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PRELUDE TO PRODUCT DECISIONS

In the Land Rover (LR) case, they wanted to introduce an SUV in the U.S. market. Their new
product decision was: What should be the attributes of the new SUV?

There are 3 approaches to coming up with a new product.
• The orthodox way
• The incorrect way
• The alternative practical way (commonly used, similar in spirit to the orthodox way
but easier)


The Orthodox Way

Basic premise
• First, identify an opportunity in the market.
• Then, based on your core competencies and constraints, come up with a suitable
product.

Step 1 (segmentation)
• Segment the market.
• E.g., the segmentation table that you’ve seen two hundred thousand times now:

Groups of Young Childless Affluent Families Older Traditionalists (OT)

Customers Adults (YCAA)
Value Drivers Rugged tough image Fun driving experience, rugged Aesthetics: Style and Elegance,
Sportiness tough image, reliability, Snob value, Comfort, Driving
Off road use roominess (cargo and seating experience: better feel of the road,
Reliability capacity), fuel efficiency, Price Range: $50K to $80K
Price range: $30K to $50K Reliability, safety, Price range:
$25K to $50K
Profiles Males and females, mostly Families, age between 35-50, Empty nesters, age 50+, live in
male, living in cities, typically live in suburbs, all cities: in posh areas in the suburbs,
typically downtown, ages ethnicities, typically have 2 kids both male and female, mostly
25-35, Mostly Caucasian, aged between 1-10 Caucasian, high profile jobs
professionals
Competitors Jeep Honda, Nissan, Toyota Acura, Infiniti, Lexus, Lincoln

Segment size 2.5 million 4.5 million 5 million

(# of vehicles)
Growth Rate 6% 8% 1%

Step 2 (initial targeting)
 • Do the matching exercise (“do my core competencies match the value drivers in this
segment?”) to eliminate segments where the match is bad and keep segments where
the match is good
• E.g., eliminate the families segment because LR cannot deliver fuel efficiency and
roominess, which matter to this segment. Keep the YCAA and OT segments because
LR can deliver the value drivers important to both segments (core competencies in
reliability, rugged tough image, better feel for the road, etc.)

Groups of Young Childless Affluent Families Older Traditionalists (OT)
Customers Adults (YCAA)
Value Drivers Rugged tough image Fun driving experience, rugged Aesthetics: Style and Elegance,
Sportiness tough image, reliability, Snob value,
Off road use roominess (cargo and seating Comfort, Driving experience:
Reliability capacity), fuel efficiency, better feel of the road, Price
Price range: $30K to $50K Reliability, safety, Price range: Range: $50K to $80K
$25K to $50K

Step 3 (further targeting)
• Among the remaining potential target segments, apply other criteria to see which
segment is better to target (e.g., demand, segment size, growth rate, the extent to
which you can differentiate, intensity of present and future competition, etc.)
• E.g., based on these factors, suppose you decide to target YCAA.

Groups of Young Childless Affluent Older Traditionalists (OT)
Customers Adults (YCAA)
Value Rugged tough image Aesthetics: Style and Elegance,
Drivers Sportiness Snob value,
Off road use Comfort, Driving experience:
Reliability better feel of the road, Price
Price range: $30K to $50K Range: $50K to $80K

Competitors Jeep Acura, Infiniti, Lexus, Lincoln

Segment 2.5 million 5 million
size (# of
vehicles)
Growth rate 6% 1%

Step 4 (positioning)
• For this target segment, see which value drivers you would emphasize. Ideally, the
emphasized value drivers should
o be important to the target segment;
o differentiate yourself from your competitors in this segment.
• E.g., sportiness and reliability are important to the YCAA segment.

 Groups of Customers Young Childless Affluent Adults (YCAA)

Value Drivers Rugged tough image; Fun driving

experience
Sportiness
Off road use
Reliability
Price range: $30K to $50K
Profiles Males and females, mostly male, living in
cities, typically downtown, ages 25-35,
Mostly Caucasian, professionals

Competitors Jeep
Segment size (# of vehicles) 2.5 million
Growth rate 6%

Step 5 (product concept)
• The emphasized value drivers should give you the product concept, which should
specify which attributes are needed in your potential new product.
• Obviously, a product concept is an idea about the potential product and its
attributes, before the actual product is made.
• E.g., the new vehicle has to be sporty and reliable. For it to be sporty, you need good
suspension, turning radius, and engine capacity.

Step 6 (actual product)
• From the product concept, make or develop the actual product.

Step 7 (STP again, possibly)
• If developing the actual product takes a lot of time, then at the end of the
development stage, you may need to redo segmentation, targeting, and positioning
of the actual product.
• Why? Because the market situation may have changed (e.g., changing consumer
needs, new substitutes coming in, etc.).
• If so, the targeting and positioning of the actual product now may be very different
from the targeting and positioning based on steps 2-4 done a few years ago.

