Market Driving Strategies Markstrat Introduction 2

Market Driving StrategiesMarket Driving Strategies

Markstrat Introduction 2Markstrat Introduction 2

Prof. Markus ChristenProf. Markus Christen 22

Base CostBase Cost

$

min. 10

WeightWeight

10 - 20

Kg

Max. FrequencyMax. Frequency

5 - 50

kHz

DesignDesign

3 - 10

Index

PowerPower

5 - 100

W

VolumeVolume

20 - 100

dm3

Base CostBase Cost

$

min. 10

$

min. 10

WeightWeight

10 - 20

Kg

10 - 20

Kg

Max. FrequencyMax. Frequency

5 - 50

kHz

5 - 50

kHz

DesignDesign

3 - 10

Index

3 - 10

Index

PowerPower

5 - 100

W

5 - 100

W

VolumeVolume

20 - 100

dm3

20 - 100

dm3

Base CostBase Cost

$

min. 10

AutonomyAutonomy

5 - 100

mMax. FrequencyMax. Frequency

5 - 20

kHz

DiameterDiameter

10 - 100

mm

DesignDesign

3 - 10

Index

WeightWeight

10 - 100

g

Base CostBase Cost

$

min. 10

$

min. 10

AutonomyAutonomy

5 - 100

m

5 - 100

mMax. FrequencyMax. Frequency

5 - 20

kHz

5 - 20

kHz

DiameterDiameter

10 - 100

mm

10 - 100

mm

DesignDesign

3 - 10

Index

3 - 10

Index

WeightWeight

10 - 100

g

10 - 100

g

Engineers’ ViewEngineers’ View


Product Perceptions:Product Perceptions:Engineers vs. CustomersEngineers vs. Customers

Technical quality

BrandBrandAA

BrandBrandBB

BrandBrandCC

BrandBrandDD

BrandBrandCC

BrandBrandAA

BrandBrandBBBrandBrand

DD

?

?


Customer PerceptionsCustomer Perceptions

Perceptual mapbased on MDS study

Key

Perceptual positioningof brands

Segment ideal pointOt

Need 2Need 2

Need 1Need 1

+20

+20

-20

-20

SELF

PrHi

Bu

Si

Ot

SEMI

SONO

SOLD

SULI

SAMA

SUSI

SALT

SIBI

SIRO


Two Ways to RepositionTwo Ways to Reposition

R & DR & D

AdvertisingAdvertising

PerceivedPerceivedEconomyEconomy

PerceivedPerceivedPerformancePerformance


AdvertisingAdvertising

How do you do it?How do you do it?– Enter perceptual objectives with advertising Enter perceptual objectives with advertising

decisions, either in terms of MDS dimensions or decisions, either in terms of MDS dimensions or semantic scale dimensionssemantic scale dimensions(actual target, not a change)(actual target, not a change)

What is the effect?What is the effect?– Immediate effect on customer perceptions, Immediate effect on customer perceptions,

magnitude depends on advertising spending magnitude depends on advertising spending and strength of prior customer perceptionsand strength of prior customer perceptions

– There is a limit to changing customer There is a limit to changing customer perceptions with advertisingperceptions with advertising


Marketing’s Problem For R&DMarketing’s Problem For R&D

EconomyEconomy PerformancePerformance ConvenienceConvenience

Customer NeedsCustomer NeedsCustomer NeedsCustomer Needs

SAMASAMA

Pri

cePri

ce

Pow

er

Pow

er

Max.

Freq

.M

ax.

Freq

.

Desi

gn

Desi

gn

Volu

me

Volu

me

Weig

ht

Weig

ht

Technical SpecificationsTechnical SpecificationsTechnical SpecificationsTechnical Specifications


New Product DevelopmentNew Product Development

Give project a name (internal use only)Give project a name (internal use only)– all projects start with a Pall projects start with a P– then S for Sonite project or V for Vodite projectthen S for Sonite project or V for Vodite project– remaining 3 characters can be freely chosenremaining 3 characters can be freely chosen

Set product characteristics (5 technical attributes)Set product characteristics (5 technical attributes)– your call based on your objectives and interpretation of market your call based on your objectives and interpretation of market

research and market trendsresearch and market trends

Set base costSet base cost– based on your price/margin target and available R&D fundsbased on your price/margin target and available R&D funds

Provide R&D budgetProvide R&D budget– on-line query for immediate information (limited to 7 queries on-line query for immediate information (limited to 7 queries

per period)per period)– proceed with limited budget (100K) to obtain perfect feedback proceed with limited budget (100K) to obtain perfect feedback

from R&D department but takes 1 period to obtainfrom R&D department but takes 1 period to obtain


R&D Budget Depends OnR&D Budget Depends On

Technical specificationsTechnical specifications– budget required increases with design, power, budget required increases with design, power,

frequency, autonomyfrequency, autonomy– budget required decreases with volume, weight, budget required decreases with volume, weight,

diameterdiameter

Base costBase cost– budget required increases with lower base costbudget required increases with lower base cost

