Table of contents
Chapter 1: product development process
1.1 Why we need a new product - the market situation
1.2 Generating ideas for a new product
1.3 Product features
1.4 Idea screening
1.5 How we prevented widespread mistakes in new product development
1.6 Results from our customer focus group
1.7 How our new fridge fulfils wishes
1.8 A short description of the target group(s)
Chapter 2: Fridgeman's macroenvironment
2.1 Introduction into the German macroenvironment
2.2 The demographic environment
2.3 The economic environment
2.4 The natural environment
2.5 The technological environment
2.6 The political environment
2.7 The cultural environment
Chapter 3: Market and Competition
Chapter 4: Marketing-mix
4.1 The product and the product levels
4.1.1 The core product
4.1.2 The actual product
4.1.3 The augmented product
4.2 Pricing and placing
4.3.3 Personal selling
4.3.4 Sales promotion
4.3.5 Public relations
Chapter 5: Conclusions
Our company "Fridgeman" has been on the market for refrigerators a very long time.
In the last few years a strong competition grew up that made us think about a new product idea in order to prevent any price wars that would possibly have killed our firm.
In a meeting that included members of all different departments of our company we developed the idea of a high-tech refrigerator with a lot of automatic functions that make its user able to save time and money in everyday life. For instance it will be able to order all needs for foods automatically at the next supermarket so that the user just has to pick up a basket full of food when he or she drives home. Moreover it saves energy, has a huge recipes database included and can make its users suggestions for healthy meals they particularly need.
We defined careerists and busy single households to be our main target group but even everyone who wants to save time or who does not have the motivation to do shopping will be in our focus.
The product does not have to face any competition when it is introduced into a brand-new market segment and we will keep a technological lead of one year towards our competitors. This will enable us to come up with new innovations every time the other firms have copied our old product features. Moreover we offer several services to support every customer in case that there is a malfunction of the fridge.
The macroenvironmental forces offer a lot of opportunities to us especially the category of the cultural environment which also includes Faith Popcorn's latest trends. For example the development towards more single households and more people who withdraw into their homes to mind the "big ugly world" offers a great opportunity to us. There is no actual danger that will make the launch of our product very risky due to the fact that we keep control of our production and distribution costs and that we are very experienced in manufacturing fridges.
The "FridgeMaster" will underline our high quality level because our company offers its products on a premium market. Nevertheless our prices are affordable for a broad range of people even for our new product. The standard version will cost 1399 DM within the first 6-8 weeks and after this period 1599 DM have to be paid. A product variation which is smaller and runs on castors will cost 1449 DM.
With the launch of the product we concentrated on a new distribution channel: besides the specialised trade the "FridgeMaster" will be sold in big "Metro" supermarkets. An alliance between our company and the Metro has been established and this cooperation seems to become very successful.
In order to reach our potential customers we have developed a thought out promotion-mix. We will use several media, e.g. television, radio and newspapers to give first impulses and more detailed information to our target group. Special trained salespeople will answer any questions our customers might have. We are going to win new customers by a rewarding system if an existing customer canvasses new customers and as mentioned above we will offer an introductory price. Furthermore our new innovation will be described in several magazines which concentrate on lifestyle or even technology. We are hopefully that people will talk about the "FridgeMaster" and therefore a positive "mouth-to-mouth" propaganda will start.
This report deals with the introduction of a new product into a new market segment.
A medium-sized company has to face strong competition in their old market and therefore the management decides to escape from the risk of price wars by developing an innovative product. This product should fulfil at least two main functions: to save the company by providing it a technological lead and to amaze and fully satisfy its customers.
Compared to a lot of other product launches several factors and aspects have to be considered. Opportunities and threats occur from all sides which will strongly influence the success the market introduction will have.
The aim of this report is to depict how the management tries to prevent mistakes that are often made and it should even be a kind of guide for other product launches.
The report is structured in a logical way: first the product development process is being described. Here it is shown why no company's management should lose its mind into blind enthusiasm without thinking about hard facts, e.g. costs and expected profit margins. Moreover the target group and its needs or wants have to be defined exactly and a close description of the new product's benefits and features has to be given. Secondly the management has to focus on developments outside their well-known area: the forces of the macroenvironment offer several opportunities but also a lot of threats. In addition to this the current market situation has to be analysed.
