Product and Brand Strategy PDF

Slide 11.1 Part 3 New product development Chapter 11 Product and brand strategy Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.2...

Slide 11.1 Part 3 New product development Chapter 11 Product and brand strategy Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.2 Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.3 Product Platform and Product Family A product platform can be either narrowly or broadly defined as (Simpson et al. 2005): “A set of common components, modules, or parts from which a stream of derivative products can be efficiently developed and launched” (Meyer and Lehnerd, 1997, p. 7) A collection of the common elements, especially the underlying core technology, implemented across a range of products (McGrath, 1995, p. 39) Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.4 Product Platform and Product Family From this platform, derive a product family. This is a group of related products that is derived from a product platform to satisfy a variety of market niches (Simpson et al. 2005). E.g., Acuvue is a contact lenses (product platform). From one product platform derive a product family of various types of lenses, such as, hard, soft, and the disposal lenses. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.5 Product Platform and Product Family Objectives of product platform and family: 1) To obtain commonality and benefits of scale within the company. 2) Differentiate all components visible to the customer 3) Sharing components and production processes across product models. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.6 Product Platform and Product Family According to Muffatto and Rovedo (2000) and Mohr et al. (2010) the benefits gained through using product platforms are: 1) Reduce cost of production 2) Shared components between models 3) Reduced R&D lead times 4) Reduced systemic complexity 5) Better learning across projects 6) Improved ability to update products. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.7 Product Platform and Product Family However, over the years this product platform concept is causing concern because of brand distinctiveness (see Figure 11.1). It shows a variety of models/brands with different strategies and significant price gaps between the models/brands. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.8 Figure 11.1 VAG inter-firm product platform development Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.9 Product planning The product planning process takes place before substantial resources are applied to a project. Product planning considers the range of projects that a firm might pursue and over what time frame. The product planning activity clearly requires substantial input from R&D and is linked to the technology portfolio of the firm that needs careful management. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.10 Product planning Organisations choose to compete in one or more product markets using a specified range of technologies (the technology portfolio). The balanced capabilities that enable them to match market opportunities by developing attractive market offerings, which customers perceive as conveying valuable benefits. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.11 Product planning The planning process considers product development opportunities, from many sources, including marketing, R&D, customers, current product teams and competitor analysis. Product planning often involves senior management and form part of ongoing strategy process. That is, it is regularly updated to reflect the changing environment. E.g. Hoover responds to Dyson’s bagless vacuum cleaner. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.12 Product planning When considering product development opportunities they are usually classified as four types: 1) New product platforms 2) Derivatives of existing platforms 3) Incremental improvements to existing products 4) Fundamental new products (discontinuous products) Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.13 Product planning 1) New product platforms This type of project involves a major development effort to create a new family of products based on a new, common platform. From R&D perspective this would be seen as developing a new core technology. The new platform would be used to help existing products compete. E.g. Kodak’s move into digital photography. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.14 Product planning 2) Derivatives of existing platforms This type of project develops an existing platform usually to ensure existing products are updated. This will either provide them with an advantage over the competitive or make sure they can compete with the competition. E.g. Honda have been successful in utilising this platform of small petrol engines and applying this technology to a wide variety of market applications from lawn mowers to motorcycles and from outboard motors for boats to chainsaws. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.15 Product planning 3) Incremental improvements to existing products These projects may only involve adding or modifying features of existing products to keep the product line current and competitive. This may be improving the packaging or reducing the manufacturing cost of producing the product or changing the design slightly. E.g. flip-top closure for sweet Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.16 Product planning 4) Fundamental new products (discontinuous products) These projects involve radically different product or production technologies and may help to take the firm into new and unfamiliar markets. Such projects are inherently more risky but may help to secure the long-term future of the firm. E.g. Gore-Tex technology has enabled the firm to enter Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.17 Product strategy New product strategy is part of a web of strategies. It is linked to, and its objectives are derived from, marketing strategy, technology strategy and the overall corporate strategy. These other strategies provide the role, the context, the impetus and the definition of the scope of new product strategy.  Competitive strategy  Product portfolios Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.18 Product strategy Competitive strategy New products are required because they serve a customer need and an organisation need. Competitive strategy may drive new product planning on a short-term or long-term basis. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.19 Product strategy Competitive strategy In the shorter term, defensive posture may suggest that product variants are needed to shore up declining market share, which is attributed to competitor’s aggressive new product activities. For this reason, a reactive strategy could entail filling out product lines with different products sizes or features to deter a new entrant to the market. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.20 Product strategy Competitive strategy In the longer run competitive strategy, it seeks more profound contribution from new products. These new products may appeal to the organisation’s traditional customer base or seek new customer segments. This more radical product development would more likely be subject to thorough marketing and technical research, development and testing. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.21 Product strategy Product portfolios Another set of strategies considerations concerns the overall portfolio of products. This approach was initiated by the share-growth matrix or Boston Matrix, which used market share and market growth as dimensions against the positions of products. A typology is derived with high and low values for each of the two dimensions so that the four quadrants could be contrasted. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.22 Product strategy Product portfolios For example, products classified as high share/high growth could be contrasted with those deemed to be low share/low growth. Prospects could be investigated by comparing where products are positioned presently, where they might be in the future with no change in strategy, and compared with some desired position (see attached figure). Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.23 Product strategy Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.24 The competitive environment The external environment constrains or dictates what can or must be done. For example within the bounds of current understanding of a technology and introduction of legislation protecting an aspect of the natural environment. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.25 The competitive environment The external circumstances can also pose threats and problems, as when a competitor introduces a significant product advance or when another rival closes access to materials or to distributors, through its acquisition of companies in those activities. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.26 The competitive environment By taking various combinations of these factors, it yields a series of scenarios. This will help shape ideas about the potential role of new products and the scope of the problems and opportunities that they are intended to address. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.27 Differentiation and positioning Product strategy will express how the organisation seeks to differentiate itself, and distance itself, from its competitors and will be the bedrock of its market positioning. For new products to be successful in the market they need to be perceived to be beneficial by prospective buyers. The benefit needs to stand out, to be distinctive and attractive. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.28 Differentiation and positioning Differentiation Broadly, the product differentiation sought by competitors could be based upon cost, with a value-for-money proposition, or it could be based upon superior quality, which might encompass better materials, better performance, new features, uncommon availability or better service. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.29 Differentiation and positioning Differentiation The choice of differentiation strategy is pivotal. It reaches back to core capabilities and it reaches forward to positioning strategy. The differentiation will not be effective unless it is rooted firmly in the organisation’s capabilities, or in the capabilities of the network delivering the new product. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.30 Differentiation and positioning Differentiation Similarly, the positioning of the product in the market needs to be built upon, and needs to be consistent with, the differentiation strategy (see Figure 11.2). Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.31 Figure 11.2 Platform development creates the architecture for a family of products Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.32 Differentiation and positioning Product positioning Product positioning refers to the perceptions customers have about the product. It is a relative term that describes customer perceptions to the product’s position in the market relative to rival products (see Table 11.1). That is, how the customer discriminate between alternative products and it considers the factors customers use in making judgements or choices between products in the market being investigated. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.33 Table 11.1 A comparison of the product specifications of two of P&G’s successful brands Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.34 Competing with other products Deschamps and Nayak (1995) famous book and brands, ‘Product Juggernauts: How Companies Mobilize to Generate a Stream of Winners’, identified 5 distinct product strategies that firms have used in competitions, these are shown in Table 11.2. As products compete with one another, this leads to selection criteria and buyer behaviours. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.35 Table 11.2 Product strategies Source: Deschamps, J.P. and Nayak, P.R. (1995) Product Juggernauts: How Companies Mobilize To Generate A Stream of Winners, Harvard Business School Press, Boston, MA. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.36 Competing with other products In many instances industrial buyers will forward their performance criteria to a list of suppliers and await a quote detailing price, warranties, delivery, etc. Table 11.3 shows typical product performance criteria commonly used by buyers in assessing a product. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.37 Table 11.3 Product performance criteria Source: Baker, M. and Hart, S. (1989) Product Strategy and Management, Prentice Hall, Harlow. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.38 Managing brands To many, the word brand is associated with a collection of gimmicks and a lot of advertising to convince the public to buy one manufacturer’s product rather than another. To others brands are simply products with brand names or logos. A successful brand combines an effective product, distinctive identity and added values as perceived by customers. Table 11.4 shows the most well known brands. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.39 Table 11.4 Market introduction of brands Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.40 Managing brands Brands and blind product tests There has been substantial research on the subject of whether consumers are able to recognise brands that they buy frequently from intrinsic attributes alone (taste or smell). The results reveal that from cigarettes to peanut butter and from cola to beer subjects are not capable of recognising their usual brand (Riezebos, 2003). Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.41 Managing brands Brands and blind product tests Mudambi et al. (1997) suggest that branding is based on random utility theory, where customers form preferences based on their perception of attributes. Decisions are then made upon these preferences with customers selecting the product with highest expected value or utility. Figure 11.3 shows the degree of branding affecting buyer perception and attitudes, buyer behaviour and brand financial performance, and thereby affecting branding strategy. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.42 Figure 11.3 Branding system Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.43 Brand strategy Brand strategy is the spearhead of the organisation’s competitive intentions. It carries the company or product name into the market and shows how it is positioning itself to compete. It involves choices between having no brand name at all, so that the product is sold as a commodity, and the attempt to develop a distinctive brand name with a distinctive set of associations and expectations. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.44 Brand strategy Figure 11.4 show how brands interact with different parts of the organisation: it shows internal and external brand contracts. At the center of the wheel is the finance department as it is guided by the CEO, who sets financial targets and determines the business objectives. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.45 Figure 11.4 Internal and external brand contacts Source: H. Rubenstein (1996) ‘Brand first management’, Journal of Marketing Management, Vol. 12, 269–80. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.46 Brand strategy Brand extensions A brand extension is the use of established brand name on a new product in the same product field or in a related field. The main motive of extension is to attract new market segment. The brand name might also be stretched to an unrelated product field. A simple brand extension is the unconventional size, (e.g. Giant, Jumbo, Fun size) or for some technical products this could be a new alpha numeric code. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.47 Brand strategy Brand extensions More radical extensions occurs when the brand is stretched or carried into unrelated product fields. E.g. newspaper company such as Daily Telegraph has its own brand of clothing such as Boss and Calvin Klien. The rationale behind a brand extension strategy is to take advantage of potential carry-over effects from the original brand. If the original is well known, it probably has a pool of goodwill among consumers and distributors. There are 3 kinds of carry-over effects: Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.48 Brand strategy 1st Carry-over effect – Expertise Established products with quality have accrued reputation for high-level competence in its field. Consumers have halo-effect on this quality, and feel comfortable about the products and assured repeat buys. There are positive expectations and trusting relationship established from the original products. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.49 Brand strategy 1st Carry-over effect – Prestige Some brands have enviable images and some consumer may believe that these images confer status on those that use them. Some brands benefit from particular kinds of associations and symbolism and they may have become the only acceptable products to have in some situations. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.50 Brand strategy 3rd Carry-over effect – Access A well-established original may have developed and held good access to the best suppliers and to the best distributors. An extension would capitalise upon these relationships and it may have a better reception to its initial launch than a new brand that had no reputation. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.51 Market entry Decisions about how and when to enter the market can make a substantial difference to the new product’s prospects. There are three factors that need to consider: Entry timing – commonly assumed that early entry is desirable and there is evidence that ‘pioneers’ accrue ‘first mover advantages’. There are two advantages being an early entrant. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.52 Market entry 1) They are able to influence customer expectations and shape how customers make evaluations of products in the new field. 2) They can set to customers the criteria and judgments about the products standard, quality, technology, and others that later entrants are evaluated. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.53 Market entry However, being too early can have a disadvantage. A weak, tentative first mover, without the motivation or resources to grow market, can spend years making losses only to be superseded by strong ‘fast follower’. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.54 Market entry Positioning – positioning decisions can be influential but being pioneer does not mean that the product is dominating the market. E.g. Eastman Kodak pioneer 24-bit digital camera but Fuji, Cannon, Olympus, Nikon caught up with the market share. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.55 Market entry Scale of entry – it affects how the product performs and how the market evolves. High levels of effort and resource commitment can stimulate market evolution and a critical factor in this is market exposure. Getting prospective customers talking and thinking about the product is vital. This may mean the establishment of a strong ‘market presence’ through press articles, blogs, advertising, and exhibitions. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.56 Launch and continuing improvement From a business prospective the innovation is not a success until it has established and fixed its place in the market. That depends upon how it is launched, its reception by customers and the continuing attention given to its improvement. Close and constant monitoring of the reactions of customers, distributors and competitors is required to inform the proceeding strategy. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.57 Withdrawing products Pruning the product range can be an important part of managing the portfolio. Chronic poor sales performance is the indicator for withdrawing the products. However, careful assessments are needed. If market share was constant but sales were none the less in chronic decline, then it indicates that the industry or the particular product form was past maturity and entering decline. So should the firm withdraw the products? Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.58 Withdrawing products The following circumstances need to be considered:  Does the removal of the product affect the economics of the remainder? – If not, removal will be better.  By continuing the product, does it contribute to the overheads? If so, continuing would be better. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.59 Withdrawing products  Does the company have contractual obligations tie to the suppliers, customers, distributions or other partners in the network? – customers may have high switching costs.  Does withdrawal affect the reputation of the company? – if product is part of the portfolio then the whole range of the products might affect the reputation. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.60 Managing mature products As growth slows and the level of competition intensifies, profit margins will come under pressure. Profit margins may decline due to increasing competitive products, cost economies used up, decline in product distinctiveness, etc. Product and brand managers will need to make decisions on the medium- and long-term futures of the brand. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.61 Managing mature products Frequently, with the loss of profit margins, industries tend to stabilise with a set of entrenched competitors. Indeed, the low margins act as barrier to entry and those firms remaining in an industry can generate sustained profits over a long period in the maturity and decline stages of a product’s life cycle. E.g. the 35 mm films still exist. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.62 Managing mature products Schofield and Arnold (1998) distinguish 4 phases to the mature phase of the traditional product life cycle: Late growth – recognise by early signs of late growth usually characterised by aggressive price cutting. Early maturity – market becomes saturated with little or no opportunity for growth. Mid-maturity – customers are more discerning and less loyal to the product. Late maturity – customers are more discerning and less loyal to the product. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 11.63 Managing mature products Beverland et al. (2010) found that product innovation is vital to ongoing brand equity to revitalise the brand. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013