Concept Development

We shall illustrate concept development with the following situation: A large food processing company gets the idea of producing a powder to add to milk to increase its nutritional value and taste. This is a product idea. But consumers do not buy product ideas; they buy product concepts.

A product idea can be turned into several concepts. The first question is: Who will use this product? The powder can be aimed at infants, children, teenagers, young or middle-aged adults, or older adults. Second, what primary benefit should this product provide? Taste, nutrition, refreshment, energy? Third, when will people consume this drink? Breakfast, midmorning, lunch, midafternoon, dinner, late evening? By answering these questions, a company can form several concepts:

■ Concept 1: An instant breakfast drink for adults who want a quick nutritious breakfast without preparing a breakfast.

■ Concept 2: A tasty snack drink for children to drink as a midday refreshment.

■ Concept 3: A health supplement for older adults to drink in the late evening before they go to bed.

Each concept represents a category concept that defines the product's competition. An instant breakfast drink would compete against bacon and eggs, breakfast cereals, chapter 11

Developing New Market Offerings success

Green and Wind have illustrated this approach in connection with developing a new spot-removing carpet-cleaning agent for home use.17 Suppose the new-product marketer is considering five design elements:

■ Three package designs (A, B, C—see Figure 2-3)

■ A possible Good Housekeeping seal (yes, no)

■ A possible money-back guarantee (yes, no)

Although the researcher can form 108 possible product concepts (3 X 3 X 3 X 2 X 2), it would be too much to ask consumers to rank 108 concepts. A sample of, say, 18 contrasting product concepts can be chosen, and consumers would rank them from the most preferred to the least preferred.

The marketer now uses a statistical program to derive the consumer's utility func-Samples for Conjoint Analysis tions for each of the five attributes (Figure 2-4). Utility ranges between zero and one;

the higher the utility, the stronger the consumer's preference for that level of the attribute. Looking at packaging, we see that package B is the most favored, followed by C and then A (A hardly has any utility). The preferred names are Bissell, K2R, and Glory, in that order. The consumer's utility varies inversely with price. A Good Housekeeping seal is preferred, but it does not add that much utility and may not be worth the effort to obtain it. A money-back guarantee is strongly preferred. Putting these results together, we can see that the consumer's most desired offer would be package design B, with the brand name Bissell, selling at the price of $1.19, with a Good Housekeeping seal and a money-back guarantee.

We can also determine the relative importance of each attribute to this consumer— the difference between the highest and lowest utility level for that attribute. The greater the difference, the more important the attribute. Clearly, this consumer sees price and package design as the most important attributes followed by money-back guarantee, brand name, and last, a Good Housekeeping seal.

When preference data are collected from a sufficient sample of target consumers, the data can be used to estimate the market share any specific offer is likely to achieve, given any assumptions about competitive response. The company, however, may not launch the market offer that promises to gain the greatest market share because of cost considerations. The most customer-appealing offer is not always the most profitable offer to make.

Under some conditions, researchers will collect the data not with a full-profile description of each offer but by presenting two factors at a time. For example, respondents may be shown a table with three price levels and three package types and asked which of the nine combinations they would like most, followed by which one they would prefer next, and so on. They would then be shown a further table consisting of trade-offs between two other variables. The trade-off approach may be easier to use when there are many variables and possible offers. However, it is less realistic in that respondents are focusing on only two variables at a time.

Conjoint analysis has become one of the most popular concept development and testing tools. Marriott designed its Courtyard hotel concept with the benefit of conjoint analysis. Other applications have included airline travel services, ethical drug design, and credit-card features.

MA KE ING- A EG DE ELOPMEN

After testing, the new-product manager must develop a preliminary marketing-strategy plan for introducing the new product into the market. The plan consists of three parts. The first part describes the target market's size, structure, and behavior; the planned product positioning; and the sales, market share, and profit goals sought in the first few years:

The target market for the instant breakfast drink is families with children who are receptive to a new, convenient, nutritious, and inexpensive form of breakfast. The company's brand will be positioned at the higher-price, higher-quality end of the instant-breakfast-drink category. The company will aim initially

K2r Glory Bissell

FIGURE

Package Design

Brand Name

Retail Price

K2R Glory Bissell

Good Housekeeping Seal? Money-Back Guarantee?

FIGUR E 2-4

Utility Functions Based on Conjoint Analysis to sell 500,000 cases or 10 percent of the market, with a loss in the first year not exceeding $1.3 million. The second year will aim for 700,000 cases or 14 percent of the market, with a planned profit of $2.2 million.

The second part outlines the planned price, distribution strategy, and marketing budget for the first year:

The product will be offered in chocolate, vanilla, and strawberry in individual packets of six to a box at a retail price of $2.49 a box. There will be 48 boxes per case, and the case price to distributors will be $24. For the first two months, dealers will be offered one case free for every four cases bought, plus cooperative-advertising allowances. Free samples will be distributed door to door. Coupons for 20c off will appear in newspapers. The total sales-promotional budget will be $2.9 million. An advertising budget of $6 million will be split 50:50 between national and local. Two-thirds will go into television and one-third into newspapers. Advertising copy will emphasize the benefit concepts of nutrition and convenience. The advertising-execution concept will revolve around a small boy who drinks instant breakfast and grows strong. During the first year, $100,000 will be spent on marketing research to buy store audits and consumer-panel information to monitor market reaction and buying rates.

The third part of the marketing-strategy plan describes the long-run sales and profit goals and marketing-mix strategy over time:

The company intends to win a 25 percent market share and realize an after-tax return on investment of 12 percent. To achieve this return, product quality will start high and be improved over time through technical research. Price will initially be set at a high level and lowered gradually to expand the market and meet competition. The total promotion budget will be boosted each year about 20 percent, with the initial advertising-sales promotion split chapter 11

Developing New Market Offerings

(a) One-time purchased product

Time

Time

(b) Infrequently purchased product

Replacement sales

Replacement sales

Time

(c) Frequently purchased product

(c) Frequently purchased product

Time

FIGURE

Product Life-Cycle Sales for Three Types of Products of 65:35 evolving eventually to 50:50. Marketing research will be reduced to

$60,000 per year after the first year.

B INE ANAL I

After management develops the product concept and marketing strategy, it can evaluate the proposal's business attractiveness. Management needs to prepare sales, cost, and profit projections to determine whether they satisfy company objectives. If they do, the product concept can move to the product-development stage. As new information comes in, the business analysis will undergo revision and expansion.

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