The following chapters describe the marketing-mix. Chapter number three deals with the product itself: the product is being divided into three levels and thereby many questions concerning the brand name, the quality or the packaging have to be answered. The fourth chapter provides the most important facts about the pricing and placing strategy: where does the company want to sell the product and at which price?
The fifth part of the report concentrates on the promotion-mix: the company has to make its new product known to the public and potential customers. This can be done by many possible ways which combine the means of advertising, sales promotion, personal selling or public relations. The last chapter gives a summary about the most important aspects that have been mentioned in the previous chapters in order to gain a good overview about the most important results.
Chapter 1: product development process
1.1 Why we need a new product - the market situation
Our company "Fridgeman" has been in the German market for household appliance since the late 1970s when the first energy-saving refrigerators came up. Since then we produced high-quality, ecologically friendly refrigerators in the upper price ranges. Today we are the technological market leader and keep 10% share of the market, which is equivalent to the third market position. We employ about 500 people in our two factories in the areas of Munich and Cologne. Our refrigerators are being sold mainly by the specialised trade.
A lot of competitors are in the market and a rising amount of companies from other European countries and even Japan (e.g. Mitsubishi, Daewoo) want to get into it in order to sell their products to the German consumers. This leads to decreasing market shares and lowers financial returns for each company. There is a hard price fight among the competitors, because the products themselves are not very different from each other. We are still in technological leadership but only with a small lead, because the features of the refrigerators are nearly identical, e.g. in power consumption and isolation. The danger of full substitution towards the other products is very high for our company so that we have to fear losses concerning our market share and profits in the near future.
This is why we have to be different from our competitors in the eye of the consumer. "Fridgeman" can only escape from the current situation if we offer a brand-new product within our main market, because our company knows everything about refrigerators and should not get lost into a totally different business.
1.2 Generating ideas for a new product
Our management team consists of the head manager, the marketing manager and the R&D (research and development) manager. We did not know exactly which new product we should put on the market, because there was no concrete product idea.
We decided to invite a group of 20 employees, who had been selected representatively for several departments of our company (e.g. development, production and administration) in order to exchange thoughts about new product ideas. Salesmen from the specialised trade, who have a lot of contacts to our customers, also joined our conference.
Experiences in the past have shown that 55% of new product ideas and improvements of existing products were contributed by employees. We were quite confident that we could receive some good ideas from this meeting - perhaps even a solution to our problem could occur.
We considered an extensive market research not to be useful at this point because our idea generating technique "synectics" made it possible for everybody to utter his thoughts to the others in the meeting. It would even not have mattered if we had invited people who did not know our business at all. So our decision was reasonable, because we did not have the foggiest idea what to develop. It is not possible to steer a person’s thoughts into certain directions of your interest by using a conventional questionnaire.
Furthermore our method is quite inexpensive and does not cost too much time.
If this would not have led to a solution we would have invited other employees and business partners or we would have asked people spontaneously on the street or in supermarkets on a small scale.
As we have already mentioned above we used the "synectics" technique for generating ideas. Our subject of discussion was introduced by this question: "What can make life easier for me at home?" The intention was to start from a quite general theme and to proceed towards our special problem: how to be different from the competitors in the eye of the consumer and how to get new market shares. This procedure would be easier than just asking "We need a new product with which we can escape from competition. Please think about it. You have one hour to tell us your solutions." That was why we did not want to create a tense atmosphere but a relaxed exchange of thoughts, which would finally lead to creativity. Moreover we did not want to make our employees and partners feel insecure about their future. Instead of this we would wait for a suitable chance in this discussion in order to admit that we were searching for a new product idea.
We considered two hours to be enough time for this meeting. Secretly we hoped to get useful results within the first hour after everybody had introduced himself / herself. Each member of the meeting was asked to give his / her name and position in the company. Moreover he / she was supposed to tell the others how long he / she had been working for "Fridgeman”. This introduction turned out to be a good method in order to break the ice between the persons present, especially to avoid hierarchical thinking or any fears of the workers to express their opinion towards the management. In this pleasant atmosphere we began to ask everybody to describe what mostly disturbed his / her everyday life.
