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Techniques and Concepts for New Products

Below, I describe techniques that are useful to those in marketing consulting. For ambiguities or mistakes on the thumbnail sketches, send e-mail to Scott Armstrong. Revised August 2004.

Action steps: An integral part of any presentation. The idea is to conclude the presentation with a decisive plan of action. In other words, outline the steps that should be taken to implement the stated objective. To do this, it is important to keep in mind the "foot-in-the-door" technique by which one puts forth small steps with a time deadline in the near future; these steps should be ones that can be easily applied by the client.

Blind tests: Tests of the product without knowledge of the other elements of the marketing mix. Example: Ask consumers to test two brands of beer in unmarked glasses. Use this to test for actual (as opposed to perceived) product superiority.

Bootstrapping: See judgmental bootstrapping.

Brainstorming: A highly structured set of rules to enhance creativity. Groups without rules are not as creative as they could be, according to the research. The rules have one major guideline: to reduce evaluation. Groups seem to improve after using brainstorming a number of times. This technique will save groups a great deal of time. To make it work, you need to appoint a facilitator and use a checklist. A more efficient procedure, especially for small groups, is "brainwriting,” where you take a time out during a meeting (say eight minutes) and ask people to write down all their ideas. This is typically used to generate creative solutions, but the problem can be expanded first by brainstorming problems.

Conjoint analysis: A two-step procedure where you first prepare a set of alternative designs (using principles of experimental design that have cleverly been imbedded in this program); then you try to estimate the probability of purchase for various designs. Conjoint programs are popular in business. Design your own experiments and analyze them using regression (all this can be done with a good spreadsheet program). Conjoint software programs are available.

Core benefit proposition: What is the primary benefit that the product/service provides to the consumer?

Decomposition of judgment: One of the basic strategies of management, science; Break a complex problem into pieces, solve each piece, than reassemble. Use for forecasting sales and for decision making (especially for group decision making). Checklist rating scales are one application. Can use for both brainstorming and evaluation.

Delphi: An iterative survey of experts. Use this for evaluation. Delphi provides substantial improvements over ratings by unstructured groups. Freeware provides guidelines and terms to help in the use of Delphi.

Design for assembly: Design the product such that it will be easy to assemble. IBM did this for one of their printers and found that they could greatly reduce the number of parts, thus lowering assembly costs and improving reliability.

Design for use: Design the product so that it will be easy for the customer to use (relies on ergonomics). This step is often poorly done, as you may have noticed.

Devil’s advocate: One person in the group is assigned the task of trying to tear down a proposal. This is a useful procedure for evaluating your venture proposal prior to presenting it to the client. The key is that this be done as a structured approach with group support and that it be used only for a short period (e.g., ½ hour). If you adopt this role without getting permission of the group, you can become unpopular quickly. Note that it is the opposite of the "Build” philosophy.

Diffusion of innovations: The major work is reported n Diffusion of Innovations by Everett Rogers (5th edition, 2003), Free Press (available from amazon.com). The key is to recognize the key elements that aid or inhibit diffusion. For examples of successful product innovations, see the book Breakthroughs, by P. R. Nayak and J.M. Ketteringham (Arthur D. Little consultants). for failed innovations, see R. F. Harley, Marketing Mistakes (available from amazon.com).

Ergonomics: The study of how people interact with machines and products (and services). Protocols are especially useful for learning how people use products (see protocols).

Expert opinion surveys: In contrast to consumer surveys, expert surveys can be done with small samples. the technology is similar. See surveys and Delphi.

Experimentation: To learn about the optimal price to charge for a frequently purchased product, it is necessary to depart from what one believes to be the optimal procedure - that is, to experiment.

Expert opinion surveys: In contrast to consumer surveys, expert surveys can be done with small samples. The technology is similar (see surveys). 

Focus group: Same procedure as nondirective interview only done on a group basis. A popular and overused technique. Costs more than $2,000 per session, but you can do a decent job (with friends) at a low cost. Used early in project to generate ideas (e.g., about target market needs), but only useful in rare situations. Potentially useful for ideas about products that are highly visible such that a buyer’s decision is based heavily on what others think of him (have you ever heard of a professor who dives a Cadillac?) One cannot draw statistical inferences from focus groups. Interestingly, the skill requirements to run a focus group are not high. In general, non-directive interviewing with individuals (group depth interviews) are more effective. For more, see focus groups.

