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Launching and Landing a New Product

A lot of new products fail in the marketplace.  In innovation, we analyze the data and our systems to try to prevent another failure in the future.  Yet, success of new products and services in meeting goals and objective continues to be an ongoing problem across industries and corporations.  What is going on and how can new product development (NPD) practitioners improve success rates?

Launching vs. Landing

A key concept in NPD is the difference between launching and landing.  Most NPD systems focus on the end goal as the product launch.  A lot of companies use a staged and gated process for innovation, with the final stage identified as “Product Launch”.  Unfortunately, launching a product is not enough.

The obvious analogy is air travel.  I certainly don’t want to fly with a pilot who only knows how to launch the aircraft.  To arrive safely at my destination, I trust that the pilot knows how to land the plane.  (Image from one of my favorite comedy movies – Airplane.  My husband can’t stand when I start reciting lines from the film when we are traveling… but that’s another story.)

Likewise, product launches are only the start of the customer relationship.  Launching a new product includes a marketing campaign to build awareness of the product, its value, and its benefits.  A product launch might include education and training as well as demonstrations and integrations.  The point of the product launch is to show the world the new product.

Landing the product is what really counts for successful innovation.  I have long been an advocate for post-launch reviews (PLR).  The lessons learned in a PLR allow the NPD team to learn and grow and allows the sales and marketing teams to make adjustments in targeted areas as needed.  PLRs focus on revenue and volume for new product sales as well as net profit.  Thus, the PLR measures the landing of a new product.

For example, a new product may be specially designed to meet the needs of a target market, but these customers are not exposed to the product.  Imagine the breadth of products that are designed to help manage incontinency.  If all the advertising is on YouTube and smartphones, a large target market (elderly folks who may not be internet or phone savvy) may be completely missed.  The PLR helps to land the product with the right audience through sales data analysis leading to a successful television marketing campaign.

Customer Satisfaction

Landing the product is all about customer satisfaction.  And honestly, the PLR can be a last-ditch effort to save a product.  Customer needs (both known and unarticulated) must be met with the features and benefits of the product.  Needs assessments should be conducts long before the product launch – ultimately, a new product project is not undertaken unless there is a right-sized market potential.

Agile project management and lead product development offer tools and techniques within a structured ecosystem to help new product practitioners learn customer needs.  I also really like the tools within Design Thinking to help the NPD team retain a focus on the customer from idea to development to launching and landing.  Design thinking asks us to first discover customer needs.  Once we fully understand and build empathy for another person’s challenges, then we can define the problem in traditional NPD terms and processes.

Design Thinking Tools

Design thinking follows a cyclical model of Discover–>Define–>Create–>Test–>(repeat).  Again, discovery involves intimate relationships with customers and potential customers.  Market research is often qualitative at this stage because we are seeking to understand the exact challenges that our customers face.  It is important to listen to people closely as their emotions will help the NPD team discern their most pressing problems.

After concluding listening sessions, shadowing, and customer journey maps in the discovery stage, the NPD team moves to defining the problem.  Sometimes the real problem is unstated or buried below the surface.  Tools like customer empathy maps and affinity diagrams can help to sort out the biggest customer challenges that we think we can address through new product and service development.

Next, we switch to more traditional NPD process techniques to create potential solutions to address the defined customer needs.  Here, tools like brainstorming, brainwriting, and A/B testing are used.  It is crucial to maintain customer involvement in this stage of work.  The NPD team needs to be assured that features they design and develop will delight the customer, setting the framework for landing the product.

Finally, the design thinking cycle moves to prototype testing.  Depending on the complexity of the product and its newness to a market, prototype testing may be simple or sophisticated.  Product improvements and extensions may test a simple feature with a one-time product use test.  New-to-the-world products require multiple prototypes and tests to ensure a selected feature set is beneficial to a potential customer and that all product attributes integrate across the product platform.

Of course, you’re not done at the testing phase.  Design thinking teaches us to go back to customers to discover continuous needs and to cycle through the steps to ensure alignment.  Customer satisfaction with the features and benefits determines the value of the product.  This value ties to our measures of revenue and profit, tracked in the PLR.  A product that is highly valued in our target market means we have successfully launched and landed the new product.

