Product Policy & Innovation

Session 1:
Module Intro
What are ‘New’ Products?
Product Portfolio Analysis
Success & Failure in Innovation
 Introduction and Class Mission

Module Leader: Dr Nick Ellis, room KEB 616, e-mail [email protected]

(Based on the work /materials of Prof Michael Saren)

Decisions about product offerings are central to a firm’s marketing activities.

This course aims to give students an understanding of the role and process of
product development in marketing management. It also introduces and explains
the concepts and techniques that can be used to analyse innovation and
technology policies.

Case studies will be used to illustrate individual and corporate behaviour

regarding product strategy, idea generation, R&D, new product development,
technology and consumers, product sustainability and market launch. Students
will be rewarded for citing case examples in their exam answers.
 Recommended Texts
MAIN TEXT: Trott, P. (2008) Innovation Management & New Product
Development, Financial Times/Pitman Publishing, London

Hart, S. (1995) New Product Development: A Reader, Dryden Press.

Ford, D. and Marketing and Managing Technology,

Saren, M. (2001) International Thomson Business Press.

Crawford, C.M. New Products Management, Irwin.

(1994)

Twiss, B. (1992) Managing Technological Innovation, Pitman, (4th edn)

London.
 Teaching methods
• 6 x 2 hour lecturing sessions
• 3 x 2 hour presentation sessions, each involving 4
case study groups presenting to the entire cohort
for 25 minutes each (these 12 groups in total will
be determined by splitting each Seminar Group
into two)
• 1 x 2 hour seminar slot per Seminar Group (these
exam-practice sessions will be held after the
Easter holidays).
 Presentations (i)
• Students will prepare a presentation in teams for sessions,
based on their analysis of a case study example and some
questions. (Details regarding case readings and presentation
sessions will be explained in an Session 4 – and see your MO
for case information.)
• The presentations will not be formally assessed but you will
receive feedback on:
• (1) the quality of your analysis, as this may help you with
material to use in your exam, and
• (2) the quality of your group presentational skills (which
should help you impress a future employer).
 Presentations (ii)
• ALL students should undertake the case readings
provided, even if only briefly, so that they have
some idea in advance of what their colleagues’
presentations are about, and think of some good
questions.
• ALL students should attend each presentation
session since the topics and cases covered by their
colleagues will all potentially be useful for the
examination.
 Assessment
• The module is assessed by 100% examination.
• Further information regarding exam format and requirements is
provided in your MO.
• Your seminars (held after Easter) will focus on exam
technique.
• There should be evidence of reading beyond basic textbooks,
with reference made to journal articles as well as examples of
marketing practice.
• All arguments need to be supported with reasons and/or
evidence, and you should be able to draw upon some of the
real-life case studies that we discuss in class to do this.
 PRODUCT POLICY & INNOVATION
Lecture Session 1:
• What is Innovation?
•What is a ‘Product’? (revision)
• The PLC and the Product Mix (revision)
• What is Product ‘Newness’
• New Product Success and Failure
 WHAT IS INNOVATION?

One of the problems in managing innovation is variation is what people understand

by the term, often confusing it with invention. In its broadest sense the term comes
for the Latin innovare meaning ‘to make something new’.

‘Industrial innovation includes the technical design, manufacturing, management and

commercial activities involved in the marketing of a new (or improved) product or the
first commercial use of a new (or improved) process or equipment’ - Chris Freeman
(1982) The Economics of Industrial Innovation, (2nd edn). Frances Pinter, London.

‘…innovation does not necessarily imply the commercialization of only a major

advance in the technological state of the art (a radical innovation), but it includes also
the utilisation of even small-scale changes in technological know-how (an
improvement or incremental innovation)…’ - Roy Rothwell and Paul Gardiner (1985)
‘ Invention, innovation, re-innovation and the role of the user’, Technovation, 3, 168.
 WHAT IS INNOVATION? (Cont’d)

‘Innovation is the specific tool of entrepreneurs, the means by which they exploit
change as an opportunity for a different business or service. It is capable of being
presented as a discipline, capable of being learned, capable of being practices’ - Peter
Drucker (1985) Innovation and Entrepreneurship.

‘Companies achieve competitive advantage through acts of innovation. They approach

innovation in its broadest sense, including both new technologies and new ways of doing
things’ - Michael Porter (1990) The Competitive Advantage of Nations. Macmillan,
London.

‘Successful exploitation of new ideas’ - UK DTI Innovation Unit definition (1994).

