Innovation and New Product Development - Essay Example

Innovation and New Product Development: What is a product In the simplest possible terms a product is 'a set of basic attributes assembled in an identifiable form'. However, in marketing a product is much more than this. Instead consumers do not buy just attributes but features and benefits that seek to fulfill their needs. These benefits can be both tangible and intangible. Tangible benefits include for example clean skin with the use of soap and tastier food with the use of ketchup. Intangible benefits on the other hand create an emotional connect for the consumer; these include the ambience of a certain restaurant and the relaxation and comfort associated with buying the right mattress. New Product Development is defined as; 'the processes involved in getting a new product or service to market. The traditional product development cycle, the stage-gate model, embraces the conception, generation, analysis, development, testing, marketing, and commercialization of new products or services.'[5] New product development and innovation are an integral part of many companies. This is because the reason existence of a company is to satisfy the needs of the consumer. As long as unfulfilled needs exist in the market; the company must strive to satisfy those needs by the introduction of new products and services. This area of a company has recently acquired much limelight and attention. This is because of two reasons. Firstly, due to technological changes, products are fast becoming obsolete and new products are required to be developed in order to take their place. Secondly; it has become easy for companies to replicate a new product offering. This is how me too products have increased in the market. The only protection from this is continual innovation and a commitment to change. There are three distinct categories of new products. The first category includes products that are truly innovative and hence unique; such as the computer, telephone and the zipper. The second category includes replacements that are significantly different from existing products and services in form, benefits and features. Notable examples include digital camera and contact lenses. Lastly, the third category comprises imitative products which are new to a particular company but not new to the market. In certain cases a company may just want to offer a 'me too' product to the consumer.[14] A new product strategy identifies the role a product is intended to play in satisfying company and marketing goals. For example; a product maybe launched to protect market share, to create a new category or attain a specific return on investment. It may also be launched to maintain the company's reputation for innovation or social responsibility. This is what the strategy was for General Motors when it launched the EV1 electric vehicle. ' Although the EV1 may have helped General Motors rebut criticism about not being environmentally sensitive, it failed with respect to achieving sufficient sales'[15] In general there are six stages of the product development process. The first stage consists of generating new product ideas. Therefore organizations must encourage creativity and breakthrough thinking in their employees. These ideas can be generated through a number of different ways. These include long range studies; whereby information on market trends and the use of Delphi technique is used to discover new ideas. Another source of innovative ideas is the customer. Therefore many innovations come from listening to the customer about their unfulfilled needs or refinement in existing products that they would like to see. Brainstorming, gap analysis and dissecting competitive products are other sources of new ideas [2]. Certain new developments for product innovation have resulted in specific tools to generate new product ideas. These include. Examples are of Attribute Listing, Morphological Analysis and Matrix Analysis. They entail first examining all the attributes of an existing product. Then these are integrated with as many variations to the attributes that one can possibly think of to come up with interesting combinations. A draw back of these tools is this that they limit creativity and inhibit out of the box thinking which can sometimes lead to the creation of break through products. On the other hand it does allow thoughts to be structured and ideas to be focused [3]. In the second stage ideas are screened to evaluate which ones warrant further study. This is usually done on the basis of the management team's experience and judgment. Organizations like to pursue products which help develop the business or ensure an increasing return on investment. Certain criteria which are generally used are: 'Benefit of superiority compared with competition Meeting customer needs as as identified through attribute profiling Identiification of new market segments whose needs fall within existing technological and commercial expertise Degree of fit of new product concept with existing brand name strength and consumer expectation of product performance within the brand, to capitalize on existing franchise; Value-added component of the product or process matches or exceeds that of products in the existing portfolio; Diversification into totally new areas of activity where forecast financial returns justify the investment and risk; Priority given to specific development areas where there is limited financial budget for new product development, and where the time and energy of the development team needs to be focused: decisions can be made through cost/benefit analysis.'