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DEVELOPING NEW PRODUCTS FOR

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CHAPTER 11 DEVELOPING NEW PRODUCTS FOR GLOBAL MARKETS Sources of New Product Development #8 Alliances for New Product Development Companies are using alliances or the ... – PowerPoint PPT presentation

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Title: DEVELOPING NEW PRODUCTS FOR


1
CHAPTER 11
  • DEVELOPING NEW PRODUCTS FOR
  • GLOBAL MARKETS

2
CHAPTER OUTLINE
  1. Introducing products into foreign markets
  2. Developing a global product
  3. New product development processes for Global
    markets
  4. Introducing new products to global markets

3
DEFINITIONS
  • PRODUCTS Anything that can be offered to a
    market for attention, acquisition, use or
    consumption that might satisfy a want or need.
    It includes physical objects, services, places,
    organizations, ideas and people.
  • GLOBAL MARKETING - A total commitment to
    international marketing, in which a company
    applies its assets, experience and products to
    develop and maintain marketing strategies on a
    global scale.

4
What are new products?
  • New product line
  • Addition to product line
  • Repositioning to new market segments
  • Improvements/revisions
  • Cost reductions
  • Source Booz, Allen Hamilton

5
  • 1. INTRODUCING PRODUCTS INTO
  • FOREIGN MARKETS
  • STRATEGIC OPTIONS
  • EXTENSION STRATEGY
  • Same approach as home market
  • ADAPTATION STRATEGY -
  • Makes changes to fit new market requirements
  • INVENTION STRATEGY -
  • Entirely new approach is developed for
  • the new market

6
  • STRATEGIC OPTIONS
  • 4. STANDARDIZATON
  • Same product, all markets
  • 5. GLOBAL PRODUCTS -
  • Only some aspects of the product is standardized

7

OPTION 1. PRODUCT EXTENSION COMMUNICATION
EXTENSION
  • Product Strategy Communications
    Strategy Highlight
  • Extension Extension Standardized product with
    same
  • communications strategy across the
  • globe.
  • - This strategy is Cost effective
  • - Allows for greater economies of
  • scale
  • - Rarely used for consumer type
  • products except soft drink and some luxury
    type goods
  • -Used mainly for industrial type
  • products

8

OPTION 2. PRODUCT EXTENSION COMMUNICATION
ADAPTATION
  • Product Strategy Communications
    Strategy Highlight
  • Extension Adaptation Standardized product with
    different
  • communications strategies across the
  • globe.
  • - Cost effective because communications
    adaptation is
  • less expensive than the tailoring
  • product to a local market.
  • - Can be used for consumer type products
    eg. Bicycles

9

OPTION 3. PRODUCT ADAPTATION - COMMUNICATION
EXTENSION
  • Product Strategy Communications
    Strategy Highlight
  • Adaptation Extension Changes made to the
    product, same communications strategy across
    the globe.
  • - Product formulations are changed
  • without consumers knowing it. E.g.
  • detergents
  • - Entails research, development
  • expenses and tooling costs.
  • - Do not allow for economies of scale
  • to the extent possible under an product
    extension strategy
  • - savings can be realized from the
    creation of a single communications
    strategy

10

OPTION 4. PRODUCT ADAPTATION - COMMUNICATION
ADAPTATION
  • Product Strategy Communications
    Strategy Highlight
  • Adaptation Adaptation Dual adaptation Cha
    nges made to the product, changes made to
    communications strategy
  • - Recognizes the socio-cultural
  • differences from country to country
  • -To make this option profitable, the
    foreign market or markets need to be of
    sufficient volume
  • - Calls for extensive research and
    development expenses and tooling costs

11

OPTION 5. PRODUCT INVENTION
  • Product Strategy Communications
    Strategy Highlight
  • Invention Develop new communications Usually
    redesigning of an original product at a
    lower level of
  • complexity.
  • - Recognizes the socio-cultural
  • and economic differences from country to
    country
  • -Leads to more purchases as a result of
    the reinvention of the product

12
Global Product Planning
Product Extension, Communications Adaptation (2)
Different
Dual Adaptation (3)
Communications
Product Invention (5)
Product Adaptation, Communication Extension (3)
Same
Dual Extension (1)
Same
Adapt Product
Develop New Product
Product
13
STANDARDIZATION VS ADAPTATION
  • Factors encouraging product standardization
  • Economies of Scale in
  • Production
  • Marketing/communications
  • Research Development
  • Stock Holding

14
STANDARDIZATION VS ADAPTATION CONTINUED
  • Easier management and control i.e. familiarity
  • Homogeneity of markets, in other words markets
    available without adaptation e.g. denim jeans
  • Cultural insensitivity (except industrial and
    agricultural products)
  • Where made in image is important to a
    products perceived value e.g. France for
    perfumes, Sheffield for stainless steel

