Tag: New Product Development

Sources of Marketing Opportunity

Over the past couple of days I have been looking at replacing my rather elderly car.  it has got to the stage where the cost of annual servicing exceeds the cars value.  One of the cars I have looked at is a successor model to a car I owned thirty years ago.  the new car has a bigger fuel injected engine that that old car.  In fact in the model range, it is a significantly superior model version when compared to the old car.

Yet the new modern car offers a far lower nought to sixty time, a lower top speed and only marginally better fuel consumption.

I was astonished.  Surely after thirty years, improvements in these categories would have been made.  Yet it seems that, in terms of performance, things have gone backwards.

That got me thinking.  How was this new model of car a superior marketing offer than its predecessor? How does it provide marketing opportunity?

Philip Kotler, in his breakthrough book Kotler on Marketing describes three sources of marketing opportunity:

  1.  Supply something that is in short supply
  2. Supply a product in a new or superior way
  3. Supply a new product or service (including an IMPROVED product or service)

When goods are services are in short supply buyers should be queuing up to buy them. So in the middle of a pandemic, things like face masks and surgical gloves will be in short supply.  This situation requires the least amount of marketing talent.  the opportunity is obvious to all.  The product is price inelastic so suppliers can charge high prices.  However, such shortages tend to be short-lived; so the market opportunity does not last.

When supplying an existing product you need to examine how you can IMPROVE that product. It doesn’t seem that the manufacturer of the car described above has properly considered what is an improvement.

There are three ways to identify product improvements:

  1. Use the Product Detection Method
  2. Use the ‘Ideal’ method
  3. Use the ‘Chain’ method

The problem detection method assumes consumers are accepting the current versions of goods but that they are not fully satisfied with those versions e.g. I like my new car but it uses too much fuel or I like my new car but I wish it had better acceleration.  Such statements create marketing opportunities.  problem detection is the primary method for product improvement but it is less helpful in terms of new product innovation.

The ‘ideal’ method involves asking consumers what they see as the ideal version of a product.  However consumers creating an ideal product wish list can create contradictions.  When using the ideal method, you may be faced with overcoming these contradictions.  For example, Consumers may like the taste of high alcohol but want them to be lower calories.  However consumers also reject low calorie beers as they have too low an alcohol content and a bad taste.  You can make a low alcohol beer tastier but only by increasing its alcohol content and you can only lower a high alcohol beer’s ABV by reducing its taste.

The consumption chain method examines the steps consumers take to acquire, use and dispose of products.  Are consumers satisfied with the way they consume products and can those steps of consumption be improved.  This could be through changes to the product itself or changes to the ancillary services which surround a product.

By analysing the customer activity cycle around your goods you can inform product improvements.  You also look beyond purchase value and look at your long-term relationship with those consumers (lifetime value).

When supplying a new product or service, you may not be able to rely on customer opinion,  They will not be aware of their need for the product until it appears on the market.  No one foresaw the home computer market. In the 1960’s it was expected that every major city might have a computer.  When desktops arrived they were tools for businessmen and engineers, not a domestic product.  When Apple produced the iPad, people forecast disaster as they saw no market for tablet computers.

Again, there are three models for assessing new product ideas:

  1. First use your company organisation to derive promising opportunities.  This is your sales force listening to customers and investing in blue sky research and development.  This can be a high risk approach
  2. The second method is to create the role of an Ideas Manager.  This is a senior role in an organisation who is tasked with managing product improvement and new product development.  They should lead a multi-disciplinary team with members from across your organisation including engineers, operations managers, marketers and finance.  It is this team who follow a formal process of idea assessment.  This can be new product proposals or improvements suggested by staff through systems like Kaizen and Total Quality Management.  The Ideas Manager should champion the concept of an Ideas Organisation and should take ownership of the decisions of the ideas committee.
  3. The Strategic Breakthrough Model:  This involves even more improvement thinking targeted at breaking through market growth pinch points and blockages.  this could involve finding new customer groups and new market segments.  It could mean geographic expansion of your firm or new sales strategies.  It could be new pricing strategies or financing solutions, e.g. most cars are now bought via leasing agreements as opposed to the old method of hire purchase. It could also mean adding new product features or developing completely new products.

What kind of Business Are You?

What is your state of readiness to supply your market?  Do you anticipate what consumers need or want? Are you prepared to move your customers to the next stage of the market e.g. electric cars or 5G?