In particular we received the following answers: "I have to get up so early in the morning", "the traffic is very heavy", "I can not enjoy my breaks, because I’m strained most of the time", "a few colleagues are always in bad mood" and "when I get home a lot of housework awaits me". This last statement aroused our attention and we directed the topic of discussion towards the situation at home after work. The employees said that the laundry had to be made, the lawn had to be mown and the windows had to be cleaned. Moreover they were forced to do their shopping just before the shops were closing or to go shopping one time a week if they did not have the chance to do this on the other days (perhaps the household members were employed too and they wanted to do shopping together). This happened quite often Friday evening within big crowds and that was considered to be an annoying start into a nice weekend. At his point there was a first "click" in the management’s mind. So we asked if somebody had an idea how to avoid this stressful situations. Our concrete question was: "By which means could you avoid to be under shopping stress?"
A lot of answers concerning product concepts were given, for example: let the food and other goods be fetched and delivered by a delivery service. This concept was regarded to be quite expensive and of no use if the service was not able to get directly into the house when nobody was at home. Handing over the door keys to a foreign service required a lot of trust, so this idea was rejected rather quickly. The second concept was to take the whole family into a restaurant, but the costs would have killed the household budget. Concept number three was proposed by a member of the management who thought it should be possible to do shopping on other weekdays or to wait until the "closing time law" was abrogated. This concept was turned down especially by the employees of the production department, who have no flexible working hours. They added that the abrogation of the law could take about two or three years but the problem was supposed to be solved now. The following concept planned not to do shopping in supermarkets or malls but in several shops, e.g. at the greengrocer’s, the butcher’s and the baker’s shop. Most members of the meeting agreed that this would also mean a waste of time although stress could be reduced a little bit. The last concept was to buy only one or two times a month which meant that a huge shopping had to be done. This would lead to a disadvantage concerning the lack of fresh and nutritious food, especially for children, and make it necessary to go shopping for everything that can not be stored at home for more than two weeks. Some of the participants were at a loss, because they did never think about alternatives. They said that they understand the problem but they did not know anything else than full supermarkets at the end of a working day.
The most important remark was made by an employee who was only kidding: "A fridge which is never empty but filled with good food would be best." In this moment a new product was born. A high-tech refrigerator for people who have only limited time and nearly no interest in shopping their daily goods. But if they have to buy their food they want to know exactly what they can get where - and at which price - in order to prepare several meals.
1.3 Product features
In the sequel we talked about some of the features such a fridge should offer to its users. We focused on the following functions (product image): the refrigerator should be able to...
- ...control the contents inside: what food is in the fridge and how much? How many days or weeks are left until it loses quality and goes off? The fridge will be able to receive these information by the barcodes which are printed on the packages.
- ...know the average consumption of every product and is able to propose which package size should be chosen in the supermarket. In addition to this it takes into consideration what you should consume before you go on holiday in order to empty the fridge until only goods are left which keep their quality quite long.
- ...offer a huge database with hundreds of cooking recipes, starting with plain snacks which take only two minutes to be prepared by the user, ending with complicated recipes, e.g. how to prepare goose. The user can select several ingredients using various criterion in order to find a meal that he can prepare right now with the things which are already in the fridge. The fridge can tell him / her what has to be bought in addition to the existing products if certain meals should be prepared. And there are nearly unlimited possibilities how to combine the ingredients: for example the fridge shows recipes that need ingredients whose qualities are nearly expired. It can offer recipes with ingredients that all family members like to eat or even a cocktail database for adults.
- ...know the preferences of all its users: it knows which meals household members like or dislike. It is able to create dietary schedules and plans which fulfil the daily amounts of nutrient each person needs. This preferences and options can be changed any time.
- ...give you instructions for each step when cooking. It can be connected to the stove in order to control temperatures and cooking times (this could be an important step to a multifunctional kitchen - perhaps a chance for our company!). Every household member should be made able to prepare meals instead of waiting for other members to cook after they came home from a hard working day. Once again this makes life easier.
