managing new products or markets through the life- · pdf filefeatures and the marketing mix....

PRODUCT MANAGEMENT INSIGHT 5Simon Wardle | Tarigo Product Management | OCTOBER 2017

Product Management Insight

PAPER FIVE

P R O D U C T M A N A G E M E N T

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Managing New Products or Markets through the Life-CycleA guide to innovation and optimising success at every stage.

PRODUCT MANAGEMENT INSIGHT 5Simon Wardle | Tarigo Product Management | October 2017

Managing New Products or Markets through the Life-Cycle

Product Management Insight / PAPER 5

Product development and innovation are two intimately connected

processes. This paper defines some of the key activities in these processes,

outlines two types of innovation (Sustaining and Disrupting) and identifies

the reasons why product managers need to manage their products

through different stages of market maturity. It also has an example of

these principles from the music distribution industry.

Product Development terms defined For the purposes of this paper we will use the following definitions throughout:

Invention The act of creating or developing a new product or process. Invention results from ideas and moving those ideas to some form of physical or virtual model.

Innovation The process of creating a commercial proposition from an invention. This is where we move into testing, iterating and developing both the product features and the marketing mix.

Imitation The adoption of similar innovations by different firms.

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Marketing Mix Often defined as the 4 Ps of Marketing being Product, Price, Place and Promotion. The management of the 4 Ps is a key function of marketing and product management. For service based propositions, there are an addition 3 Ps of People, Process and Physical environment.

Accepted product development phases

It is widely accepted that to produce long term sustainable profit, companies use a mixture of the following options:

1) Developing brand-new inventions to generate new innovations;

2) Creating imitations;

3) Making changes to the marketing mix of existing propositions.

These options are utilised within the context of the product life cycle stage to maximise return on investment.

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Product Lifecycle

Product lifecycle theory suggests that as markets for a proposition mature, the types of buyers change and their buying criteria differs. As a result, product managers need to vary the marketing mix to maximise proposition consumption and profitability.

The growth, maturity, decline model

New

Pro

duct

s

New

Mar

kets

New

Fea

ture

s

Limited competitionMarket domination potentialLow volumeHigh costHigh failure rate‘Try this’ marketing

Rapid volume increaseCompetitors increaseEconomies of scaleSlightly lower prices‘Buy me’ marketing

Limited growthLower pricesReplacement products

Volumes drop sharplyCompetitors withdrawPrices can riseMarketing effort reduced

Revenue

Profitability

INTRODUCTION GROWTH MATURITY DECLINE

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There is a lot of widely available theory to help product managers formulate the marketing mix according to the phase but at its most simplistic level, buyers in the early stages are initially concerned only about product functionality. As the market matures they move on to being concerned more with reliability or trust, then on to convenience and finally price. Mapping these phases on to the product lifecycle above, you get product functionality as the key in the introduction phase, reliability in the growth phase and convenience and price in the maturity phase.

Looking at the introduction phase in more detail we find that managers developing brand new innovations for new markets need to concentrate on new product inventions as the key part of the marketing mix.

Crossing the chasm theory further develops the theory about how to innovate successfully at this early and difficult phase.

Crossing the Chasm

In his work Geoffrey Moore identifies that as new technology adoption moves from the early adopters to the early majority many firms fall into the chasm – a pit of despair, and often run out of cash leaving the potential to new Imitator competitors. Firms fall into the chasm because the volume provided by the early majority is needed to pay for development costs and to avoid cash starvation. Unfortunately, the early majority buyers do not have the same buying criteria as early adopters, which can cause the progress of the product to stall.

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The main differences are that the majority want the product to meet their needs without significant customisation and inconvenience. This means that all 7 Ps of the marketing mix need to work for them. Earlier adopters will and do tolerate large parts of the mix being wrong as long as at least some of the features deliver to their narrow set of needs.

To overcome some of the difficulties, and to cross the chasm successfully firms should cut the early majority into defined segments with common needs. Then the marketing mix should be set to meet those needs completely. This should result in high market share of that segment. This will generate cash, allowing a repeat of the process with the next priority segment. Keep doing this until all the segments are done and you will find yourself in the Tornado of Growth.

Innovators EarlyAdopters

EarlyMajority

LateMajority

Laggards

TheBIG

SCARYCHASM

inquestion

CROSSING THE CHASMGeoffrey Moore - 1991

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Many companies using traditional product development techniques find this phase extremely difficult. At the heart of the difficulty is the need to make a high number of assumptions against the amount of knowledge you have to make marketing mix decisions. This is called the Assumption to Knowledge Ratio.

Most established companies have built good systems, process and values that support sustaining innovation where the assumption to knowledge ratio is low. What is needed at the early stage however are the systems, processes and values that support high assumption to knowledge ratios. This is the area for disruptive innovation.

Clayton Christensen in his book “The innovators Dilemma” defines Disruptive and Sustaining innovation as ...

“Sustaining innovation comes from listening to the needs of customers in the existing market and creating products that satisfy their predicted needs for the future. Disruptive innovation creates new markets separate to the mainstream; markets that are unknowable at the time of the technologies conception.”