Landing Customer Satisfaction

New product launches often fail because the NPD team is isolated from the customer, focusing on an end goal of just releasing the new product.  Landing the product follows the launch, with corrective actions measured in post-launch reviews, to ensure customer satisfaction.  Satisfied customers are repeat customers and will share their delight with friends and neighbors.  Nothing beats word-of-mouth marketing for a new product!

The only way to successfully launch and land a new product that benefits customers and brings long-term value to the organization is through intimate customer relationships.  Design thinking employs a set of tools within a cyclical model to ensure customers remain at the forefront of new product development.

Next Steps

First, innovation leaders must take action to ensure new product development is focused only on the customer.  Second, innovation teams should use the post-launch review process to determine corrective actions if a product launch does not land customer satisfaction.  Finally, NPD leaders will build a toolkit spanning customer interviews and prototyping from design thinking to encourage intimate customer relationships and leading to higher success rates in new product development.

To build your skills and address your toughest innovation challenges, please contact me about membership in the Innovation Master Mind (IMM) group.  IMM is a 6-month peer coaching group that allows you to extend your NPD knowledge beyond NPDP certification and to collaborate with other CIOs and innovation managers.  I also offer one-on-one coaching and New Product Development Professional (NPDP) training to help you target specific innovation knowledge areas.  So, feel free to contact me at [email protected] or 281-280-8717 to learn more.  I love helping individuals, teams, and organizations reach higher strategic innovation goals!

 

Study. Learn. Earn. Simple.

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A division of Global NP Solutions, LLC  

New Products and Loyalty Programs

Marketing strategies are a key focal point for new product development (NPD) teams during the later stages of development (commercialization and launch).  Market research methods include testing the new product with a limited customer base at the same time as testing the advertising campaigns and positioning statements.  New products are typically designed to serve both existing and new customers.

In the case of existing customers, a firm may use existing distribution channels to reach the customer and to inform him/her of the new product.  Customer loyalty programs are one way to inform existing customers of new offerings and to target increased sales in a product or brand category.

What is a Loyalty Program?

Loyalty programs are marketing programs designed to generate increased sales revenue and profit for a company by offering rewards to customer who make repeat purchases.  In a B2B situation, for instance, a loyalty program might offer free shipping or discounted prices through contractual agreements that assure long-term buyer/seller relationships.  In a B2C situation, loyalty programs are instituted as frequent flyer programs, frequent shopper cards, points per purchase, and the like.

As an example, many of us carry a grocery store frequent shopper card.  Items are priced at a small reduction for customers using the grocery chain’s shopper card.  Airlines and hotel encourage repeat purchases through loyalty programs in which customers accumulate reward points by using their exclusive reservations systems.  Reward points can be redeemed for free flights or free hotel stays in the future.

Goals of Loyalty Programs

The goal of a loyalty program is, of course, to generate loyalty among customers to yield a competitive advantage.  It is often cited that the cost of new customer acquisition is significantly higher (up to 10X) than maintaining a strong relationship with an existing customer.  Thus, one goal of a loyalty program is to decrease marketing costs by encouraging increased purchases by existing customers.

A second objective of a loyalty program is to encourage a greater number and variety of purchases by repeat customers.  This is accomplished by up-selling or cross-selling.  As an example, I worked in the children’s department of a department store while I was in college.  The end-user was rarely the purchaser, and, in fact, many grandmothers did more shopping than moms and dads!  My boss constantly prodded the sales staff to push cross-selling opportunities.  During the check-out transaction, we were supposed to ask each customer if they needed a belt or sock with their purchase of shirts, pants, or dresses.  These cross-selling opportunities often involved high margin products.

Behavioral Loyalty

At the department store, I did encounter a lot of repeat purchasers.  Many of these grandmothers were exhibiting behavioral loyalty.  That is, they made the purchased based on convenience or price.  Behavioral loyalty is observed by a customer making similar, routine purchases at the same store over and over again.

In contrast to behavioral loyalty is attitudinal loyalty.  A customer exhibiting attitudinal loyalty is a true believer in the company, brand, or product.  They choose the product because of a preference for its features, benefits, and/or quality.  True attitudinal loyalty results in customer satisfaction and behavioral loyalty manifested in repeat purchases.