Foot-in the-door: Select a small operational step and set a time deadline. The foot-in-the door technique is useful for gaining commitment, such as in presentations to get seed money or venture capital. Use on yourself to experiment with new techniques.

Formal planning: Improves group performance only when the group is small enough to reach commitment. Has four stages: (1) set objectives (2) generate alternative strategies, (3) evaluate strategies, and (4) monitor results. New product introductions that do each step explicitly are more likely to succeed. In practice, few firms do this. See Systems Approach, Marketing Planning, and Planning Process Checklist.

Intentions surveys: Ask people whether they intend to purchase your product. In some cases this can provide a useful way to forecast.

Judgmental bootstrapping: [As used in forecasting and decision making, not in statistics and computer science.] The development of a model of an expert by inferring the experts’ rules. This is analogous to conjoint analysis except that a small number of experts is used, rather than a large number of potential customers. The expert is presented with a set of situations, say 20, and is asked to make predictions (or decisions) for each. Regression analysis is then used to infer the rules. Judgmental bootstrapping can be used to forecast sales for products having alternative designs and alternative marketing mixes. Few consulting firms offer this approach, and few organizations use it (the Dallas Cowboys being one that did).

Marketing concept: Product design (as well as the rest of the marketing mix) should start with the customer and it should look at the customers’ needs first at the highest conceptual level. In practice, this is typically an expensive and difficult approach.

Marketing planning framework: This framework first assesses the marketing objectives as well as the current and future status of the environment (both internal and external). The next step is to find opportunities/problems that exist within the market and to translate these into action steps involving the marketing mix. After a marketing program is designed, it is then carried out and monitored. The monitoring process brings us back to square one where we reevaluate the objectives, environmental status, and implementation of the plan, and then judge the effectiveness of the marketing plan. This framework enables one to keep abreast of the changing needs of the consumer, the environment, and the four P’s. For more, see Marketing Planning.

Monitoring: A formal process to review the performance against the plan.

Multi-dimensional scaling: Consumer needs are described in terms of their most important dimensions. Descriptions of existing products are then plotted in the same space. This allows one to identify products that are closer to the needs of some consumers. For this course, I suggest doing this using only two dimensions so it can be done using paper and pencil. The cost of this approach goes up rapidly as dimensions are added.

NPV: Net present value. New products often require early expenditures in hopes of later returns. Thus, you should determine a cost-of-capital (given the level of risk) and apply this to the profit stream (or, more accurately, to the cash flow stream). In addition to an expected NPV, you should also estimate the confidence intervals to reflect the risk involved in the venture.

Parallel processing: Divide your group into two or more subunits and have each unit independently solve the same problem. Then compare the results to select the best solution (or to modify it). Parallel processing is useful for creativity and it also helps to guard against mistakes in analyses (two separate analysts are unlikely to make the same mistakes).

Portfolio matrix: Portfolio matrices are used to aid in determining the proper set of product that the firm should have. The BCG or Boston Consulting Group Matrix is one of a number of such aids. It classifies products into four categories using the dimensions of relative market share and the growth in the market. See Portfolio Planning Exercise and Portfolio Planning Presentation.

Product liability: What legal risks are posed when you sell a product? This area has changed greatly in the U.S., such that product liability exposure is one of the major cost elements for many products. It affects large firms more than small firms. It is also an area that affects U.S. firm more than foreign competitors.

Product life cycle The marketing plan will differ depending on what stage the product is in: Introduction, growth, maturity, or decline.

Product/market opportunity matrix: A guide to searching for new business opportunities according to changes in new versus old products, and new versus old markets. The sources of information and strategies would vary according to which of the four resulting categories one is examining.

Protocols: An examination of people as they use a product. People are asked to talk as they learn to use a product. This provides ideas for product design and for product instruction booklets and warnings.

Representativeness: People expect things to be associated and this leads them to draw inferences that sometimes defy logic. The implication is that the various pieces of a new product design might reflect what people expect, rather than what logic demands. Sometimes adding a good feature to an existing product may lessen the perceived value of the product because the new feature is representative of something that the customer does not like.

Role playing: People are assigned to play the roles of people in given situations, such as a price negotiation. They try to "pre-enact" the situation to see what happens when various strategies are employed. For example, Lockheed Aircraft acted out how its customers (airlines) would react to alternative aircraft designs.