 A Recent
Innovation –
but was it a
success?
 Marketing Problems with
Innovation & NPD
• Rate of change, need to adapt
• Failure rate
• Mix options greater
• Intuitive decisions about science
• Consumer reaction unknown, less information
• Resistance to change
• Resources input large, long negative cash flow
• Getting and assessing ‘ideas’
• Role of technology
All usual marketing problems - but at their most difficult
 PROBLEMS OF PARTIAL VIEWS OF INNOVATION

If innovation is only seen as… … the result can be

Strong R & D capability Technology which fails to meet user needs
and may not be accepted
The province of specialists in white coats Lack of involvement of others, and a lack
in the R&D laboratory knowledge and experience input from
other perspectives
Meeting customer needs Lack of technical progression, leading
to inability to gain competitive edge by
anticipating future needs
Technology advances Producing products which the market
does not want or designing processes
which do not meet the needs of the user or
which are opposed
The province only of large firms Weak small firms with too high a
dependence on a few large customers
 What is a product?
• Simple question – perhaps a difficult answer?
• A bundle of benefits (relative)
• Benefits can be functional, emotional individualistic,
socially desirably, conducive for social state of being
• A product is anything that is capable of delivering benefits
that we are willing to consume & normally involving
exchange
• Physical goods, services, ideas, people & places etc.
 Levels of Product
• Core product = basic benefits
• Actual product = features, packing, quality appearance
• Augmented product = warranty, after sales services, credit
terms etc.
• Implications?
• Competition occurs at the level of actual but increasingly
the augmented product
• Companies make products: customers buy benefits
• What are the benefits of smoking a cigarette? Or drinking
sunny delight?
 What’s in a product?
• Materialism & marketing
• Products as end outcomes (process)
 Product(ion)
SPHERE OF PRODUCTION SPHERE OF THE MARKET

SOURCE RAW CONSUMPTION

MATERIALS

ASSEMBLE SUPPLY &

COMPONENTS DISTRIBUTION

PACKAGE AND PRICING,

PRESENTATION PROMOTION

MARKETING &
PRODUCT PRODUCT POLICY
DECISIONS
 What’s in a product?
• Materialism & marketing
• Products as end outcomes (process)
• Products as mediated experiences
 The end of Production?
• Products = ‘bundles of value’
• Value is:
– Created
– Supplied
– Experienced
– Enacted
• Value is relative
 Where we used to be…
What is ‘non services’ marketing?

• Marketing of physical products (‘goods’)

• A theoretical deficiency in marketing
thought?
• An arbitrary distinction?
Salt Shostack’s Scale of Market
Soft Drinks
Detergents
Entities
Automobiles

Cosmetics

Fast Food Outlets INTANGIBLE

DOMINANT
TANGIBLE
Fast Food Outlets
DOMINANT
Advertising Agencies

Airlines

Investment Management

Consulting

Teaching
 What is a Product?
Goods vs Services
• Most people in the UK don’t make anything
anymore rather they perform a service
• Are services different from goods & if so in what
way & what does this mean for marketing?
• Strong evidence suggests there is a difference
• These days elements of both – product intangibles
and intangible products
SALES PRODUCT LIFE CYCLE (revision)

intro growth maturity decline

TIME
_________________________________________________________________________
Figure 3*
Types of Product Life Cycle Patterns
_____________________________________________________________________________________________
_

Sales Revenue
I. Cycle-Recycle

Sales Revenue
Sales Revenue

III. Increasing Sales III V. Growth Maturity

II. Cycle-Half Cycle
IV. Decreasing Sales VI. |Innovative Maturity
I VI

II
IV
. V

Time Time Time

Sales Revenue
VII. Growth-Decline-Plateau
Sales Revenue

Sales Revenue

IX. High and Low Plateau X. Stable Maturity

VIII. Rapid Penetration
High
Plateau
Low
VII
Plateau
VIII
Time
Time Time

* Adapted from Cox, “Product Life Cycles as Marketing Models”, Journal of Business, October 1967.
 Limitations of the PLC

• What product? Category, class or

brand?
• Identification of stage/length of cycle
• Over-emphasis on time:sales correlation
• Can lead to new marketing myopia
 PRODUCT MIX
(revision)
______________________________________
The composite or total group of products that an
organization makes available to customers.
DIMENSIONS OF THE PRODUCT MIX