To answer these questions you need to know what type of business you are and what is the position of the market life span.

Only with that information at hand can you adopt a market strategy that is appropriate and get that strategy applied with the correct timing.

You need to forecast your environment: Decide at what point you want to grab the market. Do you want to intercept the market at a certain stage of its life span or do you want to lead and direct the market?

This means that there are several types of company in a market. It also destroys the myth that ‘First in is best dressed’. take the early 80’s home video market: Betamax was first to market, and some still consider it a superior quality option, but VHS was able to intercept the market with a cheaper, better distributed product.  VHS won the home video format battle and Betamax was consigned to the history books.

Being the prime mover in a market is not always an advantage.

In every market there will be a number of companies and as the market life cycle progresses different businesses will rise to prominence as others decline. Like everything else, markets have entropy.

Businesses in a market can be classified under one of four categories:

  1. Market Scopers:  These are the innovators who create new markets and who operate at the start of the market life cycle.  they create new product, services and distribution channels. They have a go to attitude and scope out a market rather than aiming to satisfy it. the following lessons can be taken from Market Scopers:
    1. Know the state of readiness of consumers for the market, the product or the innovation.  Sir Clive Sinclair scoped the market for home computers and had extraordinary success. He tried to scope the market for electric vehicles but did so on false assumptions and the C5 was a disaster.
    2. Know how big the market is or could become.  Focus on realised demand not latent demand.
    3. Know how the market wants to buy the product.  For example, who buys carpets over the internet?
    4. Know what price the market will bear, so as to maximise returns.
  2. Market Makers:  These businesses operate in the early growth stage of the market.  They are the creators of a mass market e.g. Henry Ford with his aim to make motoring a practice for the masses.  These businesses generally garner the largest market share and become market leaders.  They create ‘best value’ but are often insufficiently agile to withstand the pressure as a market segments.  Often these businesses are driven by product development rather than market change. These are growth stage market leaders.
  3. Market Changers:  These businesses aim to move the market elsewhere by forcing their competitors to modify their offer.  Market changers are companies like Tesla which has pushed established car manufacturers into the development of electric vehicles.  These companies focus on technology and price/quality analysis.  They look to provide services unavailable elsewhere. They can force the existing market into decline.
  4. Market Exploiters:  These companies are fast followers of technology.  Many ‘market disruptors’ are market exploiters.  They take advantage of market fragmentation as disparate segments emerge.  They develop ‘new best value’ through branding and new service functionality.  Exploiters follow a market follower or market challenger strategy.

Different types of company need to target different market stages for market entry.  timing into the market is critical where consumer needs and market segments are continually changing.  A major factor is the rate of market progress and its taxonomy. This is how quickly consumers adapt to changing market technology: Do you target early adopters or laggards?  You also need to be aware of how quickly consumers change their definition of best value in a market.  For example, how many consumers would now buy a car that doesn’t have Wi-Fi or an iPod dock?

Time and Technology

The hype relating to market disruptors is now somewhat reduced as compared to a couple of years ago but it is still the case that market disruption is a major component of many new businesses.

So what is meant by ‘disruptors’?

Disruptors are entrepreneurs who aim to enter existing markets through leveraging the benefits of new technologies on that market.  So if you have a plan to deliver Pizza via an app, or to sell Books through a website, or to distribute music by digital download, then you are a disruptor.  Some of the biggest businesses in the world could be classed as market disruptors, Amazon, Deliveroo, Uber, AirB&B, Tesla, etc.

There are two aspects to market disruption:

  1. The technology
  2. Time.

In fact there is a triad of components to technological disruption; money, quality and time. The implementation of technology in the marketplace has to be a set quality (that demanded by target customers).  It takes money to ensure that quality; and it also takes time to develop that quality.

Recently, Dyson abandoned their project to develop an electric car.  The proposed vehicle was a disruption product.  It was reliant on experimental solid state battery technology. In announcing the project, James Dyson stated his plan to launch the new car in 2021. Many in the automotive sector believed that such a deadline was overly ambitious and that solid state rechargeable batteries would not be commercially ready until the middle of the next decade, at the earliest. Dyson’s 2021 deadline was clearly a rush to market, and that rush risked the product not meeting the expected quality.