This cements the view that very different processes, values and tools need to be used at different stages of the lifecycle. Early stage development is often performed by entrepreneurs in start-up businesses who are free to experiment with the marketing mix in a climate that supports these activities and accepts the very different risk profile. Sustaining innovation

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takes a product that has history and knowledge and adjusts the marketing mix to suit the growth and decline phases of the market. Later in his book Christensen argues that the very systems and processes used to drive sustaining innovation are sometimes used inappropriately and this leaves those companies vulnerable to disruptive competitors.

One of his arguments is that in trying to research markets that don’t exist the only data you will get will be wrong. So, using sustaining research methods leads to failure in the early markets and opens opportunities to others to imitate having learned the lessons for free. A second argument is that as product managers manage products in the majority phase they are encouraged to continue adding features to the product through sustaining processes and often over supply functionality to an audience that is less concerned with product features. This raises cost and usually price leaving room for a competitor to disrupt with a lower cost simpler proposition.

Example One example that clearly illustrates the cycle of majority, decline, disruption, imitation and sustaining is that of the music delivery media.

A few years ago, the compact disk had taken over from the vinyl record in a sustaining way. Music was still sourced, manufactured and distributed in the same way but the technology to consume it was improved. Prices for CDs had fallen from the early high

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level to something that led to the mass market consuming the product. CD player manufacturers had enjoyed very good margins but the decline in volume growth meant that only the highest volume manufacturers remained profitable.

Along came the MP3 player. Initially, it was clunky and aimed at a small market of people who would be willing to work out the relatively complex process of sourcing music and getting it onto the device. Marketing was aimed at specific segments and growth percentage rates were impressive but the mass market didn’t take off. Along came Apple. Through imitation and sustaining innovation building on the early inventions but adding exceptional design and multi purpose devices they produced solutions that were adopted by a mass market.

This took the technology past the chasm and into the tornado of growth. But the story did not end there.

Spotify came along and offered streaming music that disrupted the remaining market for CDs and the download market that had been initially built by iTunes. Spotify was not the first. In fact many came before but they didn’t gain the segment market share or the stakeholder patience to invest enough cash to avoid the chasm so they remained niche players. As Spotify disrupted iTunes, Apple famously had to reverse a decision it had made publicly about supporting music streaming and launched Apple music. Because of its share of player/

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phone devices and its existing relationships with millions of customers this aspect of the marketing mix allowed it to imitate Spotify and defend its territory.

Finally let’s not forget that the vinyl record is not yet dead. Through marketing, the decline has been reversed and high margins are being achieved admittedly on very small volumes. But it does prove that product decline can often be managed even in the face of overwhelming technological argument using clever marketing mix management.

Summary

Propositions follow a lifecycle that requires different emphasis in the 7Ps of the marketing mix. In order to maximise profit, product managers need to firstly understand at which stage the market is at. If the product is new for a brand-new market then disruptive innovation and its techniques are required to move it beyond the chasm and into the tornado. This will often mean that the product will be born using entrepreneurial skills in a separate organisation. If the market is already in the growth/majority phases or beyond then sustaining innovation techniques are required.

Sustaining techniques require product managers to formulate appropriate marketing mix parameters to maximise the performance through majority and later stages as shown on the next page.

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Highly specialisedand flexible

As volume provides more scale people

needs become moregeneric with still

a large number ofspecialised roles.

Scale & experienceallows for furtherdeskilling with a

few morespecialised

roles.

As volume declineskey specialists are

essential tomaintain life asgeneric roles

reduce.

People

Simple Developing highercomplexity to

support volume.

Stable and scaledto maximiseefficiency.

Simplified toremove cost.

Process

Unimportant More complex to support scaling.

Remaining complexto support scaleand remove unit

cost.

Simplified forlower volumesand to remove

cost.

Physical(or virtual

environment)

INTRODUCTION GROWTH MATURITY DECLINE

Limited modelsFrequent changes

More modelsFrequent changes

Large numberof models

Eliminate unprofitable

models

Productstrategy

Limited wholesale/retail

distributions

Expanded dealersLong termrelations

ExtensiveMargins dropShelf space

Phase outunprofitable

outlets

PlaceDistribution

strategy

AwarenessStimulate demand

Sampling

Aggressive adsStimulatedemand

AdvertisePromote heavily

Phase outpromotion

Promotionstrategy

Higher/recoupdevelopment costs

Fall as result ofcompetition &

efficient production

Prices fall(usually)

Prices stabilizeat low level.

Pricingstrategy

Disruptiveinnovation

Sustaininginnovation



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There is a high need to agree and communicate the appropriate mix for the phase with stakeholders so that product enhancement, pricing changes, promotional variations and sales tools can all be managed within that context. Getting the wrong mix for the phase will drive under performance.

Practically speaking this means including stage information, made up of market share and market growth data, in all stakeholder communication to defend difficult decisions around the marketing mix.

ReferencesGeoffrey Moore, 1998, Crossing the chasm, Capstone.Clayton Christensen, 1997, The innovators Dilemma, Harvard Business Review Press.

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Thousands of product managers, product marketing managers and product directors have benefited from our services in sectors including software, technology, healthcare, financial services and telecommunications.

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Visit: http://www.productmanagementtraining.com/ or call us on +44 (0)161 660 7718

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