Step 8 (test market)
• Test market the actual product and, if successful, sell it.

Note
• Steps 1-4 involve no product concept or actual product. They merely explore the
market and identify an opportunity.
• The product concept comes in only in step 5, the actual product in step 6.


 The Incorrect Way

Basic premise
• First, come up with a physical product.
• Then, sell it in the market.

Step 1 (actual product)
• Come up with a product based on your core competencies.
• E.g., LR designs and manufactures its SUV (Discovery) without doing any market
research (i.e., without understanding the value drivers of its customers).

Step 2 (targeting)
• Target the segment without matching the value drivers.
• E.g., target the families segment because it is the biggest one.

Groups of Young Childless Affluent Families Older Traditionalists (OT)

Customers Adults (YCAA)
Value Drivers Rugged tough image Fun driving experience, rugged Aesthetics: Style and Elegance,
Sportiness tough image, reliability, Snob value, Comfort, Driving
Off road use roominess (cargo and seating experience: better feel of the road,
Reliability capacity), fuel efficiency, Price Range: $50K to $80K
Price range: $30K to $50K Reliability, safety, Price range:
$25K to $50K
Profiles Males and females, mostly Families, age between 35-50, Empty nesters, age 50+, live in
male, living in cities, typically live in suburbs, all cities: in posh areas in the suburbs,
typically downtown, ages ethnicities, typically have 2 kids both male and female, mostly
25-35, Mostly Caucasian, aged between 1-10 Caucasian, high profile jobs
professionals
Competitors Jeep Honda, Nissan, Toyota Acura, Infiniti, Lexus, Lincoln

Segment size 2.5 million 4.5 million 5 million

(# of vehicles)
Growth Rate 6% 8% 1%

Step 3 (selling)
• Sell the product to the families segment.

Critique
• All steps are problematic.
• You should not come up with a product without first understanding the value
drivers of your customers. This is exactly what Levitt pointed out in the Marketing
Myopia note.
• No matching of value drivers with the product attributes is done to see which are
the best segments to target.
• Good luck. The product will only be successful if you are lucky.
 The Alternative Practical Way

Basic premise
• Based on preliminary market research, identify a set of unmet value drivers that
customers might want to see in a new product. If your core competencies and
constraints allow you to deliver on these value drivers, come up with a number of
alternative product concepts (not actual products). For each product concept,
decide its potential attributes such that it would deliver on the identified value
drivers.
• Do STP analysis to see which product concept is the best.
• Given the best product concept, make the actual product.

Note
• Unlike the incorrect way, you do not start with the actual product. You start with
product concepts.
• Unlike the incorrect way, the product concepts follow from the value drivers
identified from market research.
• Unlike the orthodox way, you start with product concepts early on. The orthodox
way doesn’t introduce any product concept or actual product until steps 5 and 6.

Step 1 (preliminary market research)
• From preliminary market research, get an idea of the unmet value drivers that
consumers might want to see in a new vehicle.
• E.g., brainstorm the value drivers that no other company has delivered yet, observe
consumers in their natural environment, do ethnographic research to identify their
unmet needs, conduct focus groups or one-on-one interviews. Typically, when you
use these methods, some but not all actual value drivers are identified.

Step 2 (alternative product concepts)
• Given the value drivers you identified, if your core competencies and constraints
allow you to deliver on these value drivers, then come up with a number of
alternative product concepts.
• E.g., suppose LR has identified some potential value drivers from its preliminary
market research. Accordingly, it comes up with two product concepts.
o Product concept 1: Discovery. What attributes would you need in this
potential vehicle to deliver on the identified value drivers (e.g., sportiness,
ruggedness, off-road use)?
o Product concept 2: Range Rover. What attributes would you need in this
potential vehicle to deliver on the identified value drivers (e.g., better feel for
the road, ruggedness, comfort)?

Step 3 (segmentation)
• Segment the market.
• E.g., the segmentation table looks like this.

Groups of Young Childless Affluent Families Older Traditionalists (OT)
Customers Adults (YCAA)
Value Drivers Rugged tough image Fun driving experience, rugged Aesthetics: Style and Elegance,
Sportiness tough image, reliability, Snob value, Comfort, Driving
Off road use roominess (cargo and seating experience: better feel of the road,
Reliability capacity), fuel efficiency, Price Range: $50K to $80K
Price range: $30K to $50K Reliability, safety, Price range:
$25K to $50K
Profiles Males and females, mostly Families, age between 35-50, Empty nesters, age 50+, live in
male, living in cities, typically live in suburbs, all cities: in posh areas in the suburbs,
typically downtown, ages ethnicities, typically have 2 kids both male and female, mostly
25-35, Mostly Caucasian, aged between 1-10 Caucasian, high profile jobs
professionals
Competitors Jeep Honda, Nissan, Toyota Acura, Infiniti, Lexus, Lincoln

Segment size 2.5 million 4.5 million 5 million

(# of vehicles)
Growth Rate 6% 8% 1%

Step 4 (initial targeting)
• Do the matching exercise to see which segment you can target with each of your
alternative product concepts.
• E.g., product concept 1 (Discovery) can be used to target the YCAA segment because
it should be able to deliver on their value drivers. Product concept 2 (Range Rover)
can be used to target the OT segment for the same reason. No product concept can
be used to target the families segment because you are unable to deliver on their
value drivers.

