lower costs by economies of | - Consumer is fairly ignored | | scale, which will cause a | | | selling price reduction in | - To centralized decisions | | all markets. | | | | - Or companies have to face | | - Time reduction in the | opposite social movements | | international dissemination | | | of the product. | | | | | | - It increases the product | | | quality since it is | | | manufactured with the same. | | | criteria in all production | | | factories. | | +-----------------------------------+-----------------------------------+ Ultimately, the decisions will depend on the type of product. *ADAPTIVE STRATEGY:* An adaptive strategy emphasizes the differences between the target countries. Product adaptation defenders believe: - Cultural differences exist and drive consumer preferences. - There are differences in income and legislation. - The markets are different. - Consumer preferences are heterogenous. - Adaptation to the local market can be voluntary- when the company tries to adapt to the local preferences according to the consumer's needs or compulsory when local laws require adaptation. HOWFSTEDE An adaptive strategy: - Some companies change the brand's name - Some companies change the product (some markets have limited flavors, while other markets have their own unique flavors that are only available to domestic consumers. - Others, change the keyboard [WAYS / STAGES TO ENTRY INTO INTERNATIONAL MARKETS: ] Data analysis PESTEL: +-----------+-----------+-----------+-----------+-----------+-----------+ | P | E | S | T | E | L | +===========+===========+===========+===========+===========+===========+ | Governmen | Economic | Populatio | Technolog | Weather | Discrimin | | t | growth | n | y | | ation | | policy | | growth | incentive | Climate | laws | | | Exchange | rate | s | | | | Political | rates | | | Environme | Antitrust | | stability | | Age | Level of | ntal | laws | | | Interest | distribut | innovatio | policies | | | Corruptio | rates | ion | n | | Employmen | | n | | | | Climate | t | | | Inflation | Career | Automatio | change | laws | | Foreign | rates | attitudes | n | | | | trade | | | | Pressures | Consumer | | policy | Disposabl | Safety | R&D | from | protectio | | | e | emphasis | activity | NGO's | n | | Tax | income | | | | laws | | policy | | Health | Technolog | | | | | Unemploym | conscious | ical | | Copyright | | Labor law | ent | ness | change | | and | | | rates | | | | patent | | Trade | | Lifestyle | Technolog | | laws | | restricti | | attitudes | ical | | | | ons | | | awareness | | Health | | | | Cultural | | | and | | | | barriers | | | safety | | | | | | | laws | +-----------+-----------+-----------+-----------+-----------+-----------+ MARKETING PLAN 4 MAIN STAGES: 1. Indirect export 2. Direct export 3. Trade subsidiaries 4. Product subsidiaries 5. Others: joint ventures, licensing, consortia [INDIRECT EXPORT]: small companies It is usually the first stage of the international strategy. The company sells its products to brokers and export / import company, which resell them through specialized exporters/ importers: - BROKERS / TRADERS: Located buyers, who do not negotiate directly with the product's country of origin, assume the role of an intermediary between sellers and buyers. - AGENTS AND REPRESENTATIVE: Exporter in the country of origin and importers without the intervention of the company (export trading company). THERE IS NO CONTROL OVER THE FINAL CUSTOMER  AGREEMENT WITH EXPORT TRADE COMPANY: Which distributes the products to foreign importers. The importer can sell directly to consumers or to other dealers, so that they can sell to consumers. [*DIRECT EXPORT*: ] It is a most advanced stages of the international strategy. Unlike indirect export, the company performs all export management duties (licenses, customs, currency, insurance exchange...) The company directly manages export to either: - Importers in the country of destination (the company does not control channels of distribution nor the rest of marketing activities in the country of destination. - Final customers (mainly in B2B markets)  AGREEMENT WITH IMPORTERS: Which distribute the products to other dealers. Finally, the dealer sales the motorcycles to the consumers. *[TRADE SUBSIDIARY]*: Reasons to set up a trade subsidiary: - Experience and command of foreign markets Organization: - Creation of commercial subsidiary, controlled by the headquarters. - It requires a deeper understanding of the demand - Conveys to the market a desire for permanence - Post-purchase services further justify this strategy Each subsidiary stores products manufactured in Spain and sells them to the B2B market in its area of influence. [SUBSIDIARY PRODUCTION IMPLEMENTATION: ] Reasons to set up local production: - Transportation costs affect the margin - Better adapted products to the local market - Improve competitiveness - Need