Managing the Development Process: Development to Commercialization

Up to now, the product has existed only as a word description, a drawing, or a prototype. The next step represents a jump in investment that dwarfs the costs incurred so far. The company will determine whether the product idea can translate into a technically and commercially feasible product. If not, the accumulated project cost will be lost, except for any useful information gained in the process.

1. PRODUCT DEVELOPMENT

The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). The methodology takes the list of desired customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EAs) that engineers can use. For example, customers of a proposed truck may want a certain acceleration rate (CA). Engineers can turn this into the required horsepower and other engineering equivalents (EAs). A major contribution of QFD is improved communication between marketers, engineers, and manufacturing people.92

PHYSICAL PROTOTYPES The goal of the R&D department is to find a prototype that embodies the key attributes in the product-concept statement, performs safely under normal use and conditions, and can be produced within budgeted manufacturing costs. Sophisticated virtual reality technology and the Internet now permit rapid prototyping and flexible development processes.

R&D must also decide how consumers will react to different colors, sizes, and weights. Historically, a yellow mouthwash supported an “antiseptic” claim (Listerine), red a “refreshing” claim (Lavoris), and green or blue a “cool” claim (Scope). Marketers need to supply R&D with information about what attributes consumers seek and how they judge whether these are present.

Firms rigorously test product prototypes internally. Vibram, which makes its own FiveFingers line as well as soles for all types of shoes—such as for skateboarding, cycling, rock climbing, and fly fishing—employs a team of product testers. The company puts its products into the most extreme conditions by executing tests directly in the field and employing a series of procedures:93

If our chemist creates a new compound targeted towards road running applications, first we perform a bat­tery of lab tests to understand the compound’s physical properties. Next, we bring natural environments and surfaces into the laboratory and calculate information. Then lastly shoes are distributed to our tester team who will document things like weather/temp, distance, location, and running surfaces, etc. They’ll comment on the differences in the grip of the soles. We then compile the results and make a decision on validation.

CUSTOMER TESTS When the prototypes are ready, they must be put through rigorous functional and customer tests before they enter the marketplace. Alpha testing tests the product within the firm to see how it performs in different applications. After refining the prototype further, the company moves to beta testing with customers.

Consumer testing can bring consumers into a laboratory or give them samples to use at home. Procter & Gamble has on-site labs such as a diaper­testing center where dozens of mothers bring their babies to be studied. To develop its Cover Girl Outlast all-day lip color, P&G invited 500 women to come to its labs each morning to apply the lipstick, record their activities, and return eight hours later so it could measure remaining lip color, resulting in a product that came with a tube of glossy moisturizer that women could apply on top of their color without looking at a mirror. In-home placement tests are common for products from ice cream flavors to new appliances.

2. MARKET TESTING

After management is satisfied with functional and psychological perfor­mance, the product is ready to be branded with a name, logo, and packag­ing and go into a market test, if desired.

Not all companies undertake market testing. A company officer at Revlon stated: “In our field—primarily higher-priced cosmetics not geared for mass distribution—it would be unnecessary for us to market test. When we develop a new product, say an improved liquid makeup, we know it’s going to sell because we’re familiar with the field. And we’ve got 1,500 dem­onstrators in department stores to promote it.”

One problem is that many managers find it difficult to kill a project that attracted much effort and attention, even if they should do so based on market testing. The result is an unfortunate (and typically unsuccessful) escalation of commitment.94

Many companies, however, believe market testing, if done correctly, can yield valuable information about buyers, dealers, marketing program ef­fectiveness, and market potential. The main issues are: How much market testing should be done, and what kind(s)?

The amount of testing is influenced by the investment cost and risk on the one hand and time pressure and research cost on the other. High-investment-high-risk products, whose chance of failure is high, must be market tested; the cost will be an insignificant percentage of total project cost. High-risk products that create new-product categories (the first instant-breakfast drink) or have novel features (the first gum-strengthening toothpaste) war­rant more market testing than modified products (another toothpaste brand).

CONSUMER-GOODS MARKET TESTING Consumer-products tests seek to estimate four variables: trial, first repeat, adoption, and purchase frequency. Many consumers may try the product but not rebuy it, or it might achieve high permanent adoption but low purchase frequency (like gourmet frozen foods).

Here are four major methods of consumer-goods market testing, from least to most costly.