15
STANDARDIZATION VS ADAPTATION CONTINUED
  • For a firm selling a small proportion of its
    output overseas, the incremental costs may exceed
    the incremental sales value
  • Consumer mobility for travellers/tourists for
    example standardization is expected in certain
    products
  • Camera film
  • Hotel Chains

16
STANDARDIZATION VS ADAPTATION CONTINUED
  • Factors encouraging adaptation/modification
  • Mandatory Modification
  • Normally involves either adaptation to comply
    with government requirements or
  • Unavoidable technical changes
  • Example Car manufacturer

17
STANDARDIZATION VS ADAPTATION CONTINUED
  • Legal requirements can include
  • Specified exhaust emission levels (HSE Laws
    strict emission standards)
  • Local components (economic law)
  • Technical requirements such as
  • Modification of heating/cooling systems for
    different climates
  • Engine modification to use locally available fuels

18
Discretionary Modifications
  • This is called for to make the product more
    appealing in different markets. It is as a result
    of differing customer needs, preferences and
    tastes that market research, customer feedback
    among others may reveal.
  • Levels of customer purchasing power low incomes
    makes cheaper version of product more appealing
    in some less developed countries
  • Levels of education and technical sophistication
    ease of use may be a crucial factor in
    decision-making
  • Standards of maintenance/repair facilities
    simpler more robust versions may be needed

19
2. DEVELOPING A GLOBAL PRODUCT
  • In order to remain competitive, firms often have
    to reduce their costs. Usually the production of
    standardize products provides cost advantage,
    however this strategy is not as common. Many
    firms now employ new strategies
  • 1. Global Product Development strategy
  • 2. Modularity

20
The Global Product Development Strategy
  • A portion of the final product is standardized.
    However, the design retains some flexibility so
    that the end product can be tailored to the needs
    of individual markets.
  • - This represents a move to standardize as much
    as possible those areas involving common
    components or parts.

21
The Global Product Development Strategy
  • Modularity
  • This process involved the development of
    standard modules that can easily be connected
    with other standard modules to increase the
    variety of products.
  • E.g General Motors has established a modular
    product architecture for all its global
    automobile products. Future GM cars will be
    designed using combination of components from 70
    different body modules and about a hundred major
    mechanical components (e.g. Engines, power
    trains, and suspension systems)

22
3. NEW PRODUCT DEVELOPMENT PROCESSES FOR GLOBAL
MARKETS
  • Developing new products or services for global
    markets poses unique challenges.
  • To combat these challenges, the international
    firm can assign development responsibilities to
    any one of its international subsidiaries. The
    success however will depend on how well the firm
    marshals its resources on a global scale to
    develop new products for foreign markets.

23
Steps in New Product Development process
  • Idea Generation
  • Idea Screening
  • Concept Development Testing
  • Marketing Strategy Development
  • Business Analysis
  • Small Batch Prototype Development
  • Product Development Testing
  • Test Marketing
  • Commercialization / Launch

24
Sources of New Product Development
  • 1. Head office
  • 2. Lead markets
  • 3. Subsidiaries
  • 4. Purchasing research and development
  • 5. Importing new product technology
  • 6. Acquisitions
  • 7. Joint ventures
  • 8. Alliances
  • 9. Consortia

25
Sources of New Product Development 1The
organization of Head Office-Sponsored Research
and Development
  • Research and development for the introduction of
    new products is originally conducted in
    centralized facilities in the firms domestic
    market.
  • The largest portion of research and development
    monies spent by international firms goes to
    support efforts in domestically located
    facilities.
  • Initial introduction at home is followed by a
    phase-in introduction to the companys foreign
    markets.

26
The organization of Head Office-Sponsored
Research and Development
  • Reasons for Head Office-sponsored Approach
  • 1. RD is centralized so there is an integrative
    strategy with regards to product development. To
    achieve this there must be frequent contacts and
    interfacing between RD facilities and the
    companys main office.
  • 2. To minimize duplication
  • 3. For the effective and efficient utilization
    of scarce research funds
  • 4. To capitalize on the firms experience in
    their domestic market.

27
Sources of New Product Development 2
International Leads Markets and Research and
Development
  • The lead market is a market whose level of
    development exceeds that of the market in other
    countries worldwide and whose developments tend
    to set a pattern for other countries.
  • Lead markets are not restricted to technological
    developments as embodied in product hardware.
  • Lead market advantage based on superior design,
    advanced features, function and quality,
    production processes, patterns in consumer
    demand, methods of marketing. (Any phase of the
    operation is subject to lead market influence)

28
Sources of New Product Development 3The Role of
Foreign Subsidiaries in Research Development
  • Subsidiaries
  • o   Subsidiaries may assume RD function if
    products require some adaptation to a local
    market
  • o   Foreign subsidiaries of international firms
    rarely play an active role in the RD unless they
    have manufacturing responsibilities and
    capabilities
  • o   Sales subsidiaries provide central
    organization with feedback on product adjustments
    or adaptation, but generally their participation
    does not go beyond the generation of ideas.
  • o   A subsidiary located in a lead market is in a
    better position to observe developments and to
    accommodate new demands and can therefore act as
    an effective listening post

