Innovation: Beyond New Products Ken Wong

Transcription

1 Innovation: Beyond New Products Ken Wong KW-330

2 Strategic Fit: The Basis of Planning CUSTOMER ANALYSIS Who BUYS What, Where, When, How and Why COMPETITOR ANALYSIS Who OFFERS What, Where, When, How and Why Determine Basis of Segmentation ASSESS MARKET-COMPANY FIT Define Quality and Identify Segments You Can Serve COMPANY ANALYSIS Given your objectives and resources...what can you do, for whom, where and when? Determine Basis of Differentiation ASSESS PRODUCT-COMPANY FIT Evaluate Relative Quality and Identify Competitors You Can Beat DEVELOP PRODUCT-MARKET FIT Does a market exist for your intended price/quality level? IF YES: Objectives focus on activities needed to communicate/deliver/insulate positioning IF NO: Objectives focus on the implicated remedial actions or new market entry KW-057

3 Evaluating the Sales Prospects of an Innovation Characteristics Affecting Adoption Rates and Penetration Levels Dimension Little Relative quality advantage High Slow Rate of Adoption and Low Level of Acceptance Rapid Rate of Adoption and High Level of Acceptance KW-081

4 Evaluating the Sales Prospects of an Innovation Characteristics Affecting Adoption Rates and Penetration Levels Dimension Little Relative quality advantage High Slow Rate of Adoption and Low Level of Acceptance Inconsistent Compatibility with buyer s values Consistent Rapid Rate of Adoption and High Level of Acceptance KW-081

5 Finding Two: "What Matters Most" Depends On Your Profit Model Net Income Margin Volume Price Strategies Cost Strategies Market Share Strategies Market Size Strategies Product Innovation Product Quality Marketing Effort Process Innovation Functional Efficiencies Discretionary Spending Integration Marketing Effort Customer Value Barriers to Entry New Products New Markets More Usage Occasions More Usage Per Occasion

6 Evaluating the Sales Prospects of an Innovation Characteristics Affecting Adoption Rates and Penetration Levels Dimension Little Relative quality advantage High Slow Rate of Adoption and Low Level of Acceptance Inconsistent Difficult Compatibility with buyer s values Complexity of adoption Consistent Simple Rapid Rate of Adoption and High Level of Acceptance KW-081

7 Evaluating the Sales Prospects of an Innovation Characteristics Affecting Adoption Rates and Penetration Levels Dimension Little Relative quality advantage High Slow Rate of Adoption and Low Level of Acceptance Inconsistent Difficult Cannot use on limited basis Compatibility with buyer s values Complexity of adoption Trialability Consistent Simple Can use on limited basis Rapid Rate of Adoption and High Level of Acceptance

8 Three Types of Buyer Risk 1. Non-Performance 2. Downstream Consequences 3. Personal Status

9 Evaluating the Sales Prospects of an Innovation Characteristics Affecting Adoption Rates and Penetration Levels Dimension Little Relative quality advantage High Slow Rate of Adoption and Low Level of Acceptance Inconsistent Difficult Cannot use on limited basis Compatibility with buyer s values Complexity of adoption Trialability Consistent Simple Can use on limited basis Rapid Rate of Adoption and High Level of Acceptance Difficult to Communicability Easy to communicate communicate KW-081

10 Evaluating the Sales Prospects of an Innovation Characteristics Affecting Adoption Rates and Penetration Levels Dimension Little Relative quality advantage High Slow Rate of Adoption and Low Level of Acceptance Inconsistent Difficult Cannot use on limited basis Compatibility with buyer s values Complexity of adoption Trialability Consistent Simple Can use on limited basis Rapid Rate of Adoption and High Level of Acceptance Difficult to Communicability Easy to communicate communicate KW-081

11 Customers Vary in Their Willingness to Innovate % of Market Buying for the First Time 2.5% Innovators 13.5% Early Adopters THE CHASM 34% 34% Early Early Majority Majority 34% 34% Late Late Majority Majority 16% 16% Laggards Laggards Time Time of adoption of innovations KW-082

12 Growth Must Be Stolen in Mature Markets Percent Adoption Innovators 2.5% Early Adopters +13.5% Early Majority +34.0% Late Majority +34.0% Laggards or Non-Adopters +16.0% Time KW-184

13 Why Customers Needs and Preferences Change Over Time Price High Innovators Price High Innovators Early Adopters Price High Early Adopters Early Majority Low Low Low Innovators Aggressive Buyers Stage 1: Low High Low High Low High Service Service Service Early Market Development Customers lack experience Need extensive support Insist on high quality Do not worry about price if the functionality is there Effective businesses cater to the factors that drive the diffusion of innovations Stage 2: Market Development Customers build experience and volume;; they become less dependent on vendors for support and they become more powerful negotiators Buying is moved to the procurement function;; service becomes less vital Competitors enter on a lower price/quality basis or via more customization for the carriage trade Stage 3: Market Saturation If the benefit is trivial, bargain basement buying occurs If the benefit is important or complex, aggressive buying occurs Note: The situation will not change in all accounts at the same time or in the same way KW-084

14 Market Characteristics Over the Product Life Cycle Sales Introduction Growth Maturity Decline Characteristics Time Sales Costs Low sales High cost per customer Rapidly rising sales Average cost per customer Peak sales Low cost per customer Declining sales Low cost per customer Profits Negative High profits High profits Declining profits Customers Innovators Early adopters Middle majority Laggards Competitors Few Growing number Stable number, decline starting Declining number KW-086