Groups of Young Childless Affluent Families Older Traditionalists (OT)

Customers Adults (YCAA)
Value Drivers Rugged tough image Fun driving experience, rugged Aesthetics: Style and Elegance,
Sportiness tough image, reliability, Snob value, Comfort, Driving
Off road use roominess (cargo and seating experience: better feel of the road,
Reliability capacity), fuel efficiency, Price Range: $50K to $80K
Price range: $30K to $50K Reliability, safety, Price range:
$25K to $50K

ñ ñ
Product concept 1 Product concept 2
(Discovery) (Range Rover)

Step 5 (further targeting)
• Among these two potential target segments, apply other criteria to see which
segment is better to target (e.g., demand, segment size, growth rate, the extent to
 which you can differentiate, intensity of present and future competition, etc.). That
determines which product concept to go ahead with.
• E.g., based on these factors, suppose you decide that YCAA is better than OT to
target. This determines that Discovery is the product concept to go ahead with.

Groups of Young Childless Affluent Older Traditionalists (OT)
Customers Adults (YCAA)
Value Rugged tough image Aesthetics: Style and Elegance,
Drivers Sportiness Snob value,
Off road use Comfort, Driving experience:
Reliability better feel of the road, Price
Price range: $30K to $50K Range: $50K to $80K
Competitors Jeep Acura, Infiniti, Lexus, Lincoln
Segment 2.5 million 5 million
size (# of
vehicles)
Growth rate 6% 1%

ñ ñ
Product concept 1 Product concept 2
(Discovery) (Range Rover)

Step 6 (modifying product concept for proper positioning)
• If necessary, modify your product concept so that it can be properly positioned. The
potential product’s attributes need to
o deliver on your target segment’s value drivers, and
o be properly differentiated from your competitors’ value drivers, including
those that you were unable to identify from the preliminary market research in
step 1.
• E.g., modify the Discovery product concept so that the potential product’s attributes
can
o deliver on the YCAA’s value drivers, and
o be properly differentiated from Jeep’s value drivers, including reliability,
which you were unable to identify from the preliminary market research in step
1.

Step 7 (iteration, possibly)
• If it is impossible to modify your product concept (e.g., due to your company’s
constraints or competencies) for proper positioning in step 6, then go back to step 1,
do further preliminary market research to generate alternative product concepts.
Repeat steps 1-6 until the best concept is found.
• E.g., if LR cannot modify the Discovery product concept to deliver on reliability, then
it would go back to step 1 and repeat all steps until the best vehicle concept is found.

Step 8 (actual product)
• From the best product concept, make or develop the actual product.

Step 9 (STP again, possibly)
• If developing the actual product takes a lot of time, then at the end of the
development stage, you may need to redo segmentation, targeting, and positioning
of the actual product.
• Why? Because the market situation may have changed (e.g., changing consumer
needs, new substitutes coming in, etc.).
• If so, the targeting and positioning of the actual product now may be very different
from the targeting and positioning based on steps 4-6 done earlier and based on the
product concept only.

Step 10 (test market)
• Test market the actual product and, if successful, sell it.


When to Use the Orthodox Way vs. the Alternative Practical Way?

The orthodox way is typically used when segmentation is easy to do. If segmentation is too
complex, then segmenting the entire market can be very time-consuming. In that case, the
alternative practical way is easier to implement, because you start with the product
concepts and you don’t need to segment the entire market. Why? Because when you start
with product concepts, you only need to focus your attention on those segments to whom
the product concepts would be appealing, and you can ignore all the other segments to
whom the product concepts would not be appealing. Essentially, you have eliminated a lot
of segments. Your segmentation task is tremendously simplified.

Suppose a computer manufacturer wants to introduce a new computer into the market.
Considering all segments that buy laptops and desktops can get very complex, rendering
the orthodox way too time-consuming. The alternative way is much simpler. Suppose your
preliminary market research gives you product concepts for laptops only. That tells you
that you can forget about segments that buy desktops and focus all your attention and
resources on segments that buy laptops—and figure out these segments’ value drivers,
competitors, segment sizes, growth rates, and all the wonderful things we’ve talked about.