PRODUCT DEVELOPMENT (and some other marketing stuff...

Product development has many definitions, one of which is: the process of getting a
product ready for delivery to a target market.

Inherent in this definition is the idea of finding a target market. Product development
usually starts with segmentation. This means that a company must find a feasible
customer group that will be interested in the product. Segmentation can be based on
context, demographics, psychographics, and lifestyle characteristics. This can be very
challenging, especially when a product may be feasible for a number of different
segments. The process of choosing a segment is called targeting. Here is a sample
segmentation matrix:

Targeting, in contrast to segmentation, utilizes the most significant segmentation

characteristics to identify the segment that represents the greatest value and fit for the
company. This is especially important to startups because of limited resources.
Targeting may also involve understanding the dynamics of reach and channel
development. In other words, a new startup has to balance its resources and capabilities
with a target market. Targeting can also be thought of as customer selection. That’s why
Abell’s framework and the Timmon’s model are helpful. These models help us visualize
the fit between company capabilities and market opportunity and allow a focused
strategy. It is rarely advisable to target multiple segments or to wait for a segment to
emerge (it’s expensive). Once a target is identified, positioning the product within the
segment is the next step.

Positioning refers to the customers’ perception about a product and creating a desired
impression relative to competitors and relative to the attributes that customers value most.
A positioning map is very useful for this purpose. The following example illustrates a
positioning map for cars based on price and fuel economy, two important attributes to car
buyers.

Another issue for company’s developing new products, or technology products, is the
amount of research and development needed to make a technology ready for the market.
The ENOX case illustrates this point perfectly. Just because a technology provides
superior performance and solves important problems does not make it feasible in the
market place. Other modifications, based on certain customer segments and their unique
needs, may place extreme burden on the new company.

This leads to the next phase of product development (and marketing in general): the
marketing mix. The marketing mix refers to the 4P’s of product, price, promotion, and
place.

Product is a very important concept and can be broken into core and augmented
products. Core products are mainstream to the business, while augmented products are
closely related to the core product. Central to product development is the notion of value
proposition. A product must be differentiated in such a way that the value is maximized
and clear to the consumer. Again, think of ENOX. The company has worked with two
very different segments with very different needs. Each segment has a very different
view of the value of ENOX’s product. Product development also becomes important in
the context of the product lifecycle because each stage in the product lifecycle requires a
different marketing strategy, possibly new product attributes, or an entirely new product.
The next step is to develop a pricing strategy.

Price is extremely important. Price too high and you can price yourself out of the
market. Price to low and forget about raising prices for higher margins in the future. In
addition, you certainly do not want to price lower than variable costs or the company will
be selling at a loss. While variable costs seem obvious, the new company must also
cover fixed costs. This situation leads many entrepreneurs to set prices based on
financial reasons. The most common form of pricing involves a cost-based method
where the price represents the summation of variable and fixed costs plus a desired profit
margin. The problem with this method is that it ignores the value proposition. Perceived
value pricing is a method whereby a product is priced based on customer perceived
value. The ENOX case illustrates a possibility to value price. If the gas transmission
companies have large costs for redesigning engines, ENOX may be able to offer a
savings of 20-40%, representing a price much higher than the random price the company
picked.

Price promotions may be necessary to introduce a new product, satisfy distributor and
wholesalers, and offer volume discounts to good customers. Sometimes, using price
discrimination, different prices can be charged to different customers.

Distribution strategy (place) is a special challenge for startups because the company has
no existing channels of distribution. Setting up channels can be expensive and difficult.
Many companies require direct customer interaction. This means that location is often
the most important factor for drawing new customers to the business. Finding the right
channel is a matter of understanding channel economics. Channels can be covered
intensively, selectively, or exclusively. Partnering with distributors may provide a
needed boost, depending on the nature of power in the channel.

Next, Communications strategy (promotion), can be a mix of one or more of the

following: advertising, sales promotion, public relations, personal selling, and direct
marketing. A mix of these marketing communications tools is usually necessary and
should be determined by considering cost, timing, and target market. In other words,
how can the company most effectively communicate its value proposition to its
customers and compel those customers to buy?