15 Marketing Objectives Sales Introduction Marketing Objectives Strategies PRODUCT Offer a basic product Growth Offer product extension, service, warranty PRICE Use cost-plus Price to penetrate market DISTRIBUTION ADVERTISING SALES PROMOTION Create product awareness and trial Build selective distribution Build product awareness among early adopters and dealers Use heavy sales promotion to entice trial Maximize market share Build more intensive distribution Build awareness and interest in the mass market Reduce to take advantage of heavy consumer demand Maturity Maximize profit while defending market share Diversify brands and models Price to match or beat competitors Build more intensive distribution Stress brand difference and benefits Increase to encourage brand switching Decline Time Reduce expenditure and milk the brand Phase out weak items Cut price Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyals Reduce to minimal level KW-087

16 Can we plot sales to infer life-cycle stage? Different types of products have different shapes to their life cycles A. Traditional B. Boom or Classic C. Fad Sales Sales Sales Time Time Time D. Extended Fad E. Seasonal or Fashion F. Revival or Nostalgia G. Bust Sales Sales Sales Sales Time Time Time Time KW-091

17 Strategies for Extending the Mature Stage of the Product Life Cycle Strategy Examples 1. Develop new uses for JELL-O used in garden salads the product Arm & Hammer baking soda used as a refrigerator deodorant 2. Develop new product Zoom lenses for 35mm cameras features and refinements Battery-powered televisions 3. Increase market Family and individual sizes for food products segmentation Regional editions of major magazines 4. Find new classes of Nylon carpeting for institutional markets consumers for the Johnson & Johnson baby shampoo used by adults present product Coca-Cola and Pepsi-Cola in less-developed nations 5. Find new classes of Breakfast menu at McDonald s consumers for the Industrial power tools altered for the do-it-yourself market modified product 6. Increase product usage Multiple packages for soda and beer among current users Jeans promoted for wear at social gatherings Season tickets for sports and entertainment events 7. Change marketing Hosiery sold in supermarkets strategy Electronic games priced at $30 (down from $100) Reader s Digest advertising on television KW-092

18 Profitability Over the Life Cycle KW-093

19 PORTFOLIO MODELS KW-094

20 Product Portfolio l Concept Ÿ Businesses vary in their resource needs depending upon: Ÿ Market attractiveness Ÿ Competitive position Ÿ Each business has a different role and set of strategic options depending upon these factors Ÿ A company must have a balanced portfolio to ensure that resources are optimally allocated across businesses l Variations Ÿ The alternative models differ primarily in terms of how they measure market attractiveness and competitive position Ÿ Boston Consulting Group: Ÿ GE/McKinsey: Ÿ Shell/Arthur D. Little: BCG growth-share matrix Multi-factor matrix Directional policy matrix KW-095

21 Determinants of Profitability Number of Businesses Average Profitability in This Industry Market Attractiveness Competitive Position Profit Potential KW-004

22 Alternative States of Profitability % of firms % of firms % of firms % of firms STRONG Market Attractiveness WEAK Competitive Position STRONG Market Attractiveness STRONG Competitive Position WEAK Market Attractiveness WEAK Competitive Position WEAK Market Attractiveness STRONG Competitive Position? Profitability KW-356

23 Boston Consulting Group s Growth-Share Matrix High Growth Rate or PLC Stage (Cash Use) Low Objective: Maintain/Reinforce Lead Objective: Maintain Share (Hold) Modest + or - Cash Flow Large Positive Cash Flow Objective: Increase Share or Out? Large Negative Cash Flow Objective: Re-Focus or Out Modest + or - Cash Flow High Relative Market Share or Competitive Position (Cash Generation) Low KW-096

24 GE/McKinsey Multi-Factor Matrix Industry attractiveness High Medium Low Business position;; its ability to compete High Medium Low Invest/grow 2. Selective investment 3. Harvest/divest Evaluating the Ability to Compete Size Growth Share by segment Customer loyalty Margins Distribution Technology skills Patents Marketing Flexibility Organization Evaluating Industry Attractiveness Size Growth Customer satisfaction levels Competition: quality, types, effectiveness, commitment Price levels Profitability Technology Governmental regulations Sensitivity to economic trends KW-098

25 Build a Model or Scorecard to Build Consistency Into Portfolio Assignments Very Very Overall Business Attractiveness Relative Unattractive Attractive Attractiveness Factors Importance Score Market Opportunity Market size.20 X 1.20 Growth rate.20 X.40 Level of buyer power.10 X.20 Market development index.10 X.30 Number of competitors.10 X.30 Ease of differentiation.20 X.60 Ease of entry.10 X Competitive Position Customer loyalty (share).20 X 1.20 Company fit.40 X 2.00 Sources of advantages.30 X 1.20 Brand development.10 X or to compare business opportunities Major Attractiveness Relative Factor Weighted Maximum Overall Market Forces Weight Index Index Index Index (a) (b) (c) = (a) x (b) (d) = (a) x 6.0 (c) / (d) Market Opportunity % Competitive Position % OVERALL SCORE % KW-244

26 Caveats in Application 1. Calibration: Measurement is highly sensitive to how the market is defined and requires extensive data 2. Generalizability: Model-based prescriptions are based on average tendencies ŸChallenge the model s assumptions before accepting its output Ÿ Cash flow may not be the best indicator of resource needs/availability ŸManagers may need to adjust their natural strategic preferences and personal operating styles to suit the role of their business unit 3. Specificity of prescriptions: Portfolio analysis was NEVER intended to be the sole method of strategy selection ŸHighlights one type of problem/opportunity facing a business (i.e. the source and use of resources) ŸSays little about how (specifically) resources should be used to overcome problems or capitalize on opportunities KW-101