[2] The criteria mentioned above serve specific purposes in the product evaluation perspective. However, there is a possibility that these criteria be altered at different management levels. Also, value-addition maybe less for a certain product but it may be satisfying such a unique need in the market that its presence would be really beneficial for the company. Therefore this criterion cannot always be used. Often most products are successful because they form a new product category. They seek to develop a market segment which either previously did not exist or had become dormant. For example Swatch revolutionized the low-cost fashion and leisure watches segment and L'Oreal freestyle, a hairstyling mousse which capitalized on trend towards easy-care fashion. The satisfaction of a need is imperative for a product. This is why Quaker Oat's Harvest Crunch was a roaring success. It capitalized on the consumer's previously unfulfilled need for healthy snacks. The third stage entails a thorough business analysis whereby a previously screened idea is examined further by; identifying product features, estimating market demand and profitability and establishment of a program to develop the product. Then the prototype is developed, followed by market tests. These market tests involve actual consumers unlike the internal tests in prototype development. The last stage is the commercialization stage. It entails full-scale production and marketing plans which are then implemented. [1] Risk Analysis and Evaluation for New Products: Risks lie at the heart of innovation. Without risks innovation is not possible. In turn risks must be managed strategically so that the smallest possible costs are incurred with the highest possible benefit. Risk management has evolved from performance management to value management. In the new value paradigm 'the control of risks is no longer solely ensured by the identification, evaluation, processing and monitoring of risks; it must also begin with the control of the decision-making system with the objective of building a robust project and facilitating its launch - in particular, by rendering risk-related decision-making easier.'[4] Rewards can be measured in traditional marketing success terms these include; market penetration, share, sales and number of customers. On the other hand exist the traditional financial measures of success-absolute profits, gross margin, net margin, return on investment and earnings per share. Incorporating risk assessment into the screening process requires determining what the success of the new product screening process will depend on. These criteria include; when does it take place who evaluates risk And how is the risk evaluated. Only after the final screening can a decision be taken about whether an idea should be converted into the product or not [2]. Controlling the Tactical or Operational Marketing Plan: Strategic Marketing Planning is a series of logical steps in a plan. It is not fixed and not rigid. marketing plan is a written document that details the actions necessary to achieve one or more marketing objectives. It can be for a product or service, a brand, or a product line. It can cover one year (referred to as an annual marketing plan), or cover up to 5 (sometimes referred to as five) years.[10] A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use. There are a number of different ways to do it and no way is the right way. Infact a marketing plan must be made according to one's business, the type of industry that one operates in as well as the type of customers. Basically marketing planning cannot exist on its own. It is not a stand-alone activity for the firm. Therefore it must be kept in mind that the marketing plan has to be in sync with the corporate plan. It must fit in the overall corporate strategy and must take the organizational goals forward. The strategic and tactical marketing planning process consists of: Mission Statement Macro-Environment Situational Analysis Company Audit Strengths, Weaknesses, Opportunties And Threats (Swot) Marketing Objectivesand Feedback Forecast Market Potential Generate Marketing Strategies Assumptions And Contingency Plans Prepare Detailed MarketingMix Programmes Budget Resources Including Staffing Agree Time-Scales Implement The Plan Measure And Control[6] As seen from the headings above the marketing plan is a carefully detailed and well though out plan entailing what the company's marketing strategy is going to be like. 'Marketing control is the process of monitoring the proposed plans as they proceed and adjusting where necessary. If an objective states where you want to be and the plan sets out a road map to your destination, then control tells you if you are on the right route or if you have arrived at your destination [12]. Control involves measurement, evaluation, and monitoring. Resources are scarce and costly so it is important to control marketing plans. Control involves setting standards. The marketing manager will than compare actual progress against the standards. Corrective action (if any) is then taken. If corrective action is taken, an investigation will also need to be undertaken to establish precisely why the difference occurred [7]' After the time-lines have been established which is a control measure in itself; the plan is implemented. Having timelines is an essential part of keeping the marketing plan implementation in check. Most efforts go to waste unless they are done on time. Therefore timelines ensure the right time and hence are imperative for the success of the marketing plan. 'A marketing plan cannot be operated without some measure to monitor, measure and control its progress. A system of controls should be established whereby the plan is reviewed on a regular and controlled basis and then updated as circumstances change. Such controls can address the tactics in terms of sales analyses that will commence with a comparison of budgeted sales revenue against actual sales revenue. Variations might be due to volume or price variances - perhaps an unfavourable variance being due to having to cut prices to match the tactical actions of competitors.