Ii

s Vista; It's all about "Wow.

Commercialization

Test marketing gives management the information needed to make a final decision about whether to launch the new product. If the company goes ahead with commercialization— introducing the new product into the market—it will face high costs. The company may need to build or rent a manufacturing facility. And, in the case of a major new consumer packaged good, it may spend hundreds of millions of dollars for advertising, sales promotion, and other marketing efforts in the first year. For example, when Unilever introduced its Sunsilk hair care line, it spent $200 million in one country alone, including $30 million for nontraditional media such as MySpace ads and profiles, mall displays that used audio to catch passersby, 3-D ads in tavern bathrooms, and cinema ads.23

The company launching a new product must first decide on introduction timing. If the car maker's new battery-powered electric car will eat into the sales of the company's other cars, its introduction may be delayed. If the car can be improved further, or if the economy is down, the company may wait until the following year to launch it. However, if competitors are ready to introduce their own battery-powered models, the company may push to introduce its car sooner.

Next, the company must decide where to launch the new product—in a single location, a region, the national market, or the international market. Few companies have the confidence, capital, and capacity to launch new products into full national or international distribution right away. Instead, they develop a planned market rollout over time. For example, when the beer company Miller introduced Miller Chill, a lighter Mexican-style lager flavored with lime and salt, it started in selected southwestern U.S. states north of the Mexican border, supported by local TV commercials. Based on strong sales in these initial markets, the company then rolled out Miller Chill across the United States, supported by $30 million worth of TV commercials, print ads, and a live in-show ad on the U.S. talk-show Late Night .Jjj | g- D g .- j| xvith Conan O'Brien. Finally, based on the brand's U.S.

fd | S ¿J r 11| n success, Miller is now rolling out Miller Chill interna tionally, starting with Australia.24

Some companies, however, may quickly introduce new models into the full national market. Companies with international distribution systems may introduce new products through swift global rollouts. AMicrosoft recently did this with its Windows Vista operating system. Microsoft used a mammoth advertising blitz to launch Vista simultaneously in more than 30 markets worldwide. The campaign targeted 6.6 billion global impressions in just its first two months. "There won't be a PC sold anywhere in the world that doesn't have Vista within the next six months," said an industry analyst at the start of the campaign.25

Introducing Windows Vi

A Commercialization: Microsoft launched its new Windows Vista operating system in a swift global rollout. Its mammoth "Wow!" advertising blitz hit more than 30 markets worldwide simultaneously, creating some 6.6 billion global impressions in just its first two months.

Author I Above all else, new-Comment | product development must focus on creating customer value. Apple's Steve Jobs is obsessed with the Apple user's experience. For every new product that Apple introduces, it's clear that someone actually asked, "how can we make life better for our customers?"

Managing New-Product Development

The new-product development process shown in Figure 9.1 highlights the important activities needed to find, develop, and introduce new products. However, new-product development involves more than just going through a set of steps. Companies must take a holistic approach to managing this process. Successful new-product development requires a customer-centered, team-based, and systematic effort.

Customer-Centered New-Product Development

Above all else, new-product development must be customer-centered. When looking for and developing new products, companies often rely too heavily on technical research in their R&D labs. But like everything else in marketing, successful new-product development begins with a thorough understanding of what consumers need and value. Customer-centered new-product development focuses on finding new ways to solve customer problems and create more customer-satisfying experiences.

One recent study found that the most successful new products are ones that are differentiated, solve major customer problems, and offer a compelling customer value proposition. Another study showed that companies that directly engage their customers in the new-product innovation process had twice the return on assets and triple the growth in operating income of firms that don't.26

For products ranging from consumer package goods to power tools, today's innovative companies are getting out of the research lab and mingling with customers in the search for new customer value. Consider this example:27

Engineers and marketers from Black & Decker's DeWalt division—the division that makes power tools used by professional contractors—spend a great deal of time at job sites, generating ideas by talking to end users and observing how they work. Then, once prototypes of new products have been completed, those same people take them directly to the same job sites, leave the tools, and come back a week or so later to collect information on how they perform.

John Schiech, president of the DeWalt division, tells a valuable story about the importance of paying close attention to customers. "The best-selling miter saws on the market in the early 1990s cost about $199, and they all had 10-inch blades. Our guys went out and did some research and found a lot of people building big colonial-style homes with big moldings. Saw blades cut only half way through those big pieces of trim, so they had to pass a 16-foot piece of molding out the window, flip it around, pass it back in, and make the rest of the cut. We realized that if we moved to a 12-inch blade, which required a completely different, much bigger saw, they could make these cuts in one pass. So we developed and launched a 12-inch miter saw, and charged $399. It became the number one-selling miter saw by a huge margin, and remains so to this day." When asked what makes his company so successful, Schiech summarized: "It's engineers and marketing product managers spending hours and hours on job sites talking to the guys who are trying to make their living with these tools."