- ...communicate with your next supermarket. One of the new product’s main features is to transmit data which contain your needs for food. The supermarket staff will collect all goods which should be added to the fridge. The fridge will send you a message to your mobile phone that informs you where you can fetch the basket with the products, e.g. when you drive home in the evening.
- ...offer its users easy operation. An easy and quick use will be as important as a rare need for servicing in order not to limit its users’ valuable time. The operating instructions have to be quickly understandable for everybody.
- ...limit household costs by very low energy consumption. The fridge can control and vary the temperature if it knows that the goods inside do not need intensive cooling. Moreover it lowers the costs by optimizing the amount of food you and other members of the household really need. Less products will lose their quality if they are consumed soon enough. In this respect the recipe database plays an important role.
- ...to follow its users to other places. There will be a mobile version of the fridge which can easily be carried by persons who often change their place of residence. This variation is smaller, very lightweight (special materials will be used) and runs on castors. The user, who belongs to a special target group for this variation, will be able to put it into the back of his / her car.
1.4 Idea screening
In the "idea screening process" we passed this list of features on to three departments of our company: research, costing and logistics. The internal processing of the data made it possible to gain first results within one week before we wanted to start our market research. If the admission barriers would have been too high in spite of the euphoria in the beginning, any further research would have been without sense, because our company would have entered into a dangerous situation if we would have invested a lot of money into a product that we could not sell on the market. This was what we wanted to avoid by fixing quite a small budget.
The research department was supposed to prove how the new product could be realised and which technological and material expenditure would be necessary. This expenditure was converted into capital requirements (i.e. the development costs) by the costing department. The logistics department was asked to calculate the costs which arise from distribution directly to the supermarkets with help of the costing department too. An interesting question was if we could use the transportation means of the supermarket concerns as an alternative, because we had in mind to sell our new refrigerators directly in the supermarkets.
The development costs were within the scope of our positive expectations, because we already produced high developed refrigerators. The additional electronic elements and the connection to a telecommunication network (in order to transfer data from the fridge to the supermarkets) caused costs of manageable size. The hard competition within the computer industry would even make it possible to profit from permanent price reductions concerning computer chips and system development.
The logistics department announced that a distribution directly by the suppliers of the big supermarket concerns would be possible at reasonable costs if small amounts were carried - about three or four refrigerators with every delivery to the single supermarkets. Our company’s distribution to the specialised trade could carry the new product without capacity problems worth mentioning.
We were quite satisfied with this first calculation of the expected costs. This was mainly caused by the advantage that our product idea was just a technical addition to an existing product. After this positive signs we began to prove what opportunities the new fridge should have on the market. We consulted our "customer advisory board", a group of customers whose composition changes every year. All customers that bought a fridge some time ago can apply to become a member of this group and get an expense allowance plus a small fee. They are supposed to tell us how they judge the chances of a new product or what they do not like concerning an existing product. We consider this instrument of a direct feedback of some of our customers to be very important, because we do not have unlimited capital in order to realize big market researches or to instruct an agency to do so.
We decided to analyse our product idea by a list of mistakes which were often made in new product development. Then we would present our new product to our group of customers in order to prove if the people would be amazed by the features of our high-tech refrigerator or not.
1.5 How we prevented widespread mistakes in new product development
Here are some examples of the touchstones for our new product.
Often the market size is being overestimated. We know that our market is going to be divided into several shares among the competitors. This is why the market shares for the single companies are going to be smaller and smaller. We do not want to enter any existential price war, because we would not stand a chance against Japanese firms which are often part of multinational concerns that have unlimited capital in comparison to our company. That is why we need a product which makes it possible for us to stand out against the other sellers in the conventional market segment. This product has to offer an unmistakable advantage and should thereby gain a special position in the consciousness of potential customers. Because of these realistic assumptions we are not addicted to our product idea but we can prove that our company needs new products urgently in order to be ahead of our competition technologically.
The second example of mistakes that are often made is that many companies act too fast and without detailed thinking concerning the market situation. They expect the consumers to fight over getting the new products but often this wish is not fulfilled because of the product’s low quality or features that stay beyond the customers’ expectations. Our company "Fridgeman" is be reputed to be a quality manufacturer - so we can not take the risk to sell a product that does not fit into our high quality product line. This would make us sag into mediocrity. We have to prevent this danger by developing and proving the new fridge in a calm and constant way. This process needs to be subjected to permanent controlling and feedback. A close cooperation between the departments of management, research, costing, quality management and logistics has to be guaranteed all the time. A direct mouth-to-mouth communication and short consultation ways are necessary factors in order to succeed. Hindrances between the departments have to be avoided.
