7.4: Strategy Formulation

Strategies for developing new products

For several decades, business has come increasingly to the realization that new and improved products may hold the key to their survival and ultimate success. Consequently, professional management has become an integral part of this process. As a result, many firms develop new products based on an orderly procedure, employing comprehensive and relevant data. and intelligent decision making.^9.

Capsule 14: Review

1. A product is anything, either tangible or intangible, offered by the firm as a solution to the needs and wants of the consumer, that is profitable or potentially profitable and meets the requirements of the various publics, governing, or influencing society. There is a core product, a tangible product, an augmented product, and a promised product. 2. Consumer goods are purchased for personal consumption. 3. Industrial goods are modified or distributed for resale. 4. Service products, in contrast to goods products are characterized as being intangible and having simultaneous production/consumption, little standardization, and high buyer involvement. 5. The product plan process includes the following: a. determination of product objectives, b. development of product plans to reach objectives, c. and development of appropriate strategies.

Integrated marketing

Putting Levi's back in the saddle Levi Strauss & Company is opting for a new marketing direction. The situation is reflected by Maressa Emmar, high school sophomore from Setaukat, NY, and her friends, who won't wear anything from Levi's. "It doesn't make the styles we want," says Emmar, who prefers baggy pants from JNCO and Kikwear. "Levi's styles are too tight and for the older generation, like middle-aged people." After three years of tumbling sales, layoffs, plant closing, and a failed effort to woo kids online, Levi's is gearing up for several product launches. Notes new chief executive Philip Martineau, "Levi's is a mythical brand, but our performance has been poor. We need to turn our attention back to customers and have more relevant products and marketing." In coming months, Levi's will unveil a slew of youth oriented fashions, ranging from oddly cut jeans to nylon pants that unzip into shorts. But Martineau is not giving up on the geezers. He wants to broaden Levi's appeal to grown-ups by extending the Dockers and Slates casual pants brands. Martineau also needs to smooth out kinks in manufacturing and shipping that prevent Levi's from rushing new products into stores. How do you sell the idea that you're hip while not turning off the oldsters? New ads will showcase the products themselves rather than relentlessly trying to convey "attitude". A television campaign for frayed cutoff shorts shows a young woman throwing her jeans in front of an oncoming train, which slices them to cutoffs. Print will support its Lot 53 fashion forward Levi's Engineered jeans. This new style has curved bottom hems, slanted back pockets and a larger watch pocket to hold pagers and other electronic items. As Levi's try to rise like a phoenix from the ashes, one of the greatest American brand icons is passing into a new era in its history. Classic Levi's Jeans may find its greatest influence, much like the American cowboy, is more myth than reality.[1]

Defining the "new" in a new product

The determination of what constitutes a "new" product remains one of the most difficult questions faced by the marketer. Does the most recent TV model introduced by Sony represent a new product even though 95 per cent of the product remains the same as last year's model? Are packaged salads a new product, or is the package the only part that is really new?

Indeed, companies have often been guilty of using the word "new" in conjunction with some questionable products. For example, older products have simply been marketed in new packages or containers but have been identified as new products by the manufacturer. Flip-top cans, plastic bottles, and screw-on caps have all been used to create this image of newness. Industrial companies have been guilty of similar actions. Computer manufacturers, for instance, have slightly modified some of the basic hardware or developed some software for a particular customer (banks, churches), and have felt free to claim newness. Finally, manufacturers may add an existing product to their product line and call it new, even though it is not new to the consumer.

Does technology make a product new, or features, or even the price? It is important to understand the concept of "new" in a new product, since there is sufficient evidence that suggests that each separate category of "newness” may require a different marketing strategy.

Perhaps the best way to approach this problem is to view it from two perspectives; that of the consumer and that of the manufacturer.

The consumer's viewpoint

There are a variety of ways that products can be classified as new from the perspective of the consumer. Degree of consumption modification and task experience serve as two bases for classification. Robertson provides an insightful model when he suggests that new products may be classified according to how much behavioral change or new learning is required by the consumer in order to use the product.¹⁰

The continuum proposed by Robertson and shown in Exhibit 19 depicts the three primary categories based on the disrupting influence the use of the product has on established consumption patterns. It is evident that most new products would be considered continuous innovations. Annual model changes in automobiles, appliances, and sewing machines are examples. Portable hair dryers, diet soda, and aerobic dance CDs reflect products in the middle category. True innovations are rare.

Although conceptualizing new products in terms of how they modify consumer consumption patterns is useful, there is another basis for classification. New task experience can also be a criteria. An individual may live in a house for several years without ever having to repair a broken window. One day a mishap occurs, and Mr. Smith is forced to go to the hardware store to buy the necessary supplies required to install a new window pane. As he has no experience at all with this task, all those products are new to Mr Smith. The glazing compound, the new glass and molding, and metal tacks, as well as the appropriate tools, are as new to Mr Smith as a home computer. Using the model proposed by Robertson, products can also be placed on a continuum according to degree of task experience. Clearly, a product that has existed for a great many years, such as a carpenter's level, may be perceived as totally new by the person attempting to build a straight wall. In this case, newness is in the eye of the beholder.