Sales-Wave Research Consumers who initially try the product at no cost are reoffered it, or a competitor’s product, at slightly reduced prices. The offer may be made as many as five times (sales waves), while the company notes how many customers select it again and their reported level of satisfaction.

Sales-wave research can be implemented quickly, conducted with a fair amount of security, and carried out without final packaging and advertising. However, because customers are preselected, it does not indicate trial rates the product would achieve with different sales incentives, nor does it indicate the brand’s power to gain distri­bution and favorable shelf position.

Simulated Test Marketing Thirty to 40 qualified shoppers are asked about brand familiarity and preferences in a specific product category and attend a brief screening of both well-known and new TV or print ads. One ad advertises the new product but is not singled out for attention. Consumers receive a small amount of money and are invited into a store where they may buy any items. The company notes how many consumers buy the new brand and competing brands. This provides a measure of the ad’s relative effectiveness against competing ads in stimulating trial. Consumers are asked the reasons for their purchases or nonpurchases. Those who did not buy the new brand are given a free sample. Some weeks later, they are contacted to ascertain product attitudes, usage, satisfaction, and repurchase intention and are offered an opportunity to repurchase any products.

This method can give some surprisingly accurate results about advertising effectiveness and trial rates (and repeat rates if extended) in a much shorter time and at a fraction of the cost of using real test markets, making it especially appealing to marketers of fast-moving consumer goods.95 As media and channels have grown more fragmented, however, it has become harder to truly simulate market conditions with only traditional approaches.

Controlled Test Marketing The company with the new product specifies the number of stores and geographic locations it wants to test. A research firm delivers the product to a panel of participating stores and controls shelf position, pricing, and number of facings, displays, and point-of-purchase promotions. Electronic scanners measure sales at checkout. The company can also evaluate the impact of local advertising and promotions and interview a sample of customers later to get their impressions of the product. It does not have to use its own sales force, give trade allowances, or “buy” distribution. However, controlled test marketing provides no information about how to sell the trade on carrying the new product. It also exposes the product and its features to competitors’ scrutiny.

Test Markets The ultimate way to test a new consumer product is to put it into full-blown test markets. The company chooses a few representative cities and puts on a full marketing communications campaign, and the sales force tries to sell the trade on carrying the product and giving it good shelf exposure. Test marketing also measures the impact of alternative marketing plans by implementing them in different cities. A full-scale test can cost more than $1 million, depending on the number of test cities, the test duration, and the amount of data the company wants to collect.

In designing a test market, management faces several decisions: (1) How many test cities? (2) Which test cities? (3) Length of the test? (4) Which information to collect? and (5) What action to take? A number of considerations come into play for each decision. Columbus, Ohio, is a popular location for testing new fast-food products: The city is reasonably representative demographically of the rest of the nation, with a healthy dose of college-aged students, and is a contained media market with reasonable ad rates.96

Many major global consumer goods makers such as L’Oreal, Philips, and Nikon like to test in South Korea be­cause its demanding but fair consumers and well-developed marketing infrastructure help ensure that products are in good enough shape to enter other global markets.97 Gucci likes to test its luxury products in China because it feels consumers there indicate where the luxury market is heading.98

Many companies today skip test marketing despite its benefits and rely on faster and more economical testing methods. Starbucks regularly launches products before they have been deemed “perfect,” based on this philosophy espoused by chief digital officer, Adam Brotman: “We don’t think it is okay if things aren’t perfect, but we’re willing to innovate and have speed to market trump a 100% guarantee that it’s be perfect.” The company’s mobile payments app had a number of flaws and corrections in its first six months after launch, but it now generates 3 million mobile transactions a week.99 General Mills prefers to launch new products in 25 percent of the country, an area too large for rivals to disrupt. Managers review retail scanner data, which tells them within days how the product is doing and what corrective fine-tuning to do.

Some companies like to test new products in South Korea because of the open-minded attitude of consumers who live there and the marketing infrastructure that exists.

BUSINESS-GOODS MARKET TESTING Business goods can also benefit from market testing. Expensive industrial goods and new technologies will normally undergo alpha and beta testing.100 During beta testing, the company’s technical people observe how customers use the product, a practice that often exposes unanticipated problems of safety and servicing and alerts the company to customer training and servicing requirements. The company can also observe how much value the equipment adds to the customer’s operation, as a clue to subsequent pricing.

