How to Improve
Success Rate of New Product/Service
Commercialization
Krannert School of Management
Purdue University
October 21, 2009
Tom Wagner (BSIM’67)
Presentation Topics
• Why this is important?
• Five marketing illustrations.
• Five key determinants of commercial
success.
• Summary.
• Take-aways.
The Challenge of Top Line Revenue Growth
in Today’s Economy
• “Investors see little reason to hold stocks. We
need to see better revenues and top-line growth”
( Jon Brorson, Director of Equities at Northern Trust)
• Revenue growth contingent upon economic
growth is obsolete.
• New product/services key to revenue growth.
• Anyone who pursues a Marketing career will
have responsibility for new product/service
commercialization.
• Over 30,000 new products are introduced
annually but at least 80% of these fail.
Mortality of New Product Ideas
Number of Ideas
50
Idea Generation and Screening
Business Analysis
Development
0
Percentage of Time
Source: Booz, Allen & Hamilton, Inc.
Testing
Commercialization
Why Do New Ideas Fail?
• Fail to offer unique benefit…don’t address what
customers really want/need.
• Underestimate competition
• Idea good but design problems
• Product costs more to produce than expected
• Rush to market without well developed
marketing plan
• Move to slowly
Introduce New Low Calorie Beer
Rheingold vs. Miller High Life
Retain Leadership
Kawasaki Personal Watercraft
Move Down The Thermoplastic
Compound Value Chain
Resin
Compounder
Reinforcement
Injection
Molder
Original
Equipment Mfg.
How Does Campbell Soup Target
Italian Sauce Leader Ragu
W.W. Grainger Service Penetration
New Product/Service Planning Process
Strategic
Emphasis
and
Idea Generation
Is it Real?
Can We Win?
Is it Worth It?
Validation
Strategic
Positioning
Features
Features
Benefits
$ Values
Incremental or
Innovation
Customer
Value Proposition
Customer
Needs and
Wants.
Vs. Competition
New Product/Service Strategic Emphasis
• The best predictors of success are market
knowledge and demand-driven products and
services.
• Winners avoid diversification during
downturns…they reinforce the core businesses
by focusing resources on playing to win on their
main field of competition. Diversification dilutes
focus just at the time when focus is critical.
New Product/Service Strategic Emphasis
New
Market
Market Development
Development
(Medium Risk)
(Medium
Risk)
Diversification
Diversification
(High Risk)
(Major
Risk)
Markets:
Existing
Market
Penetration
Market Penetration
(Low Risk)
(Minimal Risk)
Product Development
(Medium Risk)
Existing
New
Products/Services:
Strive for Innovation
Auto Tire Technology Status in 1975
Goodyear Reluctant to Invest in Radials
Annual Tire
Demand
Tire
Construction
Relative
Price/tire
Tire Warranty
Bias Ply
$50
10,000 miles
Bias Belted
$75
20,000 miles
Radial
$100
40,000 miles
Bias Ply Tires
Fiber Glass Belted Bias Tires
Steel Belted Radial Tires
1965
1970
1975
1980
1985
1990
1995
2000
Goodyear Lost Share to Radial LeaderMichelin
Annual Tire
Demand
1965
1970
1975
1980
1985
1990
1995
2000
1971 Southwest Enters Airline Business
U.S. Airline Industry
•
Typical Incremental Differentiation by Traditional
Large Airlines:
•
•
American, Continental, United, Delta/Northwest, U.S
Air had combined $23 billion operating losses in
2008.
Southwest Chose Innovative Business Model:
•
•
Low fares, shorter flights, city-to-city (not hubs), no
frills, fastest flight turnaround, only Boeing 737,
flexible work rules.
Hugh Success…operating Income of $450 million in
2008.
Innovation
• “Mankind has already achieved all that it is
capable of inventing”
Innovation
• “Mankind has already achieved all that is
capable of inventing”
• Henry J. Elllsworth, Commissioner of the
U.S. Patent Office, circa 1900
Chips Ahoy! 100 Calorie Pack
100 Calorie Packs have 285% retail price
premium.