The obvious difficulty with this classification is that it tends to be person-specific. Just because replacing a new washer in your bathroom faucet constitutes a new product for you does not mean it is a new product for me. However, it is conceivable that marketing research would show that for certain types of products, large groups of people have very limited experience. Consequently, the marketing strategy for such products might include very detailed instructions, extra educational materials, and sensitivity on the part of the sales clerk to the ignorance of the customer.

Another possible facet of a new task experience is to be familiar with a particular product but not familiar with all of its functions. For example, a homemaker may have a microwave oven which she uses primarily for reheating food items and making breakfast foods. Suppose that one afternoon her conventional oven breaks and she must deliver several cakes she has donated to a church bazaar. Unfortunately, she has not baked them yet and is forced to use her microwave, a brand-new task.

Exhibit 19:Continuum for classifying new products.

The firm's viewpoint

Classifying products in terms of their newness from the perspective of the manufacturer is also important. There are several levels of possible newness that can be derived through changes either in production, marketing, or some combination of both.

Based on a schema developed by Eberhard Scheuing, new products, from the perspective of the business, can take the following forms:¹¹

• Changing the marketing mix: one can argue that whenever some element of the marketing mix (product planning, pricing, branding, channels of distribution, advertising, etc.) is modified, a new product emerges.

• Modification: certain features (normally product design) of an existing product are altered, and may include external changes, technological improvements, or new areas of applicability.

• Differentiation: within one product line, variations of the existing products are added.

• Diversification: the addition of new product lines for other applications.

A final consideration in defining "new" is the legal ruling provided by the Federal Trade Commission. Since the term is so prevalent in product promotion, the FTC felt obliged to limit the use of "new" to products that are entirely new or changed in a functionally significant or substantial respect. Moreover, the term can be used for a six-month period of time. Given the limited uniqueness of most new products, this ruling appears reasonable.

Strategies for acquiring new products

Most large and medium-sized firms are diversified, operating in different business fields. It would be unrealistic to assume that the individual firm is either capable or willing to develop all new products internally. In fact, most companies simultaneously employ both internal and external sources for new products. Both are important to the success of a business.¹²

Internal sources

Most major corporations conduct research and development (R&D) to some extent. However, very few companies make exclusive use of their own internal R&D. On the contrary, many companies make excellent use of specialists to supplement their own capabilities. Still, to depend extensively upon outside agencies for success is to run a business on the blink of peril. Ideally, the closer the relationship between the new business and existing product lines, the better the utilization of R&D will be. The US National Science Foundation (NSF) (1957-77) divides R&D into three parts:

• Basic research: original investigations for the advancement of scientific knowledge that do not have specific commercial objectives, although they may be in fields of present or potential interest to the reporting company.

• Applied research: directed toward practical applications of knowledge, specific ends concerning products and processes.

• Development: the systematic use of scientific knowledge directed toward the production of useful materials, devices, systems, or methods, including design and development of prototypes and processes.

External sources

External approaches to new product development range from the acquisition of entire businesses to the acquisition of a single component needed for the internal new product development effort of the firm. The following external sources for new products are available to most firms.

• Mergers and acquisitions. Acquiring another company already successful in a field a company wishes to enter is an effective way of introducing products while still diversifying. Research suggests that mergers and acquisitions can take place between companies of various sizes and backgrounds and that first experiences with this process tend to be less than satisfactory. Even large marketers such as General Motors engage in acquisitions.

• Licenses and patents. A patent and the related license arise from legal efforts to protect property rights of investors or of those who own inventions. A patent is acquired from the US Patent Office and provides legal coverage for a period of seventeen years, which means all other manufacturers are excluded from making or marketing the product. However, there are no foolproof ways to prevent competition. There are two main types of patents: those for products and those for processes. The first covers only the product's physical attributes while the latter covers only a phase of a production procedure, not the product. The patent holder has the right to its assignment or license. An assignment is any outright sale, with the transfer of all rights of ownership conveyed to the assignee. A license is a right to use the patent for certain considerations in accordance with specific terms, but legal title to the patent remains with the licensor.

• Joint ventures. When two or more companies create a third organization to conduct a new business, a joint venture exists. This organization structure emerges, primarily, when either the risk or capital requirements are too great for any single firm to bear. Lack of technical expertise, limited distribution networks, and unfamiliarity with certain markets are other possible reasons. Joint ventures are common in industries such as oil and gas, real estate, and chemicals, or between foreign and domestic partners. Joint ventures have obvious application to product development. For example, small firms with technological resources are afforded an opportunity to acquire capital or marketing expertise provided by a larger firm.

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1. [1]Sources: Michael McCarthy and Emily Fromm, "An American Icon Fades Away," Adweek, April 26, 1999, pp. 28-35; Alice Z. Cuneo, "Levi's Makes Move to Drop All the Hype and Push Products," Advertising Age. April 17,2000, pp. 4, 69; Louis Lee, "Can Levi's Be Cool Again?" Business Week. March 13, 2000, pp.144-145; Diane Brady. "Customizing for the Masses." Business Week. March 20, 2000. pp. 130-131.