Week 9 MM101

Ideas can come from interacting with customers, employees, scientists, and other groups; from using creativity techniques; and from studying competitors.

Through Internet-based crowdsourcing, paid or unpaid outsiders can offer needed expertise or a different perspective on a new-product project that might otherwise be overlooked. The traditional company-centric approach to product innovation is giving way to a world in which companies co- create products with consumers. Besides producing new and better ideas, co- creation can help customers feel closer to the company and create favorable word of mouth.

The purpose of screening is to drop poor ideas as early as possible because product-development costs rise substantially at each successive development stage. Most companies require new-product ideas to be described on a standard form for a committee’s review. The description states the product idea, the target market, and the competition and estimates market size, product price, development time and costs, manufacturing costs, and rate of return

The executive committee then reviews each idea against a set of criteria. Does the product meet a need? Would it offer superior value? Can it be distinctively advertised or promoted? Does the company have the necessary know-how and capital? Will the new product deliver the expected sales volume, sales growth, and profit? The committee estimates whether the probability of success is high enough to warrant continued development.

A product idea is a possible product the company might offer to the market. A product concept is an elaborated version of the idea expressed in consumer terms. A product idea can be turned into several concepts by asking: Who will use this product? What primary benefit should this product provide? When will people consume or use it?

By answering these questions, a company can form several concepts, select the most promising, and create a product-positioning map for it. 

Following a successful concept test, the firm develops a preliminary three-part strategy for introducing the new product. The first part describes the target market’s size, structure, and behavior; the planned brand positioning; and the sales, market share, and profit goals sought in the first few years.

The second part outlines the planned price, distribution strategy, and marketing budget for the first year. The third part describes the long-run sales and profit goals and marketing-mix strategy over time. This strategy lays a foundation for the business analysis.

Here the firm evaluates the proposed product’s business attractiveness. Management needs to prepare sales, cost, and profit projections to determine whether they satisfy company objectives. If they do, the concept can move to the development stage. As new information comes in, the business analysis will undergo revision and expansion. Sales estimation methods depend on whether the product is purchased once (such as an engagement ring), infrequently, or often

Up to now, the product has existed only as a description, drawing, or prototype. The next step represents a jump in investment that dwarfs the costs incurred so far. The company will determine whether the product idea can translate into a technically and commercially feasible product. 

The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). The methodology takes the list of desired customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EAs) that engineers can use. 

For example, customers of a proposed truck may want a certain acceleration rate (CA). Engineers can turn this into the required horsepower and other engineering equivalents (EAs). QFD improves communication between marketers, engineers, and manufacturing people.

After management is satisfied with functional and psychological performance, the product is ready to be branded with a name, logo, and packaging and go into a market test. Not all companies undertake market testing. The amount of testing is influenced by the investment cost and risk on the one hand and time pressure and research cost on the other.

Commercialization is the costliest stage in the process because the firm will need to contract for manufacture, or it may build or rent a full-scale manufacturing facility. Most newproduct campaigns also require a sequenced mix of market communication tools to build awareness and ultimately preference, choice, and loyalty. Market timing is critical.