(BUS 13) Notes to Accompany Lecture, May 14, 1998
by Kenneth L. Hess
Definition of a Market
Geof Moore defines a high tech market as:
A set of actual or potential customers,
for a given set of products or services,
who have a common set of needs or wants, and
who reference each other when making a buying decision.
Matching the Process of Product Development to
Its Context
Note: This section, "Matching the Process of Product Development to Its Context," is based on class notes for EE353/CS394 taught by Fred Gibbons. See also HBS Case Note 9-952-009.
Key marketing and development issues are highlighted by positioning a product in the context of a "newness" map and a "development risk versus opportunity cost" map.
Newness is plotted as a function of newness to the company and newness to the market.
High newness to firm | New product lines
Microsoft's Internet Explorer Version 1.0 | IBM PC when first introduced in 1981 | New to the world Apple's Newton personal digital assistant |
. | Improve existing products | Netscape's Navigator Version 1.0 | . |
Low newness to firm | Cost reduction HP's Deskjet LC printer | . | Repositioning ETAK's digitized map images used as a geo-locating service on the World Wide Web |
. | Low newness to market | . | High newness to market |
New products in the lower left portion of the map may come at
the expense of existing products (cannibalization). But, if a
company does not cannibalize its own products, a competitor will.
Products in the upper left corner raise the issue of company/product
fit. How well can the company deal with the development, manufacturing,
and marketing issues as compared to the established competitors?
Products in the upper right corner offer the allure of "breakthrough"
opportunities (Brave New World), but the risk of market acceptance
and fit with corporate skills is high thus the risk of failure
is high. Generally, these are "technology push" products,
being introduced because new technology makes them possible.
A product's position identifies its risks and required strategies
and resources.
A 1982 Booz, Allen and Hamilton survey classified 700 firms' product introductions on the map, with the following findings:
High newness to firm | 20% new product lines
. | . | 10% new to the world |
. | 26% improve existing products | 26% additions to product line | . |
Low newness to firm | 11% cost reductions | . | 7% repositions of existing line |
. | Low newness to market | . | High newness to market |
There are actually two reasons why the upper right corner is thinly
populated: obviously the risk of failure is higher, but when you
do have a success, then you enhance, upgrade, and spin-off new products
-- one success in the upper right corner generates a family of products in the left column.
Engineering scheduling and product feature issues are illuminated by positioning a product on the "opportunity risk" map. Opportunity is defined as the cost (primarily in lost sales, but also in reputation which will lead to lost future sales) of delaying introduction. Development risk assess the need to have the right product upon introduction.
High opportunity cost | Crash program (copying someone else)
Microsoft's Internet Explorer version 1.0 | . | 100% correct Netscape's Navigator Version 1.0 |
(The cost of being late to market) | . | . | . |
Low opportunity cost | New products IBM PC when first introduced in 1981 | . | New version of established products |
. | Low development risk | (The risk of producing the wrong product for the market) | High development risk |
In situations of low development risk and high opportunity cost,
getting to market is everything, and a crash program is required.
Low opportunity cost coupled with high development risk makes
time to market less important, and places the emphasis on making
sure the product is right.
Products in the lower left corner typically are new markets where
customer expectations are low. The early adopters often want the
product now because it offers breakthrough benefits, and they
will "live with" problems.
Products in the upper left corner have the same "forgiving"
customer attributes, but expected competition forces a crash program.
Overall, the entire left column can be thought of as "faster,
better, cheaper" products, also known as "market pull"
products. A study of 567 successful innovations published in 1969
by Myers and Marquis showed that 79% were market pull and only
21% were technology push. Although this study is dated, I have
seen no reason to doubt its continued validity. Many smaller studies
find the same results.
Products on the far right are problematic. The worst case is the
upper right quadrant. The product must be perfect the first time,
e.g., start-ups going against existing competitors. The position
on the lower far right is often the introduction of a follow on
product which is relatively protected from competition (possibly
by patent or by technological leadership).