• Only 3 years after introduction annual
sales are $30 million.
• Operating margin at least 20% greater
than traditional product.
•
Don’t Neglect Innovation for the Allure of
Incremental Improvements
• Organizations intuitively tend to add features to an
existing product in response to the perceived wants and
needs of customers which often results in incremental
improvements that have little impact on customers’
buying patterns.
• Innovation includes: products, service, business models,
net-working, etc.
• Don’t encourage creativity of creativity’s sake; instead
encourage creative solutions to real problems.
Innovation is good only if its useful.
• Great ideas are the beginning, not the end, of business
innovation.
Sources of New Ideas
•
•
•
•
•
•
•
•
Customers
In-house Research and Development
Competitive Activities
Universities
Consultants
External Inventors
Management
Paying Attention to Unexpected Events
Customer Focus
The Center of Everything Marketing Does
Product
Price
Customer
Distribution
Promotion
Customer Focus
• Today’s marketers strive to develop unique
strategies by finding unsatisfied customers
and offering them superior value.
• They don’t sell products…capture customers
• Hugh $ are spent on market research to
understand customer needs..
• Yet everyday, new products and services are
introduced only to fail dramatically.
R.J. Reynolds “Premier” Smokeless Cigarette
New Product Failure
“Premier” Commercialization
• “Premier” was intended to reduce or eliminate
the unhealthy side effects for both smoker and
people around smoker.
• R.J. Reynolds commercialized in 1988 after
devoting several years and approximately $1
billion to develop and commercialize.
• “Premier” withdrawn 1989 after smokers
complained of charcoal-like aftertaste.
What Will Drive Success:
Rheingold vs. Miller High Life
Rheingold vs. Miller High Life
• Rheingold Breweries in Brooklyn, NY
developed process to remove starch from
beer in 1967.
• Introduced as “Gablinger’s Diet Beer”
• Advertisements showed a very fat man
shoveling spaghetti into his mouth and
downing a Gablinger turned off traditional
beer drinkers.
Miller Lite Beer Success
Customer Focus
•
•
•
•
•
•
•
•
Most beer is bought by heavy drinkers
A beer that ‘fat’ people could drink and not gain as
much weight would NOT be received positively by
the market.
“Show me a man concerned about his waistline
and I’ll show you a poor prospect for serious beer
drinking.”
Customers said they would be interested in a beer
that was less filing BUT still tasted great!
Miller Brewing acquired the light beer process
when it bought assets of Meister Brau.
1972 Miller Lite was launched as “Everything you
wanted in a beer… and less”. Some of the most
macho football players in U.S. pushed Miller Lite
The low calorie beer category has been one of the
most successful food and beverage innovations of
the past 25 years even though Miller did not invent
the technology.
Rheingold is no longer in business.
How to Learn What Customers Want
Improvements to Kawasaki Jet Ski
• What could be done to improve Jet Ski
ride?
Improvements to Kawasaki Jet Ski
• What could be done to improve current Jet Ski ?
• Existing customers asked for more padding on Jet Ski to
make standing position more comfortable.
• Kawasaki responded with several incremental
improvements to original design.
• Kawasaki lost significant share and its #1 leadership
position.
Voice of Customer Technique
• Face-to-Face interview process
• Consumers at each step down the value
chain.
• Needs and wants expressed in customer’s
own words and terminology.
• Search for ‘Outcomes’
• Prioritized by customers.
• Responsibility for developing solution rests
with supplier, not customer.
Examples of Probing
•
•
•
•
•
•
•
•
Tell me more about …
Why did that please you ?
Why do you believe …..?
Why did you select …..?
Why is that significant ?
Why do you suggest that ……?
Why would that be an improvement ?
What do you mean by ….?
• What keeps you awake at night?
• Why do you buy from us?
• Please be more specific when you say….