This tale mirrors the Sinclair C5, the 1980’s electric recumbent tricycle.  People expected Clive Sinclair, the home computer pioneer, to produce a quality, useable transport solution. Instead they got a pedal car with low power and limited range.  One of the primary reasons for the C5’s failure was the new, experimental batteries designed by Sinclair, were not ready at the time of the C5’s launch.

Technology does not just mean product technology.  There is the technology needed to produce new products (e.g. new machinery such as 3D printers) and then there is technology for support functions – e.g. Artificial Intelligence being used for support calls.

Time to market is clearly a factor on the ability of a firm to have a hold on the development of a market.  The recent rise in the Tesla share price; the firm is now worth more than Volkswagen; signifies that, at least in the minds of city traders, that Elon Musk’s car firm has a technological lead.

Technology is also a measure of customers perception of your status in the market.  Often firms with the best technology are seen as market leaders (whether or not that perception is true).

When discussing time, there is time to market, but there is also the timing of market entry.  Often being first to market is a primary incentive, especially when intellectual property; such as patents and designs; is prominent.

Disruption through technology isn’t just the creation of software apps.

There is industrial technologies, such as the creation of long-life egg powder for cake mixes; or the creation of lightweight but toughened plastics for football boots; or the creation of high capacity memory chips for USB memory sticks and memory cards.

There is workplace technology.  This doesn’t just mean robots on the production line.  It is the application of scientific principles to marketing. For example, the development of graphene for flexible mobile phone screens.

There are four roles for workplace technology:

  1. Improving the speed of an activity;
  2. Improving the precision of an activity;
  3. Overcoming limitations
  4. Reducing Costs

All of these feed in to improving productivity.

Time is important because it is, in today’s world:

  • You need to meet customer expectations faster;
  • People expect ‘best value’ to be delivered faster.

it is a question of relative time, to absolute time.  Dyson’s 2021 deadline was an issue of absolute time.  he may have been better concentrating on relative time.  rather than setting an arbitrary deadline for his batteries to perform, he may have been better concentrating on ensuring his batteries were the most effective and efficient before those of competitors met those criteria.

Consumers attitudes also change over time; and changing consumer perceptions and attitudes is fundamental to marketing.

Rushing to market can be a big mistake.  Take Betamax video tapes as an example. Betamax format was first to market in the home video recorder market but VCR tapes became the market standard.

Being too late to market can also be an issue.  An example is Sony minidisc. This format was the first for digital downloading of music, and it was a better portable offer than compact disc as it was less prone to jumping.  However, Minidisc was launched just as MP3 players hit the market, which used memory chips which made the ‘disc’ bit of the technology redundant.

In 2003, Stalk and Hout wrote that time is the next competitive advantage.  This led to a humorous comment that marketing success was like going to a dance where success in getting a partner relied on being first there and being best dressed.

The best approach is to consider how relative time gives you a competitive advantage.

Rush to market and your technology may not be of the quality demanded by consumers.  It may not be perfected.  Alternatively, if you are a technological laggard, your competitors may beat you to the punch.

Why Businesses Co-brand

Co-branding is cooperation between two or more businesses, each of which has significant customer recognition and where both brand names are used on products and services.

We can all see co-branded products around us every day.  The lap-top on which I am writing this article is a Hewlett Packard machine but it is clearly marked with the logo of Bang and Olufsen, the hi-fi specialists, It contains microchips produced by Intel and it came with Microsoft 10 operating software.  Computers are excellent examples of the co-branding process in operation.

It is important that co-branded products offer added value to consumers.  The must offer something new, better and with additional capabilities than each of the constituent brands.

So Elixir guitar strings are co-branded with Goretex, the coating offering strings with a longer lifespan and greater resistance to corrosion.  Coca-Cola is co-branded with Bacardi rum to allow the production of ready mixed spirit drinks. Barr’s Iron Bru is similarly co-branded with Famous grouse whisky. Claridges co-brands with Gordon Ramsey in relation to fine dining restaurants.

In effect co-branding is a superior form of joint venture.

