New Products

1
New Products

• Product Design using Conjoint Analysis
• Forecasting with Diffusion Models
• Pre-Test Market Models

2
New Product Decision Models

• Product design using conjoint analysis
• Forecasting the pattern of new product adoptions
  (Bass Model)
• Forecasting market share for new products in
  established categories (Assessor model)

3
Newness of Products

• Repositioning

• BreakthroughsMajor Product Modifications

New to World

• Line Extensions

• Me Too Products

New to Company
4
New Products as Part of Corporate Strategy
Markets
Existing
New
Market Penetration
Market Development
Existing
Products
New Product Development
New
(Diversification)
5
The New Product Development Process
Reposition
Harvest
Go
No
Design Identifying customer needs Sales
forecasting Product positioning Engineering Mark
eting mix assessment Segmentation
Go
No
Go
No
6
Some Product Design Questions
Should we offer our business travelers more room
space or a fax machine in their room? Should we
offer more leisure-time activities (sauna,
exercise room, tennis courts) or more food
related services (several dining options, vending
machines, in-room kitchen facilities)? Should we
use a steel or aluminium casing to increase
customer preference for our new extrusion
equipment?
7
What is Conjoint Analysis?

• A way to incorporate the structure of customer
  preferences into the new product design process.
  It helps evaluate how customers make tradeoffs
  between various product attributes (a
  decompositional approach).
• The basic outputs of conjoint analysis are
• A numerical assessment of the relative importance
  each customers attaches to attributes of a
  product set.
• The value (utility) provided to each customer by
  each attribute option.

8
Use of Conjoint Analysis

• Designing new products that enhance consumer
  utility.
• Forecasting sales/market share of alternative
  product concepts.
• Identifying market segments for which a given
  concept has high value.
• Identifying the best concept for a target
  segment.
• Pricing products/product bundles.
• Product line management.
• Positioning new products to different segments.

9
Product Design Conjoint Analysis

• The approach derives customers utility values
  for attributes and attribute options based on
  customers stated overall preferences for
  different bundles of attributes. The following
  example shows Memory and Price bundles.

PriceMemory 1,000 1,500 2,000 8
Mb 4 2 1 16 Mb 7 5 3 24 Mb 9 8 6 9 Most
preferred 1 Least preferred
10
Simplified Part-Worth(Utility) Calculation
Price Part- Memory 1,000 1,500 2,000 Wor
th 8 Mb 4 2 1 7/3 2.3 16 Mb 7 5 3 15/3 5.0 24
Mb 9 8 6 23/3 7.7 20/3 15/3 10/3 Part-Worth 6.7
5.0 3.3 9 Most preferred 1
Least preferred
11
How to Use inDesign/Tradeoff Evaluation

• Example 24 Mb vs 16 Mb 7.7 5.0 2.7 units
• 1,000 vs 1,500 6.7 5.0 1.7 units
• So ? 8 Mb is worth more than 500 to this
  customer.
• 2.7
• ( ? ? (1,500 1,000) ? 795)
• 1.7
• ? Can use to assess value to customer of
  non-product (service) attributes.

12
Another Example to Illustrate the Concepts of
Conjoint Analysis Designing a Frozen Pizza
Attributes ? Type of crust (3 types)
?? Topping (4 varieties) ? Type of cheese (3
types) ? Amount of cheese (3 levels) ? Price
(3 levels)
Crust Type of Cheese Price Pan Romano
9.99 Thin Mixed cheese 8.99
Thick Mozzeralla 7.99 Topping Amount of
Cheese Pineapple 2 oz. Veggie 4
oz. Sausage 6 oz. Pepperoni A total
of 324 (3 ? 4 ? 3 ? 3 ? 3) different pizzas can
be developed from these options!
13
Designing a Frozen PizzaA More Complete Design
Attributes ? Type of crust (3) ? Amount of meat
(3) ? Types of peppers (3) ? Type of cheese
(3) ? Type of sauce (3) ? Presence of olives
(2) ? Amount of cheese (3) ? Amount of sauce
(3) ? Presence of oil (2) ? Type of meat
(3) ? Presence of mushrooms (2) ? Price
(3) Prototypes 81 prototype pizzas from 105,000
possible profiles. Person Attributes
? Sex ? Household size ? Category
usage ? Age ? Favorite brand ? Region ? Presence
of teenagers Study Approach ? Each respondent
rates 3 of the 81 prototypes along with a
control. ? Likelihood of purchase,
conditioned on price. ? Appropriateness for
various meals/snacks. ? Appropriateness for
various family members.
14
Example Paired Comparison
Aloha Meat-lovers Special treat Crust Pan Thi
ck Topping Pineapple Pepperoni Type of
cheese Mozzarella Mixed cheese Amount of
cheese 4 oz 6 oz Price 8.99 9.99 Which do you
prefer? Which one would you buy?
15
Example Ratings
Product ExampleBundle Type of
Amount PreferenceN umber Crust Topping
Cheese of Cheese Price Score 1 Pan Pineapple
Romano 2 oz 9.99 0 2 Thin Pineapple Mixed 6
oz 8.99 43 3 Thick Pineapple Mozzarella 4
oz 8.99 53 4 Thin Pineapple Mixed 4
oz 7.99 56 5 Pan Veggie Mixed 4
oz 8.99 41 6 Thin Veggie Romano 4
oz 7.99 63 7 Thick Veggie Mixed 6
oz 9.99 38 8 Thin Veggie Mozzarella 2
oz 8.99 53 9 Thick Pepperoni Mozzarella 6
oz 7.99 68 10 Thin Pepperoni Mixed 2
oz 8.99 46 11 Pan Pepperoni Romano 4
oz 8.99 80 12 Thin Pepperoni Mixed 4
oz 9.99 58 13 Pan Sausage Mixed 4
oz 8.99 61 14 Thin Sausage Mozzarella 4
oz 9.99 57 15 Thick Sausage Mixed 2
oz 7.99 83 16 Thin Sausage Romano 6 oz 8.99 70
16
Example Computed Part-Worth for Attributes
17
Example Part-Worths for Attribute Options
18
Conjoint Computations
m ki U(P) ? ? aij xij i1 j1
where P a particular product/concept of
interest, U(P) the utility associated with
product P, aij Utility associated with the jth
level (j 1, 2, 3, . . . , ki) on the ith
attribute (part-worth), ki number of levels of
attribute i, m number of attributes,
and xij 1 if the jth level of the ith
attribute is present in product P, 0 otherwise.
?
19
Market Share Forecast

