Market Driving Strategies Markstrat Introduction 2 Engineers

Market Driving Strategies Markstrat Introduction 2

Engineers’ View 3/17/2018 2

Product Perceptions: Engineers vs. Customers Brand A Brand B Brand C Brand D Technical quality ? Brand C Brand B Brand D Brand A 3/17/2018 ? 3

Customer Perceptions Need 2 +20 Bu SONO SELF Perceptual map based on MDS study SEMI SULI SOLD Hi Pr -20 +20 Si SALT SUS I SAMA SIBI -20 3/17/2018 Ot SIRO Need 1 Key Ot Segment ideal point Perceptual positioning of brands 4

Two Ways to Reposition Perceived Performance R&D Advertising 3/17/2018 Perceived Economy 5

Advertising How do you do it? – Enter perceptual objectives with advertising decisions, either in terms of MDS dimensions or semantic scale dimensions (actual target, not a change) What is the effect? – Immediate effect on customer perceptions, magnitude depends on advertising spending and strength of prior customer perceptions – There is a limit to changing customer perceptions with advertising 3/17/2018 6

Marketing’s Problem For R&D Customer Needs Weight Volume Design Convenience Max. Freq. Performance Power MA SA Price Economy Technical Specifications 3/17/2018 7

New Product Development Give project a name (internal use only) – – – all projects start with a P then S for Sonite project or V for Vodite project remaining 3 characters can be freely chosen Set product characteristics (5 technical attributes) – your call based on your objectives and interpretation of market research and market trends Set base cost – based on your price/margin target and available R&D funds Provide R&D budget – on-line query for immediate information (limited to 7 queries period) – proceed with limited budget (100 K) to obtain perfect feedback from R&D department but takes 1 period to obtain Prof. Markus Christen 8

R&D Budget Depends On Technical specifications – budget required increases with design, power, frequency, autonomy – budget required decreases with volume, weight, diameter Base cost – budget required increases with lower base cost Past experience of R&D department – budget required decreases with number of completed projects – budget required decreases with similarity to completed projects 3/17/2018 9

R&D Budget and Base Cost Do an ‘on-line query’ to obtain immediate feedback – R&D chief pads his estimates – limited to 7 queries period Submit project with limited R&D budget (minimum is $100 K) to obtain perfect feedback – takes 1 year to obtain Prof. Markus Christen 10

Outcomes of R&D Projects PSTOP weight design volume 17 6 85 max. freq. power 35 70 è Minimum base cost: $110 Requested base cost = $80 Requested base cost = $130 – below minimum, R&D uses the minimum feasible base cost of $110 as target – budget needed: $800 K – above minimum, so R&D works with this target cost Budget provided = $1, 000 K – project available at base cost of $110 Budget provided = $300 K – project unsuccessful, R&D says it would need an additional $500 K 3/17/2018 – budget needed: $550 K – project available at base cost of $130 Budget provided = $300 K – project unsuccessful, R&D says it would need an additional $250 K 11

Base Cost Transfer cost A Base cost A current product (initial experience curve) A 1 Current transfer cost A 1 cost reduced product (new experience curve) 100 KU 3/17/2018 225 KU Cumulative production 12

Transfer Costs & Base Cost Experience Curve C = C 0(Q/Q 0)b, b = -. 234 (85%) – C 0: Base Cost – Q 0: 100 K units – Q: Cumulative Production Volume – C: Average Production (Transfer) Cost Prof. Markus Christen 13

Cost Reduction with R&D Transfer cost A Base cost A current product (initial experience curve) B Base cost B A 1 Current transfer cost A 1 cost reduced product (new experience curve) 100 KU 3/17/2018 225 KU Cumulative production 14

IMPORTANT NOTE When you enter the details of an R&D project, make sure that you click the box “Feasibility Study” only when you just want to learn how much it costs to complete. There is a beer on the line here! Prof. Markus Christen 15

Uses of an R&D Project Modify existing brand(s) – keep customer awareness and perceptions associated with brand name but brand has features of new project Launch new brand – target new segment(s) – replace old brand – introduce second brand in same segment –… Shelf it for potential future use Prof. Markus Christen 16

IMPORTANT NOTE Whenever you change the project name associated with a particular brand, two things will happen: – the production experience effect will be lost and changed to the new project – existing inventory becomes obsolete – even in the case of cost reduction R&D Prof. Markus Christen 17

Obsolete Inventory brand modification (name kept) A M SA MA SA M SA A SA obsolete inventory MA A M SA inventory disposal A M SA brand withdrawal 3/17/2018 I'll buy any product at 75% of its transfer cost TRADING COMPANY 18

Things To Remember New product development requires time – think ahead – an R&D project cannot be changed once it is partially completed, but you do not have to complete it if it has no longer any use Brand name – – – advertising helps build brand awareness and image brand image may change slowly there is no overall corporate image Multiple brands – same R&D project can be used to launch multiple brands – these brands share production, but not inventory 3/17/2018 19

Good Luck! 3/17/2018 20