[13] The marketing information system provides key inputs to the marketing planning. This information comes from market intelligence, marketing research and the organisation's own internal accounting system. This information then inputs into the marketing plan. It is also control mechanism, because customer reactions are also fed into this MkIS from market intelligence through the field sales force or from marketing research studies. Information on sales analyses is also fed into the system so assessments can be made as to whether forecasted sales are being achieved or not. As the planning horizon unfolds and plans do not go exactly as anticipated, action can be then taken as required, and this is the reason for the feedback loop in the marketing plan process listed above. These measures of performance allow planners an opportunity to adjust and fine tune plans as necessary during the planning period' [6] The most important aspects of marketing planning which are usually tracked to monitor performance are; sales analysis, market share analysis, expense analysis and financial analysis. Sales analysis by most companies includes determining the number of sales that has taken place [11]. Recently, a more sophisticated measure that is being used is the sales variance analysis which at one glance tells you how much sales have deviated from targets. Market share is an important determinant of the success of a marketing plan. Often market share determination has the following components: overall market share segment share - that in the specific, targeted segment relative share -in relation to the market leaders In the expense analysis category; the key ratio that is to be kept track of is the marketing expense to sales ratio. Lastly the financial analysis comprises gross profit, return on investment and profit on sales. Other qualitative measures are also tracked with the help of market research surveys. [9] The SOSTAC Approach: The SOSTAC system was created by PR Smith, a writer in the 1990s. The SOSTAC approach is a listing of components that a good marketing plan must include. This means it covers control aspects as well as other implementation aspects. SOSTAC stands for: S stands for Situation Analysis - which means where are we now O stands for Objectives which means where do we want to go S stands for Strategy which summarises how we are going to get there. T stands for Tactics which are the details of strategy. A is for Action or implementation - putting the plan to work. C is for Control which means measurement, monitoring, reviewing, updating and modifying. [8] The SOSTAC method was a rule of thumb to make marketing plans. However; I have certain reservations about the approaches used to control the tactical and operational marketing plans. These are: Control should not be a component of a marketing plan and should not appear as a separate sub-heading in the list. It should be the part of every stage of the marketing plan, whereby each stage is to be monitored closely as to whether it is satisfying pre-determined criteria or not. If it is not doing so the process is to be repeated this time taking corrective measures. Specific control measures must be determined at each stage and put to use. It should become an integral part of the stage of the marketing plan. For example the SWOT of the company must be performed by 2-3 employees of the company and then compared. Control should not be limited. More often than not I have seen that control measures are restricted to financial dealings. It must be understood that costs are not the sole purpose of controls. Controls exist so as to check any deviation in plans and to put the marketing efforts on the right track. References 1. Etzel.J.M, B.Walker and W. Stanton.(eds). 2001. Marketing. Mc-Graw Hill/Irwin 2. Norgan.S. (ed). 1994. Marketing Management- A European Perspective. United Kingdom. Addison-Wesley Publishing Company 3. Attribute Listing, Morphological Analysis & Matrix Analysis. 1995. [online]. [Accessed 22nd September 2007]. Available from World Wide Web: < www. Mindtools.com> 4. Gidel.T, R. Gautier and R. Duchamp. 2005. Decision-making framework methodology: an original approach to project risk management in new product design. Journal of Engineering Design. 16(1), p.p1-23 5. New Product Development and decision-making. 2007. [online]. [Accessed 22nd September 2007]. Available from World Wide Web: < http://search.bnet.com> 6. Lancaster.G. Marketing Planning. [online]. [Accessed 22nd September 2007]. Available from World Wide Web: < http://www.da-group.co.uk/geoff_lancaster/marketing_planning_handout.doc.. 7. Marketing Control. 2000. [online]. [Accessed 22nd September 2007]. Available from World Wide Web: 8. Smith.P.R.(ed). 2003. Great Answers to Tough Marketing Questions.London. Kogan Page 9. Hisrich.R. (ed). 2000. Marketing. Barron's Educational Series 10. Cooper.S and R. Hiebing.(eds). 2004. The One Day Marketing Plan. McGraw-Hill Professional 11. Stapleton.J and M.Thomas.(eds). 1998. How to Prepare a Marketing Plan: A Guide to Reaching the Consumer Market. Gower Publishing, Ltd. 12. Ferrell O.; Hartline M., Lucas G., (eds). 2000, Marketing Strategy,2nd Edition, Harcourt, Fort Worth 13. Luther.M.(ed). The Marketing Plan: How to Prepare and Implement It. AMACOM Div American Mgmt Assn Kotler.P.(ed). Marketing Management: analysis, planning, implementation, and control. Prentice-Hall Boyd.H and W.Massy.(eds). 1972. Marketing Management. Harcourt Brace Jovanovich 14. Read More