1. WIDTH

2. DEPTH

3. CONSISTENCY
 VIRGIN’S PRODUCT PORTFOLIO

- MAIL ORDER RECORDS

- RETAILER
- TRAVEL AGENTS
- AIRLINE
- INTERACTIVE ENTERTAINMENT
- RADIO STATION
- BOOK PUBLISHING
- COLA
- VODKA
- FINANCIAL SERVICES
 LONG-TERM PRODUCT GAP
PRODUCT
‘GAP’
ROFITS
REQUIRED P

Profit
PRO
D UCT
PRO E
D UC T
D

PRO
DUC
T C

PRODUCT B

PRODUCT A

5 year 10 15 20
INDUSTRIAL VARIATIONS IN DEPENDENCE ON NEW PRODUCTS
Largest % of sales comes from:
INDUSTRY A. Products < 5 years old B. Products > 5 years old
% %
Building & Construction 45 55
Chemicals & Allied Products 29 71
Clothing 67 33
Electrical 38 62
Engineering 41 59
Fabricated Metal 21 79
Food, Drink, Tobacco 11 89
Furniture 57 32
Iron & Steel 21 79
Paper 24 50
Plastics 50 50
______ ______
 A new product has different
interpretations of ‘new’
• New product A
• A snack manufacturer introduces a new, larger pack size for its
bestselling savoury snack. Consumer research for the company revealed
that a family-size pack would generate additional sales without
cannibalising existing sales of the standard size pack.
• New product B
• An electronics company introduces a new miniature compact disc player.
The company has further developed its existing compact disc product and
is now able to offer a much lighter and smaller version
• New product C
• A pharmaceutical company introduces a new prescription drug for ulcer
treatment. Following eight years of laboratory research and three years
of clinical trials, the company has recently received approval from the
government’s medical authorities to launch its new ulcer drug.
 Different examples of ‘newness’

• Changing the performance capabilities of the product

• (for example, a new improved washing detergent)
• Changing the application advice for the product
• (for example, the use of the Persil ball in washing machines)
• Changing the after-sales service for the product
• (for example, frequency of service for a motor car)
• Changing the promoted image of the product
• (for example, the use of ‘green’-image refill packs)
• Changing the availability of the product
• (for example, the use of chocolate-vending machines)
 HIGH

NEW PRODUCT NEW TO

L I N E S (20%) THE
W O R L D 10%)
I
N N IMPROVEMENTS ADDITIONS
E
TO EXISTING TO EXISTING
W C
PRODUCT PRODUCT
O
N M L I N E S (26%) L I N E S (26%)
E P
S A
S N COST REPOSITIONING
Y REDUCTIONS (7%)
(11%)
LOW HIGH
NEWNESS TO MARKET
 New Product Development
• Research on NPD Process.

• Understanding why products succeed or fail

in the market place.

• Learn more from failure than success.

An example of NPD:
The Sinclair C5
 The Product
2' 7"
(795 mm)
C5
2' 5"
(744 mm)
5' 9"
(1744 mm)
• Basic Package = C5 + Battery + Charger + Handbook

The Price  £399 + £29 delivery/packing

plus indicators; £19.95

wing mirrors £14.95 Total so far = £469.85
horn £ 6.95
also weather jacket £34.95
side panels £19.95
tonneau £ 7.95 etc
 Main Stages of Development
Sir Clive’s Idea (1973+)

1980 Government abolishes motor tax on electric vehicles

1982 More interest in “electric vehicle” idea at Sinclair Research Ltd.

1983 Government legislation defines an “Electrically Assisted Pedal Cycle”

Product Concept Developed

Late 1983 Contract placed with Lotus Cars Ltd. to develop C5 Prototype

Testing & modifications

April 1984 Agreed with Hoover Ltd. to produce C5

Decided to sell initially by mail-order

Nov 1984 Production started (stockpiled at 3 centres)

Jan 1985 Product Launch

 Launch Results
Jan 1985 Officially launched - huge publicity
Feb 1985 Hired unemployed teenagers to drive C5’s around Britain’s cities
Mar 1985 Production halted for 3 weeks to modify a gearbox component
Apr 1985 Production cut by 90%  100 vehicles per week
May 1985 Stock levels of 6,000

June 1985 Consumers’ Association produces condemning report on C5

July 1985 Advertising Standards Authority reports 17 separate complaints on
adverts
Aug 1985 Comet slashes price to £189 inc. accessories
Sept 1985 Production of C5 stops
Oct 1985 Receivers called in