Used in conjunction with each other, a product's position on the
newness map identifies key marketing issues. Then the opportunity
risk map helps determine the required trade-off between speed
and accuracy.
The Product Life Cycle and Technology Adoption
Life Cycle
The product life cycle and technology adoption life cycle relate
to each other closely. People often confuse one with the other.
The typical product life cycle is shaped like an s-curve, plotting
sales for a product category against time. The technology adoption
life cycle is shaped like a bell curve. Each standard deviation
represents the different categories of buyers, arranged left to
right as they would be most likely to try a new product. Often,
a product life cycle curve is drawn with these categories of buyers
mapped on to it.
Thus, the location of a product on the product life cycle curve
has a lot to say about the characteristics of the customer most
likely to purchase. Geof Moore, in Crossing the Chasm,
describes the different categories along these lines:
Innovators
Early Adopters
Early Majority
Late Majority
Laggards
Moore also identifies a chasm, between the early adopter and the early majority. Early adopters alienate the early majority -- the early majority feels that visionaries:
Because of this chasm, marketing strategies must change even more
at this point in the product life cycle than elsewhere.
Companies must choose where along the curve to enter a market:
Entry Strategy | Entry Point on Product Life Cycle | Required Characteristics of Successful Company |
Pioneers: Launch entirely new products and product categories | Very early growth stage |
|
Follow-the-Leader: Wait until a competitor is successful, then quickly copy. | Early growth stage |
|
Segmenters: Enter with a modified product to meet the needs of a particular segment | Early to late growth |
|
Me-Too: Enter very late with a commodity product | Maturity |
|
Porter's Caution: When examining the structure of an industry,
don't rely on the product life cycle. Instead go back to the fundamental
forces.
Product Marketing Objectives
Conference Board studies in 1964, '71, and '80 all identified
poor marketing as the major cause of new product failures. The
studies cited inadequate market analysis as the number one reason
for failure by a wide margin over other causes. A 1975 study by
Cooper of 114 actual industrial product failures found the following
reasons for failure:
1) underestimated competitive strength and/or competitive position in the market (36.4%)
2) overestimated number of potential users (20.5%)
3) product's price set too high (18.2%)
4) technical difficulties/deficiencies with product (20.5%)
The most common failure scenario from this study was the "better
mousetrap no one wanted" (28% of cases) followed by the "me-too
product meeting a competitive brick wall" (24% of cases).
Clearly, good product marketing is important.
There exist five categories of market research:
Category of Market Research | Description | Representative Examples | Strengths and Weaknesses |
Unstructured User Feedback | . |
| There's sometimes a difference between what a user says he wants and what he really wants. |
Observation | Simply observe the relevant actors and settings. |
| An exploratory technique. Good to identify hypotheses to test further. Also very good for product design questions. |
Focus Group | A gathering of about ten people who talk about a product or service with a skilled moderator. The moderator focuses the discussion to learn how people feel about the topic of discussion. The session is often viewed through a one-way mirror and/or recorded. | . | Useful as an exploratory step to provide input into further testing.
The sample size is too small to generalize in a meaningful way. Value is highly dependent on the moderator. |
Survey | Measure the magnitude of people's knowledge, beliefs, preferences, satisfaction, desires, ... |
| When properly constructed, more accurate than observation and focus groups. |
Experimental | Subject matched groups of people to different treatments while controlling extraneous variables and checking whether the observed responses are statistically significant. |
| The most scientifically valid method. |
Good research follows the scientific method:
High newness to firm | Objective: Capture competitors' customers and the uncommitted -- product improvement needs to comfortably exceed switching costs.
Talk to:
Tools:
| Objective: Change people's way of doing things -- need 10X product improvement over the present. Talk to:
Problems:
Tools:
|
Low newness to firm | Objective: Retain and grow installed base, obsolete self -- need marginal improvement over existing products. Talk to:
Tools:
| Objective: Change people's way of doing things -- need 10X product improvement over the present. Talk to:
Problems:
Tools:
|
. | Low newness to market | High newness to market |
5/5/98