Scenarios: Written stories that describe the future. They should be written like a short story and should be in the past tense. Typically one uses a benchmark scenario (trends continue) an ideal scenario (start with the ideal and work backwards. Scenarios are misleading when it comes to forecasting, but they are highly effective in gaining commitment to future courses of action. Especially useful when large changes are contemplated (see How to Gain Acceptance for Change).

Second solution: Assume that a group's preferred solution is not feasible. Develop a new solution. Now compare the new solution with the old and decide which is best.

Segmentation: Describe the key market segments that you are serving (using expert panels or using procedures such as multidimensional scaling and survey research). Then develop products (and a supporting marketing plan) for each segment.

Simulated interaction: A realistic acting out of the relationships involved in a situation. This technique asks subjects to reach decision by going through the same typed of interactions as might occur in the real situation (e.g., in meetings or by exchanging messages). It has been found to be especially useful for situations involving conflicts among groups. See paper by Green (2002).

Stakeholder analysis: The success of a firm depends upon the cooperative efforts of various groups that make contribution (e.g., stockholders, employees, creditors, customers, suppliers). When proposing a new product, consider the opinions from each group and what would be a satisfactory reward for each group.

Structured analogies:  Experts are asked to think of situations similar to a current situation. The decision is made in those analogous situations are summarized and used to forecast for the current situation. See Green and Armstrong working paper.

Sunk cost: Consider only those things that vary with the decision. Whether you should proceed with a new product venture should depend only on the NPV at the time that you are making a reevaluation. Then recognize that this is not how most managers perceive things. So you must consider how to implement a decision that will strike most people as irrational, when the decision would change if you considered sunk costs. On the positive side, you can use this to your advantage (see foot-in-the-door, above).

Survey research: Useful for assessing customer needs and also to assess expert opinion about how customers will react to an ad. Extensive research has led to effective procedures - the best summary of these is in Don Dillman's  Mail and Internet Surveys. It is easy to look at a survey and tell whether the creators have used the research in designing it. For more, see surveys.

SWOT (Strenths, Weaknesses, Opportunities, and Threats). Do not use SWOT. There is no evidence that it works. To the contrary, it has detrimental side effects.

Synectics: Brainstorming and the use of analogies.

Systems approach: Look first at objectives, then at alternative strategies. In each case, start at the highest conceptual level, then make the objectives and strategies more operational. It sounds easy, but it requires much time and discipline. Enables people to go outside of current solutions and to produce rational yet often very surprising solutions. I sometimes get calls from former students telling me how they used this procedure to come up with unusual and effective solutions that differed greatly from the existing thinking in their company. For details, see Systems Approach.

Time line: The process of allocating one's time in accordance with the tasks they must accomplish. This method allows one to break down their jobs in meaningful, do-able parts. One of the essential components of a time budget is slack time. With the inclusion of slack time, one can deal with the inevitable setbacks without upsetting their schedules. Using a PERT (Program Evaluation and Review Technique) chart is one way of creating a time budget. Also related is CPM, the Critical Path Method. Do the time line, show relationships, and estimate times. Then figure what path is determining the time to completion. You might then consider changes to this critical path to shorten the time or to introduce slack. (See Planning Process Checklist)

Venture teams: An organizational design to introduce the innovative spirit into large companies. It was pioneered long ago by companies such as 3M and duPont. The notion is to provide seed money to support the development of a new product. At the same time, the team is freed of day-to-day operational demands (that’s because a focus on short-term deadlines seems to dominate how people spend their time), If the project is promising, the team members have the opportunity to implement this venture. If the venture is successful, the team has the opportunity of being the top management of this new business.

Virtual group: A group in which members work on a common problem, yet they do not meet face-to-face. They might interact in other ways, such as via telephone, email, or websites - or they might not interact at all. Delphi is a form of a virtual group that allows for some interaction. Markets are another form, but they do not provide for interaction among group members. Virtual groups avoid many of the problems of groups, such as "group-think." Thus, they use information more effectively and they save time. In face-to-face groups, influence depends on such irrelevant things as how much people talk (people who talk more do not necessarily know more) and gender (males talk much more than females). In virtual groups, influence depends more on performance. Finally, because of the need to write, virtual groups leave a paper trail that aids in communication.