Organizing and Prioritizing Customer
Feedback
• Eliminate duplication
• Separate needs and attributes from
opinions, solutions, and numerical
values
• Assemble like attributes and return to
customers and ask to prioritize
Pitfalls to Avoid
• Offer solutions when problems are raised
• Encourage customer to discuss needs or attributes in
terms of our products and services and not theirs
• Judgmental tone, ie. Why did you do that?
• “Functional Fixedness” – instead probe for outcomes
• Imply we are going to fix their problems within weeks
• Interrupt customer
• Ask questions without interest and sympathy
• Poor eye contact
• Settle for opinions and solutions rather than probe to
uncover true needs and attributes
Advantages of VOC Survey Technique
• Traditional survey methods ask for solutions,
but..
– Customers have limited frame of reference
– “Me Too” solutions offered
– Incremental improvements and not bold changes
• VOC probes for Outcomes
• VOC helps establish Values since there can
be a huge gap between what customers want
and what they are willing to pay for.
Yamaha Personal Watercraft
Asked for ‘Outcomes’
• Faster learning curve
• More stability
• Longer rides without
fatigue
• Multiple riders
Personal Watercraft – Using ‘Outcomes’
Results in New, Innovative Design
•
•
•
•
Faster learning curve
More stability
Longer rides without fatigue
Multiple riders
Yamaha and Sea-Doo (Bombardier) gained significant share
New Product/Service Planning Process
Strategic
Emphasis
and
Idea Generation
Is It Real?
Is It Worth It?
Can We Win?
Validation
Strategic
Positioning
Features
Features
Benefits
$ Values
Incremental or
Innovative
Customer
Value Proposition
Customer
Needs and
Wants.
Vs. Competition
Move Down The Thermoplastic
Compound Value Chain
Resin
Compounder
Reinforcement
Injection
Molder
Original
Equipment Mfg.
Validation Questions
• Is It Real?
–
Market size
– Customer needs and wants
• Can We Win?
– Sustainable competitive advantage
– Pricing levels
– Sales projections
• Is It Worth It?
– Investment
– Variable and fixed costs
Pre-tax income
– Level of risk
– Corporate return on investment goals
– Impact on external relationships
– Management priority vs. other growth opportunities
Is It Real?
• Over $200 million sales in U.S. market.
• Projected growth of 7%/yr due to stiffness and
impact strength advantages over other resins.
• Automotive and Appliance largest uses.
• None of the current compounders had captive
raw material supplies.
• Automotive and Appliance OEM’s always looking
for lower price.
• Compounding technology well established.
Is It Worth It?
• Initial investment of $3 million.
• Projected variable costs of $.60/lb.
• ROI of 10%, assuming ave. price of
$.75/lb
• Could strain relationships with traditional
customers, ie the current compounders.
Can We Win?
• Market price not totally defined but uncovered
some contracts as low as $.60/lb and likely to
proliferate to other molders.
• Competitive compounders operated very large,
highly automated facilities which we were not
willing to duplicate.
• Relationships at automotive and appliance
OEM’s BUT not at immediate target customers –
molders.
• Conclusion: Can not win…cancel project
New Product/Service Planning Process
Strategic
Emphasis
and
Idea Generation
Is it Real?
Can We Win?
Is it Worth It?
Validation
Strategic
Positioning
Features
Features
Benefits
$ Values
Incremental or
Innovative
Customer
Value Proposition
Customer Needs
and Wants vs.
Competition
Segmentation and Positioning
• By creatively, segmenting markets, you can spot
opportunities.
• Segmentation is key to target marketing.
• Positioning refers to how customers think about your
proposed brand.
• Careful positioning can help highlight a unifying theme or
benefits that relate to the target market.
• Positioning ensures that the whole marketing mix is
consistent and leads to competitive advantage.
• With proper positioning, you can convince customers
that your offering is unique in the marketplace.