to be close to the market and react to trend's change - Control over all productive and commercial activities What does it mean at the organizational level: - Creation of the subsidiary's production - Last internationalization stage: multinational company [WAYS OF ENTRY: OTHER] 1. Export consortia 2. License agreement 3. Franchising 4. Joint venture *LICENSE AGREEEMENT:* - A company licenses the right to exploit a manufacturing process or service delivery method to another entity, typically in exchange for a fee or a percentage of sales. This approach allows the licensor to enter a foreign market with minimal investment, requiring only the negotiation of agreements and the monitoring of compliance. Licensing is also a strategy for growth through diversification. - For instance, an audiovisual production company entered into a licensing agreement with a product manufacturer to extend its brand into new countries. EXAMPLE: studio 100 realized a license agreement with ZAPF CREATION (Germany) *FRANCHISING:* - It is a strategy very close to licensing but involves the transfer of a complete set of business operations, including processes and procedures. The franchisor grants the right to exploit a brand and operate the business, ensuring technical assistance and other services in exchange for economic compensation. - Franchisor advantages: - Partner who knows the market well (the franchisee) - It reduces the expenses involved in any capital investment abroad, by relying on a self-financing network. - It gives international renown to its brand and products, without altering its quality and prestige thanks to the uniformity of the franchise. - It involves greater commitment, investment and export risk. +-----------------------------------+-----------------------------------+ | ADVANTAGES | DISADVANTAGES | +===================================+===================================+ | - Working with a reputed and | - Entry costs that would not be | | international brand name. | exist in an independent | | | business (entry fee and | | - Getting assistance and | royalties) | | knowledge from the | | | franchisor. | - The operation of the business | | | will be limited by the | | - Competing to face other big | franchisor (limited capacity | | brands. | to innovate) | | | | | | - Business under the | | | supervision of the franchisor | | | | | | - The business reputation will | | | be affected if the franchise | | | network loses money. | +-----------------------------------+-----------------------------------+ The 10 most successful international franchises in the world: 1. MC Donald's (united states / fast food) 2. KFC (United States / fast food) 3. Burger King (United States / fast food) 4. Pizza Hut (United States / pizzeria) 5. 7 Eleven (United States / convenience stores) 6. Mariott International (United States hospitality) 7. RE/MAX (United States / real estate network) 8. Dunkin' Donut (United States / pastry) 9. InterContinental Hotels and Resorts UK (England / hospitality) 10. Subway (United States / sandwiches) *JOINT VENTURE:* - Joint ownership agreement, between companies, limited in time, usually in the same sector, but with different comparative advantages to manufacture abroad. - Joining to be more competitive: - Example: one provides the technology, and the other the experience in the market, or the staff or distribution channels. - It involves greater commitment, investment and export risk +-----------------------------------+-----------------------------------+ | ADVANTAGES | DISADVANTAGES | +===================================+===================================+ | - Taking advantage of the | - Possible conflicts of | | synergies of the companies | interest in the medium / long | | | term | | - The risk is much lower that | | | if each partner of the Joint | | | Venture is a subsidiary. | | +-----------------------------------+-----------------------------------+ - Starbucks & Tata Global Beverages (open India market). Investment 50/50 % - Main objective: Open and expand a network of Starbucks stores in India. BENEFITS OF STARBUCKS: - Exposure to a large Indian market - Decrease its dependence on other markets - Availability of high-quality arabica coffee by TATA Coffee BENEFITS OF TATA: - The deal allowed TATA Coffee to provide roast to Starbucks. All the espressos sold in Starbuck's Indian outlets are provided by TATA coffee - TATA became Asia's biggest publicly traded coffee grower. PROJECT SUMMARY: Mission, values and objectives of the company manage your decisions Filtering IMITATION STRATEGIES -------------------- Imitation is a source of a competitive advantage Can imitation be a source of competitive advantage? When do the imitation processes start? In international markets, everyone is exposed, secrets cannot be kept indefinitely. Imitation processes often begin when: demand for innovative products grows (the growth stage of the product life cycle) while production and marketing processes become more widely understood. At this stage, imitation typically starts once the pioneering or innovative company has gained market recognition for the product, making it possible for others to acquire and replicate its key characteristics. [IMITATION ADVANTAGE: ] - No investment in R+D+I to create new products - Use the human capital that innovators have educated - Imitators take advantage of the investment in communication of the innovators who have already stimulated demand - Risk reduction: Imitators only come when market exists and responds [LEVELS OF IMITATION: ] 1. Counterfit 2. Legal copies 3. Creative adaptations 4. Superior adaptations *COUNTERFIT:* Copies of recognized brands, sold at a much lower price and with the same brand (Louis Vuitton, Loewe, Rolex...). - Sometimes customers are not aware that they are buying counterfeits - Others non-target segments of the original brands, consciously buy the counterfeit products. - Counterfeits cause enormous damage to origins brands: - Image - Economic losses - Nobody should build a business with these practices *LEGAL COPIES:* - A legal copy refers to a product that is designed to replicate certain elements of features of an original product but does so within the boundaries of the law, in order to capitalize on trends and consumer demand for popular products. In sum, this imitation: - Avoid patent infringement - Bypasses copyright violation - It does not use any logos, names or branding that would confuse consumers. Example: - Convers & Primark - Levi's & Lidl *CREATIVE ADAPTATION:* - Imitations of an existing product to satisfy a new market need. - Adaptation of an existing product by changes in packaging, design, technology... Example: - Principe (galletas) & Mercadona = adaptation of an existing product (LU) by changes in chocolate flavor. Mercadona adapted this product locking for a segment that loves the intense flavor of chocolate (new demand). SUPERIOR ADAPTATION: Significant improvement over the original. Usually, it results in the newcomer taking over the market from the original. Example: - Sony & Lumix & Canon [STRATEGIES:] There are 3 successful imitation strategy that allow followers companies to compete with the most innovative firms: - Low price - Superior product - Superior marketing *LOW PRICE:* Low price included 3 levels of imitation that are: - Counterfeit - legal copies - creative adaptation. With low price the idea is that: - It can be developed when there is a standard in the market, stable and assumed by customers. - Everybody knows the original product introduced by innovative companies. - The market is growing. - Crucial: imitators must innovate in the production process to reduce costs. The creative adaptation and superior adaptations are the superior product strategy and superior marketing strategy. *SUPERIOR PRODUCT STRATEGY:* The superior product strategy is form by creative adaptations and superior adaptations. This type of imitation strategy requires to develop a product that is technically superior to the original, accordingly: - The imitators must make the original product obsolete - It satisfies the existing demand - He takes advantage of the success of others Crucial: - Quickly growing market - Flexibility to trend changes and a lot of customer focus - Have a powerful R+D+I program *SUPERIOR MARKETING STRATEGY:* The superior marketing strategy is form by creative adaptations and superior adaptations. Superior marketing strategy is a usual strategy when: - Weak barriers to entry against powerful companies. - The imbalance in the size of the companies is significant in favor of the imitators' companies. Some winning topics for companies with market power: - Prestigious brand image - Plenty of financial resources to meet the demand - Easy inclusion of the imitated product in any of the existing product lines - Operational distribution channels to sell the imitated product - Experience in communication channels for immediate promotions (press, TV, Instagram, Facebook). [THE IMITATION EFFECT: ] The release of an imitative product triggers 2 countervailing forces: a discovery effect that increases awareness and demand for the original, and a substitution effect decreasing that demand. When the imitation is horizontally differentiated (products vary only marginally), the substitution effect is weaker, and the discovery effect leads to increased demand for the original, particularly when the original is less well-known. When the imitation is vertically differentiated (the distinctions between products are objectively measurable and are based in quality), the discovery effect does not benefit the original, and the demand decreases given the substitution effect. DESINVESTMENT ------------- Causes which accelerate the [elimination of products]: - Change