Another mistake is a wrong positioning of the product in the market. A reason could be that the main target group was not defined correctly before. Our target group does not consist of a housewife who has enough time and motivation to do shopping but it consists of persons who thankfully accept products that make daily life easier for them - especially after a hard working day. This target group has a stressful job with high income. They can easily afford a new high-tech refrigerator which we are going to position in the upper price segment.
The introduction of our new fridge will not need a huge advertisement campaign but straight adverts in the places where we meet our target group, e.g. in trend magazines ("Fit for fun", "Man’s health"...) and business papers ("Handelsblatt", "Wirtschaftswoche", "DM",...). We need to address our potential customers using these media.
Another mistake which occurs quite often is insufficient market research. As we already mentioned above we are a middle-class and traditional company that can not make available high market research budgets. In addition to this an extensive public research could wake up our competitors to struggle for this gap in the market. We want to concentrate on the opinion of our consumer focus group which includes quite a lot of employed and hard-working people. This group will be our primary source for a small market research.
In order to prevent unexpected high production or distribution costs we received a first calculation of the respective departments as mentioned above. This calculation proved to be positive and was considered to be a fundamental basis in order to continue our thoughts about the new product. Sometimes there is a strong reaction of the competitors if a new product is introduced and the other companies can offer alternative products after a short time. Japanese firms can use their concern’s research departments to copy new products, e.g. as they did in the car market. We will not be able to prevent this from happening. However, our advantage will be that we were first to detect this gap in the market and that the other firms will have to examine our new refrigerator for quite some time before they can enter into direct competition. This lead has to satisfy us in this high competition market. Therefore we do not expect a quick imitation as this would happen if we would reduce prices for the refrigerators that are in the market now.
1.6 Results from our customer focus group
In this paragraph we are going to give a short description what we presented our focus group and how the group members reacted. This is how we introduced our product idea: "Our product is a fridge with several electronic features, such as... (please refer to paragraph 1.3). It will be in the upper price area and will cost about 1600 DM." After this description we asked the following questions: "Are the benefits clear to you?" We wanted to know if the members understood the features of the product and if they were believable to them. "Does this product solve a problem or fitting a need for you?" This is regarded to be one of the most important questions, because we need to know how they quantify the product’s advantages in their opinion. "Do you know other ways to fill this need and how would you judge them?" This is the question that should show which other products have the strength to become a direct competition to our fridge. Perhaps we overlooked certain services or goods, e.g. delivery services at low prices and with good concepts. "Is the price reasonable to the value?" Can the potential customer reconcile the price with the use that the product offers to him / her? And last but not least the direct question: "Would you buy the high-tech refrigerator?" which stands in connection to the previous question. If one group member agrees to this question he / she will be in one of the target groups.
Although our idea got a hearing especially by the careerists of the group, also women with children who do the household, thought about the new fridge that it would mean easier work for them. They said that shopping together with little kids could be very stressful because you have to watch them all the time while you take food out of the shelves. But if a member of the supermarket could "bundle" all the goods after the fridge transmitted a list this would be very helpful. This would enable them to care more about their children, spending more time for them and do household with less tension.
Some members of the group rejected any use of such a new product: single pensioners and pensioner couples. They are happy to spend their time doing shopping and are sceptic towards those modern products. Furthermore housewives without any leisure-time activities were not attracted by the high-tech refrigerator and they admitted that they would never buy it. Most of the careerists said that the most important condition would be easy handling and easy care of the fridge. They were not fascinated by the idea of sitting several hours in front of the product while studying the instructions for use, because they simply have no time to do so.
This made us able to do further thinking - the advertisement should concentrate on the easy use of the product, especially for women.
- Quote paper
- Ingo Titze (Author), 1999, Fridgeman's FridgeMaster Product Report, Munich, GRIN Verlag, https://www.grin.com/document/15066