29
Roles of involvement for the subsidiary
  • Strategic leader role
  • With responsibility for developing a new range of
    products to be used by the entire company. This
    role will be handled by a highly competent
    subsidiary in a market of strategic importance.
  • Contributor
  • This role would be assumed by a subsidiary in a
    distinct area and the subsidiary will adapt some
    products in smaller though important markets
  • Implementer
  • These are smaller subsidiaries located in less
    strategic markets that act as implementers of the
    overall strategy without making a major
    contribution to either technology or strategy

30
Sources of New Product Development 4Purchasing
Research and Development from Foreign Countries
  • A company may acquire material or information
    from independent outside sources that have
    acquired lead market status.
  • How?
  • Literature published in lead markets
  • Regular visits to foreign countries
  • Trade fairs
  • Management contact with lead markets
  • These are admittedly ad hoc measure though.

31
Sources of New Product Development 5Importing
as a Source of New Products
  • Some companies import finished products directly
    from a foreign firm to supplement their product
    lines.
  • This is usually done in areas that do not
    represent the core of the firms business and
    technology, and is used to extend the product
    offering.

32
Sources of New Product Development 6Acquisition
as a Route to New Products
  • Advantages
  • Efficient, cost-effective way to create a new
    product instead of trying to conceptualize, RD
    and launch new products from the ground up.
  • Overcomes the process of acquiring technological
    experience
  • Establish supplier relationships
  • Circumvents need for large Advertising
    Promotional Budgets to gain visibility brand
    recognition

33
Sources of New Product Development 7Joint
Ventures for New Product Development
  • Usually pursued with technologically advanced
    foreign company usually at lower costs
  • Good way to pursue an opportunity that is too
    complex, uneconomical or risky for a single
    organization to pursue alone
  • Provide entry into desirable foreign markets when
    access is restricted by government
  • Used when opportunities in new industry require
    broader range of competencies that any one
    company can marshal

34
Sources of New Product Development 8Alliances
for New Product Development
  • Companies are using alliances or the Consortium
    Approach to share technology and RD to gain
    competitive advantage
  • Consortium Approach member firms join in
    working relationship without forming a new
    entity. On completion of assigned task, member
    firms are free to seek other relationships with
    different firms.

35
4. INTRODUCING NEW PRODUCTS TO GLOBAL MARKETS
  • Once a product has been developed for commercial
    introduction, the following decisions need to be
    made
  • - Test Marketing procedure
  • - The target country
  • - The timing or sequence of introduction into
    foreign market
  • These decisions are influenced by sales
    potential. Following careful analysis, a list of
    target countries is developed, then the company
    will choose from among several paths to the
    actual introduction in the target
    country/countries.

36
Determining Introduction in target countries
  • Concept Test
  • This involves presenting the product concept to
    appropriate target consumers and getting their
    reactions. The concepts can be presented
    symbolically or physically. However the more the
    tested concepts resembles the final product or
    experience, the more dependable concept testing
    is.
  • In recent times, companies are also using
    virtual reality to test product concepts. This
    entails the use of sensory devices to stimulate
    reality.

37
Test Marketing
  • Test Market
  • 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
    the sales force tries to sell the trade on
    carrying the product and giving it good shelf
    exposure, full advertising and promotional
    strategy, similar to the one use in the home
    market.
  • Simulated Test Marketing
  • This entails finding 30 to 40 qualified shoppers
    and questioning them about brand familiarity and
    preference in a specific product category.

38
Test Marketing
  • Controlled Test Marketing
  • In this method, the number of geographic
    locations are tested. The product is delivered
    to the participating stores and the product is
    placed in a strategic position. Sales results
    will be measured electronically through scanners
    at the checkout.

39
Timing of New Product Introduction
  • Market-entry timing is critical. A company may
    be faced with the challenge of trying to enter a
    market with a new product and learns that a
    competitor is nearing the end of its development
    work. The company faces three choices
  • First entry
  • Parallel entry
  • Late entry

40
Timing of New Product Introduction continued
  • First Entry
  • The first firm entering a market usually enjoys
    first mover advantages of locking up key
    distributors and customers while gaining the
    reputation of product leader. If the product is
    rushed before to market before it is thoroughly
    debugged, the product can acquire a flawed image.

41
Timing of New Product Introduction Continued
  • Parallel Entry
  • The firm might time its entry to coincide with
    the competitors entry. The market may pay more
    attention when two companies are advertising the
    new product.
  • Late Entry
  • The firm might delay its launch until after the
    competitor has entered. The competitor will have
    borne the cost of educating the market. The
    competitors product may review faults the late
    entrant can avoid.

42
Timing of New Product Introduction continued
  • Timing decisions involves additional
    considerations
  • - If the new product replaces an older product,
    the company might delay the introduction until
    the old products stock is drawn down.
  • - If the product is highly seasonal, it might be
    delayed until the right season arrives.

43
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