Marketing New Products

A new product is offered to customers with both behavioral or attitudinal loyalty.  However, the marketing approach should be different since the customer relationship with the firm is different in these two situations.  Customers with behavioral loyalty are treated transactionally in an attempt to garner profits.  Hard-selling tactics, such as direct mail and frequent coupon delivery, are effective to promote a new product with this group of customers.

On the other hand, the relationship is more complex with a customer who has attitudinal loyalty and the firm does not want to risk that relationship by over-promotion or with hard-selling tactics.  These customers require a gentle introduction to new products and should be made to feel special in the marketing campaign.

For example, a grocery store may offer a special event with wine and cheese sampling to a target segment of frequent shoppers with attitudinal loyalty.  The new product will be introduced as part of the event, but the marketing approach does not overshadow the recognition of the customer relationship.  The consumer feels special to be invited to the exclusive event in the first place.  Discount coupons (encouraging behavioral loyalty) can be used after the event to encourage a new purchase, but only for a limited time.  It is more important to maintain the relationship than push a product.

New Product Marketing with Loyalty Programs

The fundamental concept of marketing for a new product is to inform potential customers of the benefits and value of the new product.  Existing customers, with a lower cost to identify and segment, can be targeted for new product introduction through loyalty and reward programs.  Companies must, however, differentiate between those customers with behavioral loyalty and those with a deep, lasting relationship that goes beyond the transaction.  Customers with attitudinal loyalty support and evangelize the brand or firm.  Marketing campaigns adjust from hard-selling tactics to continued relationship building as customers migrate from behavioral to attitudinal loyalty.

A great book on customer loyalty programs is Customer Relationship Management by V. Kumar and Werner Reinartz.  (affiliate link)

If you’d like to learn more about customer relationships and marketing for new product development, please join use one of our popular NPDP Workshops.  Feel free to contact me at [email protected] or 281-280-8717.  At Simple-PDH.com where we want to help you gain and maintain your professional certifications.  You can study, learn, and earn – it’s simple!

 

Study. Learn. Earn. Simple.

© Simple-PDH.com

A division of Global NP Solutions, LLC  

Defining the CRM

CRM – we hear about this term a lot lately, but what is it and how can we use CRM to influence successful new product development/

CRM is the acronym for customer relationship management.  Very often it is implements as a technology to collect data about customers and is used primarily by the sales force.  In practice, we can identify at least two other implementations of CRM at a function level and at a strategic level.  Let’s take a look at each of these.

Technology-Driven CRM

Big data and the opportunity to gather vast amounts of data, such as web page viewing, click-through behavior, and purchase histories, have led to the creation of many functional CRM systems.  These CRM systems are driven by technology and have a limited use.  Often, the CRM is used only to automate sales force functions or to manage promotions and campaigns.

Analysis of CRM data to inform new product development is lacking in a technology-driven system.  Companies may invest significant capital and IT resources to install CRM systems.  Yet, the stored data is often neglected so that the return on investment is far less than expected.  This leads to severe disappointment in the CRM and executives continue to search for ways to collect consumer insights.  The CRM thus becomes a wasted resource.

Level 1 CRM

A Level 1 CRM utilizes the data collected through the IT application and shares the information to build a consistent customer view across several functions.  Companies deploying a Level 1 CRM recognize the importance of coordinating customer and segment knowledge to deliver a unified customer experience.

Functions involved in a Level 1 CRM might include sales, marketing, customer service, technical service, warranty, and maintenance.  Each department will have access to the CRM database showing a customer’s purchase and claim history.

The idea behind a Level 1 CRM is to focus on the total customer experience.  A firm will recognize the customer throughout the purchase process from decision-making, buying, and after-sales support.  In some industries, a Level 1 CRM can be differentiating.

Strategic CRM

A strategic CRM system goes beyond Level 1 by integrating the customer experience throughout the new product development process.  We might prefer to call a strategic CRM “CVM” – or customer value management.

At the strategic level, customer viewpoints, reactions, and interactions are integrated into all business processes.  CRM is not simply a data collection tool but a warehouse of information and knowledge to inform business decisions of a customer-centric organization.  All the functions involved in a Level 1 customer experience analysis are included in a strategic CRM, but also involved are R&D, engineering, operations, and supply chain.