The following are types of co-branding categories by the level of shared value they create:

  1. Reach Awareness Co-branding: This offers the lowest level of shared value. It is where cooperation between brands allows the parties involved to increase brand awareness through exposing their brand identities to the existing customers of their co-branding partner. An example would be the direct marketing of credit cards alongside customers bank statements.  Especially if the credit card is promoted to high net worth individuals.
  2. Values’ Endorsement Co-branding:  The co-branding allows for endorsement messages which promote individual brand values and desired market position. So Tesco sponsor the Cancer Research Race for Life and Bank of America issue credit cards on behalf of the World Wildlife Fund (where a contribution to the fund is made each time the card is used). Tesco and Bank of America hope to co-opt the values of their co-brand charity.
  3. Ingredient Co-branding:  Branded components are included in products.  Like the speakers in this laptop. This allows the cross-promotion of different brand attributes.  So this computer offers better sound reproduction because of the quality engineering offered by a high quality, specialist audio manufacturer. This type of relationship needs a junior and senior brands e.g. Hewlett Packard being the senior brand and Bang and Olufsen the junior brand.  Such a relationship means that the number of potential co-branding partners can be small. The use of Lycra and Woolmark are similar junior co-brands. The aim is to reinforce your brand values by co-opting junior co-brands which highlight those values.
  4. Complimentary Co-branding:  Where brands combine to create a product greater than the sum of their individual parts.  These can be separately branded joint-venture products.  For example, Smart Cars are a co-branded joint-venture between Swatch, the designer watch manufacturer, and Mercedes.  Mercedes bring their engineering excellence and Swatch bring their design flair.  Similarly Lego co-brands with Star Wars and Marvel Comics. Lego’s co-branding brings the excitement and story-telling of their brand partners and Lego bring their market leadership in toys and model-building. However, with such complimentary co-branding it is important not to give away your brand.  On one occasion Lego refused a co-branding opportunity; to create a building block product for a high street chain; because the co-branded product reduced the individuality of the Lego block.

Co-branding can offer numerous benefits:

  •  new income streams through expanding your brand identity into new market segments
  • boosting the earning potential of existing products
  • creating credibility in sceptical markets.
  • additional brand exposure with lower risks
  • short-term tactical advantages over competitors
  • shared advertising costs through cross promotion (Sky broadband currently advertises it’s products alongside the promotion of family animation films like The Secret Life of Pets and The Incredibles).
  • Royalty income through the use of components in products produced by others e.g. for many years Nick Faldo, the major-winning golfer earned significant income by lending his name to clothing produced by Pringle.
  • boosting sales through the inclusion of additional product benefits
  • The use of joint tools by co-branding partners to allow entry into new markets and lowering the cost of such new market entry.

However there are significant risks to co-branding strategies, particularly in markets like fashion.  You have to carefully consider who your co-branding partners will be.  Your partner may be seeking a quick buck rather than a long term relationship. Financial greed has ruined many a co-branding relationship.

Co-branding partners must be compatible. If they operate in different markets, it may be important to seek a partner with a similar target customer profile.

Brand strategies need to be coordinated and co-branding deals can be ruined if a partner suddenly shifts their strategy to one that isn’t complimentary with your brand.

You need to avoid brand dilution; where the co-branding weakens your brand image and identity.

You also need to avoid error contagion, where an issue with an individual brand does not lead to errors with the co-branded product.  For example Ford had massive issues when manufacturing and design faults with Firestone tyres were discovered. These tyres had been fitted to thousands of Ford cars during manufacture.

Making the most of your offer

the products and services you offer are key to the survival and growth of your business.  But if your product mix is static, its effectiveness will weaken.

As stated previously in this blog, your customers have needs that they want satisfied; they have jobs that they want completed.  Customers want solutions, not products.  They want a four millimetre diameter hole, not a four millimetre drill bit.  Their focus is on the solution that will get the job done, not the product needed to provide that solution.

Over time, it is likely that consumers will move from one product to another if it is shown that the new product option offers a better solution to the consumer’s need than the existing product.  Consumers will switch to another product if they perceive it offers a better way to get the job done – cleaner, faster, safer, more environmental – and less costly!

No product, service or organisation is indispensable if a better offer exists elsewhere.

Take the example of the mangle.  A mangle used to be an indispensable, but exceedingly dangerous, tool for doing the laundry.  no household would be without access to a mangle on wash day.  When the first washing machines appeared in the late 19th century they were fitted with a mangle to squeeze excess water from the wash. Often these mangles were electrically powered.

But no one uses a mangle today.  Modern washing machines with high speed spin cycles use centrifugal force to remove water from the laundry.  Modern machines are safer; you aren’t going to crush your hand in a modern machine (a common injury with mangles); they are less time consuming and use less effort on the part of the consumer; and because they use a lot less water, they are more environmental.