Thus, customer-centered new-product development begins and ends with solving customer problems (see Real Marketing 9.1 for a great example). As one expert asks: "What is innovation after all, if not products and services that offer fresh thinking in a way that meets the needs of customers?"28 Says another expert, "Getting consumer insights at the beginning of the process, using those insights consistently and respectfully throughout the process, and communicating them in a compelling form when you go to market is critical to a product's success in the market these days."29

Team-Based New-Product Development

Good new-product development also requires a total-company, cross-functional effort. Some companies organize their new-product development process into the orderly sequence of steps shown in Figure 9.1, starting with idea generation and ending with commercialization. Under this sequential product development approach, one company department works individually to complete its stage of the process before passing the new product along to the next department and stage. This orderly, step-by-step process can help bring control to complex and risky projects. But it also can be dangerously slow. In fast-changing, highly competitive markets, such slow-but-sure product development can result in product failures, lost sales and profits, and crumbling market positions.

Customer-centered new-product development

New-product development that focuses on finding new ways to solve customer problems and create more customer-satisfying experiences.

Real

Marketing 9.1

IDEO's Design Approach:

Putting

Customers First

IDEO, a hot industrial design firm, has won countless awards for innovative product design. Its diverse roster of clients has included companies ranging from Lufthansa, Apple, Microsoft, Marriott, Caterpillar, and Procter & Gamble to Boston Beer, Mayo Clinic, and the Red Cross. IDEO's design teams came up with the first laptop computer, the first Apple mouse, the industry-changing, sleek and elegant Palm V PDA, and even the first standup toothpaste tube for P&G's Crest.

But it's not so much IDEO's innovative designs that make it stand out. It's IDEO's design process. In designing new products, IDEO doesn't start with engineers working in design labs. It starts with customers. And it doesn't just design products, it designs customer product experiences. At the start of every design project, IDEO's "human factors" teams conduct "deep dives" into consumer behavior. The design teams shadow customers, get to know them deeply, and analyze the intricacies of their product-use experiences. "Tech companies design from the inside out," says an IDEO executive. "We design from the outside in so that we can put customers first."

IDEO's work with bicycle components maker Shimano illustrates its customer-centered design approach. Shimano sells bike parts—such as gears, crank arms, and derailleurs—to most of the world's major bicycle manufacturers. If you own a high-end bike, chances are good that it contains several Shimano parts. But in 2006, Shimano faced a problem. Bicycle manufacturers were selling fewer bikes, so Shimano was selling fewer parts.

U.S. bicycle sales, for example, had been flat for nearly a decade. Worse, the number of people riding bikes was actually declining. About the only thing propping up the bicycle industry was the blip in sales of high-margin, top-of-the-line bikes following cyclist Lance Armstrong's incredible string of seven Tour de France victories. The industry began to focus more heavily on developing the ever-more sophisticated—and ever-more expensive— bikes coveted by hard-core cycling enthusiasts. But Shimano knew that the surge in top-end sales couldn't last. The industry had to find a way to get more of non-bikers back in the saddle.

So Shimano turned to IDEO for help. IDEO's challenge? Design a premium bike that would get older people riding again. But IDEO didn't follow the usual industry design process—using computer models to turn out great-looking new high-tech marvels and then testing them out on bike riding enthusiasts. Instead, IDEO began by sending its design team into the homes of people who don't ride bikes.

IDEO's social scientists and designers, accompanied by Shimano's marketers and engineers, spent months observing and meeting with non-riders in four cities, talking in depth about their leisure activities and their thoughts about biking. These deep customer interactions yielded rich insights into why

Team-based new-product development

An approach to developing new products in which various company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness.

In order to get their new products to market more quickly, many companies use a team-based new-product development approach. Under this approach, company departments work closely together in cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness. Instead of passing the new product from department to department, the company assembles a team of people from various departments that stays with the new product from start to finish. Such teams usually include people from the marketing, finance, design, manufacturing, and legal departments, and even supplier and customer companies. In the sequential process, a bottleneck at one phase can seriously slow the entire project. In the team-based approach, if one area hits snags, it works to resolve them while the team moves on.