- Company has debts of £7.75 million -

- 14,000 C5’s were produced, of which 4,000 were sold at a reduced price -
 Sinclair’s C5
Consumers’ Association
Complaints
 Height of C5: Risk of injury
 Dazzled by headlights
 Inhale exhaust fumes
 Basic model with no mirrors or indicators
 Horn ineffective
 No reverse gear
 Body of C5 offers little protection in collision
 Max Speed 15mph
 Consumers’ Association Complaints
1 Height of C5 - easily hidden
- risk of injury (bumper height)
- dazzled by headlights
- inhale exhaust fumes
- hit by spray
2. Basic model has no mirrors or indicators
3. Horn ineffective and headlight beam insufficient
4. No reverse gear - hazardous on busy roads
5. Max speed 15 mph - hazardous on busy roads
6. Body of C5 offers little protection in collision
Also -Range? Sinclair claimed 20 miles
They say 14.2 (no stops or hills)
or 5-10 miles (normal urban driving)
- Problems on hills
 New Product Failure Rates
Studies before 1980 All Consumer Industrial
1. Booz Allen & Hamilton (1968) 37.0% 37.0% 38.0%
2. Buzzell (1967) 27.0%
3. Cochran/NICB (1964) 30.0%
4. Gallagher (1973) 41.2%
5. Graf/Nielsen (1967) 42.0%
6. Hopkins-Bailey (CB) (1971) 40.0% 40.0% 20.0%
7. Mansfield (1975) 26.0%
Average 36.2% 38.5% 28.0%

Studies after 1980

1. The Conference Board (1980) 40.0% 42.0% 38.0%
2. Booz Allen & Hamilton (1982) 35.0%
3. Assoc. of Nat. Advertisers (1984) 39.0%
4. Gallagher Report (1981) 36.0%
5. Nielsen (1980) 61.0%
6. Dancer Fitzgerald Sample (1980) 98.0%
7. Cooper (1982) 24.0%
Average 38.0% 44.5% 31.0%

Average of all studies 36.5% 42.5% 29.2%

Factors which mitigate against
product innovation:
1.Commitment to existing products (Schon)
2.Specialised, regimented job functions
(Kanter)
3.Top management resistance (Macmillan
and George)
 Reasons for Failure
The better mousetrap no one wanted
(28% of failures)
The me-too product meeting a competitive brick wall
(24% of failures)
Competitive one upmanship
(13% of failures)
Environmental ignorance
(7% of failures)
The technical dog product
(15% of failures)
The price crunch
(13% of failures)

Source: Colantone, 1979, J. of the Academy of Marketing Science

Success Factors
a) Product uniqueness and superiority;
b) Market knowledge and marketing proficiency;
c) Technical/production synergy and proficiency.

Barriers to Success
a) Having a high priced product, relative to competition;
b) being in a dynamic market with many new product introductions;
c) being in a competitive market where customers are already satisfied.

Facilitators to Success
a) Marketing and managerial synergy;
b) Strength of marketing communications and launch effort;
c) Market need growth and size.

Source: Cooper, 1979, JM 195 projects in 103 industrial firms of which

102 were successes and 93 failures.
New Product Performance Criteria
• Profit contribution
• Sales volume
• ROI
• Payback period
• IRR
• NPV

Dimensions of Success
1. “Financial performance”
2. “Opportunity window”
3. “Market share”
Marks and Spencer

An evaluation of innovation
strategy
1993-2001
Rapid 80% decline in profit 1998-2001
2001 profit of £140 million

Marks and Spencer: Net profit before tax 1993-2001

1,400

1,200

1,000

800
£ million

600

400

200

0
1993 1994 1995 1996 1997 1998 1999 2000 2001

Year
 1993-1998
Period of sustained growth
1998 profit high of £1.1 billion

•
Marks and Spencer: Net profit before tax 1993-1998

1,400

1,200

1,000

800
£ million

600

400

200

0
1993 1994 1995 1996 1997 1998

Year
Company Overview

– 1884 - First market stall founded

– ‘Self service’ innovation, huge success
– 1900 – 36 stores
– 1924 – broke retail tradition – innovation
established direct links with manufacturer
– At peak over 300 UK stores
– Operated in 30 countries worldwide
– Turnover £8 billion
– Serves 10 million people per week
Main Areas of Operation
• Ladies clothing
• Mens clothing
• Childrens clothing
• Food
• Homeware
• Beauty
• Gifts
• Financial services
• Suppliers
• People
• Stores