Past experience of R&D departmentPast experience of R&D department– budget required decreases with number of budget required decreases with number of completedcompleted

projectsprojects– budget required decreases with similarity to budget required decreases with similarity to completedcompleted

projectsprojects


R&D Budget and Base CostR&D Budget and Base Cost

Do an ‘on-line query’ to obtain Do an ‘on-line query’ to obtain immediate feedbackimmediate feedback– R&D chief pads his estimatesR&D chief pads his estimates– limited to 7 queries per periodlimited to 7 queries per period

Submit project with limited R&D Submit project with limited R&D budget (minimum is $100K) to obtain budget (minimum is $100K) to obtain perfect feedbackperfect feedback– takes 1 year to obtaintakes 1 year to obtain


weight designvolume max. freq. power

17 6 85 35 70PSTOPPSTOP Minimum base cost: $110

Requested base cost = $80Requested base cost = $80– below minimum, R&D uses below minimum, R&D uses

the minimum feasible base the minimum feasible base cost of $110 as targetcost of $110 as target

– budget needed: $800Kbudget needed: $800K

Budget provided = $1,000KBudget provided = $1,000K– project available at base cost project available at base cost

of $110of $110

Budget provided = $300KBudget provided = $300K– project unsuccessful, R&D project unsuccessful, R&D

says it would need an says it would need an additional $500Kadditional $500K

Requested base cost = $130Requested base cost = $130– above minimum, so R&D above minimum, so R&D

works with this target costworks with this target cost

– budget needed: $550Kbudget needed: $550K

Budget provided = $1,000KBudget provided = $1,000K– project available at base cost project available at base cost

of $130of $130

Budget provided = $300KBudget provided = $300K– project unsuccessful, R&D project unsuccessful, R&D

says it would need an says it would need an additional $250Kadditional $250K

Outcomes of R&D ProjectsOutcomes of R&D Projects


Base CostBase Cost

Transfer costTransfer cost

Cumulative productionCumulative production

A

current product (initial experience curve)

cost reduced product(new experience curve)

100 KU

A1

225 KU

Currenttransfer cost A1

Base cost A


Transfer Costs & Base Cost Transfer Costs & Base Cost

Experience CurveExperience Curve

C = CC = C00(Q/Q(Q/Q00))bb, b = -.234 (85%), b = -.234 (85%)

– CC00: Base Cost: Base Cost

– QQ00: 100K units: 100K units

– Q: Cumulative Production VolumeQ: Cumulative Production Volume– C: Average Production (Transfer) CostC: Average Production (Transfer) Cost


Cost Reduction with R&DCost Reduction with R&D

Transfer costTransfer cost

Cumulative productionCumulative production

A

current product (initial experience curve)

cost reduced product(new experience curve)

100 KU

A1

225 KU

Currenttransfer cost A1

Base cost A

B

Base cost B


IMPORTANT NOTEIMPORTANT NOTE

When you enter the details of an When you enter the details of an R&D project, make sure that you R&D project, make sure that you click the box “Feasibility Study” only click the box “Feasibility Study” only when you just want to learn how when you just want to learn how much it costs to complete.much it costs to complete.

There is a beer on the line here!There is a beer on the line here!


Uses of an R&D ProjectUses of an R&D Project

Modify existing brand(s)Modify existing brand(s)– keep customer awareness and perceptions keep customer awareness and perceptions

associated with brand name but brand has associated with brand name but brand has features of new project features of new project

Launch new brandLaunch new brand– target new segment(s)target new segment(s)– replace old brandreplace old brand– introduce second brand in same segmentintroduce second brand in same segment– ……

Shelf it for potential future useShelf it for potential future use


IMPORTANT NOTEIMPORTANT NOTE

Whenever you change the project Whenever you change the project name associated with a particular name associated with a particular brand, two things will happen: brand, two things will happen: – the production experience effect will be the production experience effect will be

lost and changed to the new project lost and changed to the new project – existing inventory becomes obsolete – existing inventory becomes obsolete –

even in the case of cost reduction R&Deven in the case of cost reduction R&D


Obsolete InventoryObsolete Inventory

SAMA

SAMASAMA

SAMASAMA

SAMA

brandbrandmodificationmodification(name kept)(name kept)

brandbrandwithdrawalwithdrawal TRADING TRADING

COMPANYCOMPANY

I'll buy any product at 75% of itstransfer cost

inventoryinventorydisposaldisposal

obsolete obsolete inventoryinventory


New product development requires timeNew product development requires time– think aheadthink ahead– an R&D project cannot be changed once it is partially an R&D project cannot be changed once it is partially

completed, but you do not have to complete it if it has completed, but you do not have to complete it if it has no longer any useno longer any use

Brand nameBrand name– advertising helps build brand awareness and imageadvertising helps build brand awareness and image– brand image may change slowlybrand image may change slowly– there is no overall corporate imagethere is no overall corporate image

Multiple brandsMultiple brands– same R&D project can be used to launch multiple brandssame R&D project can be used to launch multiple brands– these brands share production, but not inventorythese brands share production, but not inventory

Things To RememberThings To Remember


Good Luck!Good Luck!

Documents

Market Driving Strategies Markstrat Introduction 2