These cross-functional teams study and observe customer behaviors to validate stated and unstated customer needs.  Customers are queried throughout the NPD process to verify new concepts and new product features and functionalities.  Strategic CRM focuses on processes that span department boundaries in order to select customers and products that will deliver the most value to the frim.

Using CRM

Companies most successful with Strategic CRM use their intimate knowledge of customers and segments to design and develop future products as well as to understand current needs.  Strategic customer value analysis includes evaluation of societal trends influencing customer behaviors as well as segment and industry activities.  This is the difference between transactional sales management and customer relationship management.  Having a direct dialog with customers provides a qualitatively differentiated product and service solution for customers, giving the firm a competitive advantage.

How do you use CRM in your company?  If it is currently a technology-driven sales tool, dig into the existing data to mine it for new customer insights.  The sales force often has the highest level of interaction and communication with your customers and will document reactions to new product concepts in the CRM.  Understanding thoughts, opinions, and desires of your existing and potential customers can lead to valuable insights for NPD.

You can learn more about building lasting relationships with customers in an NPDP workshop where we discuss specific marketing tools and techniques for new product development.  Contact me at [email protected] or 281-280-8717 to enroll in a free NPDP overview course or any of our newly scheduled PMP, Scrum, or NPDP workshops in Houston as well as our online PDH courses.  At Simple-PDH.com where we want to help you gain and maintain your professional certifications.  You can study, learn, and earn – it’s simple!

 

Study. Learn. Earn. Simple.

© Simple-PDH.com

A division of Global NP Solutions, LLC

Product Pricing Strategies

So you’ve got a great new idea for a product and you’ve secured financing to manufacture it.  You have identified a target market and created advertising to build awareness.  Your potential customers are anxious to buy the new product because it solves a long-standing problem for them.

Everything is great and even though the product development effort hasn’t been perfectly smooth, it has gone well.  But now you’re facing a very tough decision.  What is the price of the new product?  In fact, how do you even decide how to set the price?

New Product Development Professionals (NPDP) and Certified Professional Engineering Managers (CPEM) are both faced with pricing decisions of existing and new products.  The price of a product may shift during its life cycle based on competitive positions and maturity of the product.  In all cases, a company normally targets a price high enough to make a profit and to recover any investment in design, development, manufacturing, and marketing.  A common pricing strategy is based on two elements:  the price itself and perceived product quality.

Premium Pricing

Premium pricing can be achieved when the product has a high price commiserate with a high quality good or service.  Most companies strive for premium pricing because it typically yields the highest, long-term profits.  The product is perceived to be a luxury item and consumers willingly pay more for the product because of its uniqueness.  Premium pricing validates a competitive advantage.

An example of a premium product is a Porsche.  The car brand is unique and perceived to be a luxury item.  A Porsche will cost more than a Lexus but it is expected to perform better (and faster!).  In addition, the brand itself conveys status and infers a “premium” label to its owner.  A Porsche commands a high price yet is a high quality product, valued by consumers.

Penetration Pricing

Penetration pricing is a model often used when a new product is first launched (e.g. during the introduction stage of the product life cycle).  A penetration price signifies high quality ye the product price is actually set at a low level in order to gain market share.  Using a penetration price is normally a short-term strategy used by a firm to establish the product category and gain customers.

A company may deploy penetration pricing for a new-to-the-world product to ensure it gains market traction.  The low price is not sustainable as the product needs to earn a profit and is manufactured as a premium product.  Firms risk, however, that consumers will become accustomed to the low price and that subsequent price hikes are not feasible.  New competitors also may be able to manufacture the product at a lower cost with a financial model that can support the lower price established in the marketplace.

One way to introduce a new product with a penetration price is through the use of sale promotions.  Coupons and discounts will encourage first-time buyers to purchase the new product while the company can set the actual price for the product at its long-range target price.  Vista Print encourages business card purchases through sales promotions for new customers as demonstrated by television ads providing a special discount code for first-time buyers.  Established customers then pay a higher price that is consistent with the product quality (e.g. premium pricing).

Price Skimming

An alternative to penetration pricing for a new product is price skimming.  This pricing strategy sets a high price for a common or lower quality product. As an introductory strategy, skimming allows a firm to capture significant profits while there is no other active competition in the market.  Consumers have been waiting so long for a product solution that they are willing to pay a high price for any promising product.  Companies benefit from the high demand and low competition in such a situation.