in the intensity of competition - Change in consumer needs - Changes in the environment - Products in an unattractive market, weak competitive position and suffering sustained sales decrease Hidden costs: - Management team time consuming - Need adjustments of price and stock - Require special efforts in advertising and sales - Damages the image of the company - Opportunity costs Causes that delay the elimination of products: - Complementarity with other products - Problems of credibility, loss of supplier's confidence, and even among distributors - It affects the confidence of customers with other products from the company - Problems in the financial markets for listed companies Before deciding to divest from one or more products, it is necessary to evaluate. As a result, 2 possibilities: 1. Revitalization 2. Divest REVITALIZATION: Some ways to revitalize a product: - Strategy: - Open new markets - Focus on specific markets and remove it in others - Products: - Modification - Price: - Proce discount - Price reduction - cost reduction - Distribution: - Improve products' availability and accessibility at points of sale - Add new distribution channels - Communication: - Improve advertising campaigns - Improve social media management - Improve sales teams [4 POSSIBLE STRATEGIES]: We need to choose the best one in each moment and situation: 1. Elimination strategy (withdraw) 2. Harvest strategy 3. Maintenance strategy 4. Niche strategy *ELIMINATION STRATEGY:* Quick withdrawal: - Production stops and the product is removed from the market. - It is possible in consumer markets (B2C) but not in industry. Companies will provide alternatives to customers in the industrial markets. - 3 ways: - Quick withdraw: we directly eliminate the product from the market. However, first we will have to inform distributors and customers - Slow withdraw - Sale of the brand or product Slow withdraw: - Gradually removing the product, keeping a reduced operating marketing until the last moment (Common in B2B markets) - Sometimes, the company sells the product to another company BRAND OR BUSINESS SALE: The product or business is sold to another company. The product has not been removed from the market. The sale activity will be followed by another company. Factors affecting the decision in which way the product is to be removed: - If the authorities ban a product the elimination will be faster or conform to the agreed timetable - The obligation to continue manufacturing spare parts can also delay the elimination - The existence of outstanding orders of supply will force to eliminate more slowly - Recommendation: the replacement of one product with other suggests to withdraw the first when the second is ready for sale. *HARVESTING STRATEGY:* WHEN SHOULD WE DO IT? - When a product is competing in a gradually declining market the company has a moderate market share. GOAL: - Withdraw from the market recovering investments as possible... WHAT DOES IT DEPEND FROM? - When there is no chance that a declining market improves. - How quickly are the sales decreasing. HOW IS EXECUTED? - Eliminate investment R+D+I in facilities and equipment - Eliminate small customer that require too much service - Reduction of services and additional attentions - Product line reduction compelling customer to choose other more profitable products - Replace expensive materials by cheaper ones to reduce costs - Raise prices, if it is feasible - Minimize communication campaigns *MAINTENANCE STRATEGY:* WHEN SHOULD WE DO IT? - It is a temporary strategy - When there is uncertainty about the future of the market OBJECTIVE: - Maintain the position of the product in the market until future trends are clear HOW IS EXECUTED? - While maintaining a certain level of investment allowing us to make some product modifications and encourage demand. WHAT CAN HAPPEN: - Market recovers and the modifications allow future growth - Not to recover and have to go to the recollection or removal *NICHE STRATEGY:* WHEN DO YOU DO IT? - In unprofitable and declining markets attractive niche segments with low competition can still be found. - When one or more segments will either remain at stable pockets of demand - When one or more segments decay slowly OBJECTIVES: - Achieve a strong competitive position in the target segment (niche) - To be able to build a sustainable competitive advantage relatively quickly to anticipate competitors. HOW IT IS EXECUTED: - Avoiding direct confrontations with large firm leaders - Focus on differentiation - A company only can stay in the niche until it gets big enough to attract new entrants and large generalist competitors. WHAT CAN HAPPEN? - Smaller competitors can do it successfully because they will focus their resources in a limited portion of the total market. - It is an opportunity as long as a high market share is maintained in declining markets. Otherwise, withdraw.