Market Driving Strategies

1. Market Driving Strategies Markstrat Introduction 2

2. Engineers’ View

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

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

5. Advertising R & D Two Ways to Reposition Perceived Performance Perceived Economy

6. 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

7. Customer Needs Economy Performance Convenience Volume Price Power Design Weight Max. Freq. SAMA Technical Specifications Marketing’s Problem For R&D

8. 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 per period) • proceed with limited budget (100K) to obtain perfect feedback from R&D department but takes 1 period to obtain

9. 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

10. 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 per period • Submit project with limited R&D budget (minimum is $100K) to obtain perfect feedback • takes 1 year to obtain

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

12. A1 Current transfer cost A1 225 KU Base Cost Transfer cost A Base cost A current product (initial experience curve) cost reduced product (new experience curve) 100 KU Cumulative production

13. Transfer Costs & Base Cost • Experience Curve C = C0(Q/Q0)b, b = -.234 (85%) • C0: Base Cost • Q0: 100K units • Q: Cumulative Production Volume • C: Average Production (Transfer) Cost

14. B Base cost B A1 Current transfer cost A1 225 KU Cost Reduction with R&D Transfer cost A Base cost A current product (initial experience curve) cost reduced product (new experience curve) 100 KU Cumulative production

15. 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!

16. 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

17. 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

18. SAMA SAMA SAMA SAMA SAMA SAMA Obsolete Inventory I'll buy any product at 75% of its transfer cost brand modification (name kept) obsolete inventory inventory disposal brand withdrawal TRADING COMPANY

19. 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

20. Good Luck!