So consumers have switched away from mangles to remove water from their weekly wash; there is no longer a market for mangles in the United Kingdom.

However, in many businesses there is a problem.  Product portfolio management is seen as a tactical, not a strategic activity.  Small drops in sales levels are often dealt with at a local or regional level, not a strategic responsibility of senior management.  The solution isn’t to alter the product mix but to offer additional incentives to salesmen and agents.  Little or no thought is given as to whether the drop in sales is a result of an incorrect product strategy.

Often products are placed in organisational silos.  Issues with product management are contained within those silos and no one looks to see if the overall product strategy is at fault.

Reviewing the management of your product portfolio is more than examining sales figures.  You need to:

  •  Review customer needs
  •  Review product or service attributes
  •  Are needs changing over time?
  •  Review your customer value proposition
  •  Examine your wider business model
  •  Assess existing and potential risks
  •  Manage the product life cycle
  •  Examine distribution and supply chains; are you using the most appropriate use to market?
  •  Are you using the right tactics to implement your marketing strategy?

The starting point for considering your product mix strategy is the consideration of value.  There are two forms of value;

  1. Organisational Value: The flow of cash and the reputation gained through the sale of your goods and services
  2. Customer Value: The benifits of your products and the solutions they offer.

Successful businesses are those who gain more value from consumers than is spent delivering products and services.

Customers get value from seeing a job well done or a need satisfied.  A firm will be profitable if the customer value it generates exceeds the costs of delivering a satisfying solution to the customer.

And remember, best value does not necessarily mean cheapest price.  It is a measure of overall utility. Customers will trade off different perceived values from a range of product offers. This is often a primary source of marketing differentiation.

Remember value equals benefits of the product or service minus the effort needed to obtain those benefits, minus the risk involved in the product choice, minus the price charged for the product or service.

Reducing the price is only one way of maximising customer value. Alternatively, you can increase the benefits of usage; you can reduce the effort needed to access the benefits of your offer; you can reduce the risk inherent in a consumer choosing your product.

And it isn’t just your target customer who needs a value proposition.

Prospective customers need a value proposition to compare your products with others in the market.  Your salesforce needs a value proposition to present to customers.  Your distributors and retailers need a value proposition to ensure appropriate prominence for your products; and your internal stakeholders and shareholders need a value proposition to assess your organisation’s market value.

Teacy and Wiersema see three potential areas for a value proposition to be developed; management efficiency, product leadership and customer intimacy.

You customer value proposition must relate to all the stakeholders in your organisation and it must integrate the needs of those stakeholders as well as those of customers.  Stakeholders need to be informed of where they sit in the customer value process as well as how different stakeholder groups relate to each other.  You must state clearly how the organisation and its stakeholders create customer value in a unique and differentiated way from that of your competitors.

So:

  •  The roles of organisational stakeholders must be aligned to the process of delivering the customer value proposition
  •  The aim should be to open doors and close sales
  •  You should look to increase revenues by having a clear market position
  •  Aligning stakeholders roles should speed time to market
  •  Aligning the roles of stakeholders should reduce costs and wastage
  •  Alignment or stakeholders to the customer value proposition should improve operational efficiency and increase market share
  •  Align to the customer value proposition to improve customer retention

As the product mix cannot be static, product innovation is a necessary element.  Innovate or die.  Change should be business as usual.  Remember, not everything new will sell; failure is part of the new product development process.  You cannot be responsible for the unpredictability of consumers.

When assessing your product mix, it can be useful to reassess the business you are in.  For example, is Harley Davidson a motorcycle manufacturer or a lifestyle brand?  They don’t just produce bikes, they make clothing, luggage, and license fragrances.

Can you reassess your product mix through segmenting your market in a different way?  Do you segment based on consumer income or psychographic measures?

Do you track the value customers see in your products? Is that value declining? If so what changes can you make to reinvigorate that value?  Are product attributes once seen as optional extras now seen as necessities?  For example, few cars today are sold without a satellite navigation system or passenger airbags.

It can be important to work with your target customers in the development of your offer.  They may provide useful insight into which innovations offer sustainable value.

Management of your product mix is a strategic, not a tactical task.  It is important that development of your offer is considered across your organisation and that it is not solely the responsibility of your sales or marketing team.