The team-based approach does have some limitations. For example, it sometimes creates more organizational tension and confusion than the more orderly sequential approach.

Customer-centered new-product development: With the help of design firm IDEO, Shimano and bicycle makers like Trek learned that people didn't want better bikes, they wanted better biking experiences. The result: Industry-changing "coasting" bikes that are simple, comfortable, and fun to use.

people have stopped riding bikes. According to one account:

It wasn't so much that they were out of shape, or too busy or lazy. It was because cycling had become intimidating, something for hard-core athletes who love all the technical minutiae. "Everything had changed in bicycling," says a senior Shimano marketing executive. "It had gone from fun to being a sport, and no one [in the industry] had noticed." For older people, bikes changed from the 10-speed rides on steel frame bikes to 30-speed carbon fiber and titanium machines. Costs rose from a few hundred dollars to thousands. Handlebars, pedals, tires, even seats came in so many varieties that consumers got overwhelmed. Expensive helmets, special shoes, and tight-fitting spandex clothes simply didn't appeal to recreational riders. And bike shops, filled with workers who fawned over gear, had little time for customers interested in just plain bikes.

Still, IDEO concluded, there was hope for Shimano and the bicycle manufacturers. "Everyone we talked to, as soon as we talked about bikes, a [nostalgic] smile came to their face," says an IDEO researcher. That nostalgia gave IDEO and Shimano an opening. People didn't want better bikes. They wanted a better biking experience, one that took them back to their memories of riding a bike as a kid.

Based on these customer insights, IDEO and Shimano came up with the concept of a "coasting" bike—a bicycle with a classic look that is simple, comfortable, and fun to use. Shimano built a prototype and sold the concept to three top bike manufacturers—Giant, Raleigh, and Trek. Coasting bikes are designed to create the ideal casual biking experience. They feature a traditional heads-up riding position, wide and comfortable seats, a chain guard to keep grease off the cyclist's pants, and old-fashioned coaster brakes that stop when you peddle backwards. The coasting bikes are high-tech—for example, they come equipped with computer-controlled automatic gear shifting. But the technology remains hidden behind soft and familiar contours.

At first, it took some selling to convince the big bike makers to buy into the coasting concept:

The first Shimano prototype was unlike anything on the market, with rounded chrome hubs on the wheels, a swoopy curved frame, and handlebars with loops in them big enough to set a coffee cup inside. The cushy seat flipped up to reveal a mini-trunk to store a cell phone. "It was kind of like Audi meets Dr. Seuss," says a Raleigh executive. "Shimano thought this was the next big thing, and we were like, 'Is it?'"

However, Trek, Raleigh, and Giant soon embraced the idea and rolled out their first lines of coasting bikes in the spring of 2007, supported by a 15-city Shimano marketing campaign. The launch created more excitement than anything most industry Insiders can remember. Surprised bicycle retailers soon found noncyclists making their way into their stores, and the three manufacturers quickly sold out of their 2007 inventories. By 2008, seven additional bicycle manufacturers had added the new old-fashioned coasting bikes to their lines.

The new designs appear to have hit the high-end casual biking market spot-on. "The automatic shifting [has really resonated] with customers," says one bicycle shop owner.

"Shimano Is onto something." Importantly, coasting bikes may help to reinvigorate the stagnant bicycle Industry by pulling new types of buyers in the door—recreational buyers like Alice Wilkes:

This summer, cyclists in skintight shorts raced through the French countryside in the annual Tour de France. The winner rode to victory on a Trek Madone 6.9 Pro that would cost consumers $8,249.99. Alice Wilkes also bought a Trek bike this summer, but she had a very different experience. Wilkes bought a Trek Lime, which shifts automatically so riders don't have to fuss with gears, stops when cyclists pedal backwards (like in the old days), and has a big, comfy seat. It retails for $589.99. With her new bike, the first one she has owned in 40 years, Wilkes hits the trails near her home. For Wilkes, It's not about speed and performance. "Tight cycling clothes—that's not my world," says the 55-year-old grandmother. "I like to feel free, with the wind flying up my sleeves."

Despite their initial success, it remains to be seen whether coasting bikes will be real Industry-changers or just a passing fad. But whatever happens, IDEO's customer-driven design Ideas are opening eyes in the traditionally myopic bicycle industry. IDEO knows that bike riding has never really been about the bikes themselves. In the end, it's about customer biking experiences. For the past decade, the Lance Armstrongs of the world have had theirs. And now, thanks to IDEO and Shimano, the Alice Wilkeses have theirs as well.