Companies must interpret beta test results carefully because only a small number of test customers are used, they are not randomly drawn, and tests are somewhat customized to each site. Another risk is that testers unim­pressed with the product may leak unfavorable reports about it. Square doesn’t employ beta testing—preferring to test at its own internally controlled locations—because it feels it should never put out an unfinished product.101

At trade shows the company can observe how much interest buyers show in the new product, how they react to various features and terms, and how many express purchase intentions or place orders. In distributor and dealer display rooms, products may stand next to the manufacturer’s other products and possibly competitors’ products, yielding preference and pricing information in the product’s normal selling atmosphere. However, customers who come in might not represent the target market, or they might want to place early orders that cannot be filled.

Industrial manufacturers come close to using full test marketing when they give a limited supply of the product to the sales force to sell in a limited number of areas that receive promotion support and printed catalog sheets.

3. COMMERCIALIZATION

Commercialization incurs the company’s highest costs to date.102 Too often companies are so focused on develop­ing a new product that they neglect to spend adequate time developing a winning marketing launch program.103 The firm will need to contract for manufacture, or it may build or rent a full-scale manufacturing facility. Most new-product campaigns also require a sequenced mix of market communication tools to build awareness and ultimately preference, choice, and loyalty.104

To introduce a major new consumer packaged good into the national market can cost $25 million to $100 mil­lion in advertising, promotion, and other communications in the first year. For new food products, marketing expenditures typically represent 57 percent of first-year sales.

To raise funds, some inventors who don’t have the backing of a major corporation are relying on crowdfunding and companies like Kickstarter.105 With crowdfunding, individuals or start-ups fund their projects by using social media and other means to generate interest and contributions from the general public.

WHEN (TIMING) Suppose a company has almost completed the development work on its new product and learns a competitor is nearing the end of its development work. The company faces three choices:

  1. First entry—The first firm entering a market usually enjoys the “first mover advantages” of locking up key distributors and customers and gaining leadership. But if rushed to market before it has been thoroughly debugged, the first entry can backfire.
  2. Parallel entry—The firm might time its entry to coincide with the competitor’s entry. The market may pay more attention when two companies are advertising the new product.106
  3. Late entry—The firm might delay its launch until after the competitor has borne the cost of educating the market, and its product may reveal flaws the late entrant can avoid. The late entrant can also learn the size of the market.

If a new product replaces an older product, the company might delay until the old product’s stock has been drawn down. If the product is seasonal, it might wait until the season arrives; often a product waits for a “killer application” to occur. Many companies are now encountering competitive “design-arounds”—rivals are making their own versions just different enough to avoid patent infringement and royalties.107

WHERE (GEOGRAPHIC STRATEGY) Most companies will develop a planned market rollout over time. In choosing rollout markets, the major criteria are market potential, the company’s local reputation, the cost of filling the pipeline, the cost of communication media, the influence of the area on other areas, and competitive penetration. Small companies select an attractive city and put on a blitz campaign, entering other cities one at a time. Large companies introduce their product into a whole region and then move to the next. Companies with national distribution networks, such as auto companies, launch new models nationally.

With the Internet connecting far-flung parts of the globe, competition is more likely to cross national borders. Companies are increasingly rolling out new products simultaneously across the globe. However, masterminding a global launch poses challenges, as Chapter 8 described, and a sequential rollout across countries may still be the best option.108

TO WHOM (TARGET-MARKET PROSPECTS) initial distribution and promotion to the best prospect groups. Ideally these should be early adopters, heavy users, and opinion leaders it can reach at low cost. Few groups include all these, so the company should rate prospects and target the best group. The aim is to generate strong sales as soon as possible to attract further prospects.

HOW (INTRODUCTORY MARKET STRATEGY) cost more than expected, many potentially successful offerings suffer from underfunding. It’s important to allocate sufficient time and resources—yet not overspend—as the new product gains traction in the marketplace.109

To coordinate the many tasks in launching a new product, management can use network-planning techniques such as critical path scheduling (CPS), which develops a master chart showing the simultaneous and sequential ac­tivities that must take place. By estimating how much time each activity takes, planners estimate completion time for the entire project. Any delay in any activity on the critical path—the shortest route to completion—will delay the proj­ect. If the launch must be completed sooner, the planner searches for ways to reduce time along the critical path.110

Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.

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