Of course, skimming is a short-term strategy as the high price is not sustainable.  When competitors begin entering the market (as they surely will), the price will drop as supply and demand balance.  Moreover, competitors will take advantage of “fast follower” market strategies to improve the quality of the initial product.

Years ago, I purchased a special GPS as a gift for my husband’s birthday.  It was a very new model and interacted with National Park maps so you could track hiking or mountain biking on the park trails.  It was waterproof and shatterproof.  The GPS conveniently operated on 4AA batteries (no need for an electric outlet if you’re staying in a tent) and cost around $600.  There were no other competing products at the time that offered the resolution or ruggedness of the device.

Yet, within a couple of years, smaller GPS devised with Wi-Fi connectivity were marketed.  These new devices had similar (or better) resolution and were waterproof enough in a typical rainstorm.  Competition dropped the prices to the $100 range quickly.  And, of course, today our cell phone have full, built-in GPS capability, including downloadable maps of National Park trails.  The company that manufactured the $600 GPS was not able to maintain a price skimming model for long.

Economy Pricing

Economy pricing is exactly what the term implies – a lower price for a “no frills” product.  Normally, you will see

products with economy prices in a mature market with lots of competition and as a product becomes commoditized.  Manufacturers make a profit by keeping production and marketing costs low.

Products with economy pricing may co-exist in a market with premium products.  The two products, though in the same category, will serve different customers.  A value-minded customer may purchase a generic or store-brand product while other consumers will not take the risk of sacrificing brand quality.  For example, the local supermarket offers bran cereal flakes with raisins at a lower price than Kellogg’s Raisin Bran.  A mom with teenage boys may choose the store brand to save money on her weekly grocery bill while a senior citizen will select the higher priced, brand name cereal to be guaranteed a minimum and consistent quality standard.

Pricing Strategies

Every company must be aware of the prices charged for their products.  If the firm sells directly to consumers, the company will set the price.  If a firm sells to distributors and wholesalers, then they will need to set a minimum expected retail price.  Prices reflect perceived product quality and must be set at an appropriate level so that the company makes a profit over the long-run.

However, a firm may establish different prices for products at different stages within the product’s life cycle.  Introductory pricing schemes may vary significantly from a mature or declining product.  Common introductory pricing strategies include price skimming and penetration pricing.  Price skimming is utilized when there are few competitors and a company can charge a high price for a product that may be of low quality or offers few features.  This strategy is not sustainable as competitors entering the market will cause the price to decline and competing products will offer higher quality and more features to gain market share.

Penetration pricing is also used as an introductory pricing strategy.  Here the product is priced lower than expected for the product category or market perception of the product category.  The intent is to establish brand awareness and market share so that the company will retain customers after subsequent price increases.  Organizations are often willing to sacrifice short-term profits for longer term brand loyalty.

Ultimately a company wants its products to move into premium pricing.  Premium pricing strategies reflect a high price for a product perceived as unique and high value by its target customers.  Premium pricing is often realized during growth and maturity of a product category.  Companies can maintain high profit margins under a premium pricing model but are subject to disruption by a lower cost competitor who may take advantage of new technologies to lower manufacturing costs.

Finally, products in the maturity phase may price products in the economy pricing category.  Economy pricing reflects a lower price for a “no frills” product that has low-cost manufacturing and marketing expenses.  These products offer a quality level desired by a group of customers who desire few features.  Products with economy pricing attract a different buyer than premium brands and may co-exist with higher end products during the maturity and decline phases of the product life cycle.  Commodities are products with economy pricing as demand and supply are matched so that customers choose their purchase based on price more than brand reputation (a substitute for quality).

NPDPs and CPEMs must be familiar with pricing models, especially their linkage to the product life cycle.  Companies must also be cognizant of pricing in order to attract new customers, maintain profitability, and to respond to competition.  To learn more about strategy and product pricing, please join us for certification training in New Product Development Professional (NPDP).  Workshops are available in an affordable self-study course format or in customized face-to-face training sessions.  Contact me at [email protected] or 281-280-8717 for information on new product development training or professional management coaching.  At Simple-PDH, we want to make it simple for you to study, learn, and earn and maintain your professional certifications.

Study. Learn. Earn. Simple.

© Simple-PDH.com

A division of Global NP Solutions, LLC