Sources: Extracts, quotes, and other information from Matt Wiebe, "Retailers Worry over Future Coasting Sales," Bicycle Retailer and Industry News, March 15, 2008, pp. 1,2: Jay Green, "Return of the Easy Rider," BusinessWeek, September 17, 2007, p. 78: Philip Kotler and Kevin Lane Keller, Marketing Management, 13th edition (Upper Saddle River, NJ: Prentice Hall, 2008), pp. 105; Jessi Hempel, "Bringing Design to Blue Chips," Fortune, November 12, 2007, p. 32; and www.coasting.com, October 2008.

However, in rapidly changing industries facing increasingly shorter product life cycles, the rewards of fast and flexible product development far exceed the risks. Companies that combine a customer-centered approach with team-based new-product development gain a big competitive edge by getting the right new products to market faster.

Systematic New-Product Development

Finally, the new-product development process should be holistic and systematic rather than compartmentalized and haphazard. Otherwise, few new ideas will surface, and many good ideas will sputter and die. To avoid these problems, a company can install an innovation management system to collect, review, evaluate, and manage new-product ideas.

The company can appoint a respected senior person to be the company's innovation manager. It can set up Web-based idea management software and encourage all company stakeholders—employees, suppliers, distributors, dealers—to become involved in finding and developing new products. It can assign a cross-functional innovation management committee to evaluate proposed new-product ideas and help bring good ideas to market. It can create recognition programs to reward those who contribute the best ideas.

The innovation management system approach yields two favorable outcomes. First, it helps create an innovation-oriented company culture. It shows that top management supports, encourages, and rewards innovation. Second, it will yield a larger number of new-product ideas, among which will be found some especially good ones. The good new ideas will be more systematically developed, producing more new-product successes. No longer will good ideas wither for the lack of a sounding board or a senior product advocate.

Thus, new-product success requires more than simply thinking up a few good ideas, turning them into products, and finding customers for them. It requires a holistic approach for finding new ways to create valued customer experiences, from generating and screening new-product ideas to creating and rolling out want-satisfying products to customers.

More than this, successful new-product development requires a whole-company commitment. At companies known for their new-product prowess—such as Google, Sony, Skype, Apple, IDEO, and Virgin Atlantic—the entire culture encourages, supports, and rewards innovation. A Consider Google, which recently topped Fast Company magazine's list of the world's most innovative companies, and which regularly ranks among everyone else's top two or three innovators. Google is spectacularly successful. Despite formidable competition from giants such as Baidu and Yahoo!, Google's share in its core business— online search—has climbed to a decisive 56 percent. Google is also wildly innovative. But at Google, innovation is more than a process—it's part of the company's DNA:30

Google's famously chaotic innovation process has unleashed a flurry of diverse products, ranging from a blog search engine (Google Blog Search), an e-mail service (Gmail), an online payment service (Google Checkout), and a news portal (Google News) to a universal platform for mobile-phone applications (Google Android) and projects for mapping and exploring the world (Google Maps and Google Earth). Talk to Googlers at various levels and departments, and one powerful theme emerges: Whether they're designing search engines for the blind or preparing meals for their colleagues, these people feel that their work can change the world. The marvel of Google is its ability to continue to instill a sense of creative fearlessness and ambition in its employees. Prospective hires are often asked, "If you could change the world using Google's resources, what would you build?" But here, this isn't a goofy or even theoretical question: Google wants to know, because thinking—and building—on that scale is what Google does. This, after all, is the company that wants to make available online every page of every book ever published. Smaller-gauge ideas die of disinterest. When it comes to innovation, Google is different. But the difference isn't tangible. It's in the air, in the spirit of the place.

Author I a company's products are Comment | bo^ gr0Wj mature, and then decline, just as living things do. To remain vital, the firm must continually develop new products and manage them effectively through their life cycles.

Product Life-Cycle Strategies <PP 296.303)

After launching the new product, management wants the product to enjoy a long and happy life. Although it does not expect the product to sell forever, the company wants to earn a decent profit to cover all the effort and risk that went into launching it.

Sales and Profits over the Product's Life from Inception to Decline

Some products die quickly; others slay in the mature stage for a long, long time. For example, TABASCO tiot sauce has been around for more than 130 years. Even then, to keep the product young, the company has added a full line of flavors (such as Sweet & Spicy and Chipotle) and a kitchen cabinet full of new TABASCO products (such as spicy beans, a chili mix, and jalapeno nacho slices).

Sales and profits ($)

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