How Does Campbell Soup Target
Italian Sauce Leader Ragu
Italian Tomato Sauce Positioning
Complex, Old World Taste
50%
of Market
Just Heat and
Serve
Extensive
Preparation
Ragu
Simplistic, Tomato Taste
Campbell Soup Italian Tomato Sauce Positioning
Complex, Old World Taste
Campbell
Soup Goal to
Re-position Old
World Taste
50%
of Market
No Preparation
To Use
Extensive
Preparation
Ragu
Simplistic, Tomato Taste
Campbell Soup Positioning
• A ready to use sauce with complex, “Old World”
taste.
– Ingredients included diced tomatoes, basil, oregano,
garlic, parsley, onion powder not contained in Ragu.
– Consistent, thicker sauce vs. thin, watery Ragu.
• Initial “Prego” ad campaign showed skeptical
Italian families being won over with the bottled
sauce and “It’s in there” tag line.
• Within several years, Campbell Soup captured
20% of market.
New Product/Service Planning Process
Strategic
Emphasis
and
Idea Generation
Is it Real?
Can We Win?
Is it Worth It?
Validation
Strategic
Positioning
Features
Features
Benefits
$ Values
Incremental or
Innovative
Customer
Value Proposition
Customer
Needs and
Wants.
Vs. Competition
Dollarize ‘Values’
Features
Benefits
Values in $
Product and Service Focus
“What do we offer ?”
Application Focus
“Why should the customer care ?”
Customer Focus
“What is that worth ?”
People buy holes, not drills. The speed at which the holes are drilled, the
accuracy of the holes, or the drill’s ability to drill more holes are benefits
that can be dollarized
Dollarizing
•
People buy for one of two reasons:
1. To feel good:
•
Intangible vales, ie styles, taste
2. To solve a problem:
•
•
•
•
Avoidance of loss, ie warranty
Chance to save cost, grow sales
Both the avoidance of loss and the chance for
gain can be measured in dollars and cents, or
“Dollarized”
Dollars and cents are the universal measure
used to compare products and services.
Dollarizing
• Dollarizing is the act of assessing the differences
between your products and competitive products
and calculating the financial impact those
differences have on your customer.
• Persuade customers to focus on total costs
rather than simply on acquisition price.
• You must have accurate understanding of what
its customers value and what their current costs
are.
Dollarizing
• Most often the seller is reduced to fighting a
price battle because he does not know precisely
what his benefit means to the customer or does
not know how to translate benefits into dollars
and cents.
• Claiming “lasts longer”, “best quality”, “faster”
are over used and ineffective.
• A seller who can articulate the impact on the
customer’s business financial performance will
nearly always prevail.
W.W. Grainger Service Penetration
W.W. Grainger Dollarizing with Pharma Labs
• Early 1990’s Grainger Consulting Services was formed
to help customers understand total cost of MRO supply
management.
• In 1997 GCS initiated baseline assessment to document
in-house MRO management and Pharma Labs agreed to
pay GCS $45,000 for this service.
• GCS showed Pharma Labs how they could reduce
following MRO costs:
– $165,000 through supplier consolidation
– $ 72,000 in inventory reduction
– $ 90,000 in lab technician involvement
• Grainger increased sales to Pharma Labs 7 times.
Summary
Innovation:
Radial Tires
Miller Lite
Southwest
Strategic
Emphasis
and
Idea Generation
Validation
Prego vs. Ragu
Voice of Customer:
Premier Cigarettes
Sea-Doo
Thermoplastic
Thermoplastic
Compound
Compound
Strategic
Positioning
Customer
Value Proposition
Dollarizing:
W.W. Grainger
Take-Aways
• Success of New Product/Service is critical to the growth
and sustainability of your business.
• Don’t settle for incremental ideas but strive for
innovations.
• Uncover and focus on customer “outcomes”
• Constantly evaluate ideas in terms of: Is it Real, Is it
Worth It, and Can We Win before commercializing.
• Position consistent with desired “outcomes” and voids in
competitive offerings.
• Market “values” and dollarize when possible.
• New Product/Service commercialization is a continuous
process.