• The relevant market consists of products P1, P2,
  . . . , PN. Some of theses may be existing
  products and, others concepts being evaluated.
• Each consumer will prefer to buy the product with
  the highest utility among those available.
• Then forecasted market share for products Pi is
  given by
• K Consumers who prefer i
• MS (Pi) ?
• K1 K
• where K is the number of consumers who
  participated in the study.

20
Example Market Share Computation (Frozen Pizza
Example)

• Market consists of three products and three
  consumers

Product (P1) (P2) (P3)
Aloha Meat-lovers Veggie Special Treat
Delite Crust Pan Thick Thin Topping Pineapple Pepp
eroni Veggie Type of cheese Mozzarella Mixed
cheese Romano Amt. of cheese 4 oz. 6 oz. 2
oz. Price 8.99 9.99 7.99
21
Example Market Share Computation (Frozen Pizza
Example)
Consumers Part-Worths
C1 C2 C3 Base 1.3 2.4 3.2 Thin 0.2 0.5
1.0 Thick 0.4 0.75 1.1 Veggie 0.5 0.6 1.2 Sa
usage 0.1 0.2 0.2 Pepperoni 1.0 0.3 0.9 Mixe
d cheese 1.5 0.3 0.3 Mozzarella 0.5 1.2 0.1
4 oz. 1.5 2.1 0.2 6 oz. 3.0 1.5 0.3 8.99 0
.5 1.2 0.1 9.99 3.0 2.5 0.3
22
Example Market Share Computation (Frozen Pizza
Example)

• Computed Utility for Products
• Customer P1 P2 P3
• C1 2.8 4.2 2.0
• C2 4.5 2.75 3.5
• C3 3.6 3.9 1.0
• Infrequently purchased productsConsumers only
  buy the brand with the highest utility. Then,
  the market share for each product is 1/3.
• Frequently purchased productsExample If
  consumers buy their most preferred brand 80 of
  the times, and their second most preferred brand
  20 of the times, then the market shares for the
  3 products are
• P1 6/15 P2 4/15 P3 5/15

23
Translating Utility (Preference)to Choice
Probabilities

• Maximum utility rule (described
  earlier)
• uij
• Share of preference rule pij
• ? uij
• j
• euij
• Logit choice rule pij
• ? euij
• j

24
Translating Choice Probabilitiesinto Market
Shares

• Describe competitive set
• Assign individual weights if any
• Compute market share
• ? wi pij
• i
• mj
• ? ? wi pij
• j i
• mj market share of product j
• wi weights assigned to individual i

25
Situations Where Conjoint Applications Might Be
Valuable

• The new concept involves important tradeoffs
  affecting design, production, marketing, or other
  operational variables.
• Product/service is realistically decomposable
  into a set of basic attributes.
• Product/service choice tends to be high
  involvement.
• Factorial combinations of basic attribute levels
  are believable.
• Desirable new-product alternatives can be
  synthesized from basic alternatives.
• Product/service alternatives can be realistically
  described, either verbally or pictorially.
  (Otherwise, actual product formulations should be
  considered).
• Perceptions of hypothetical combinations are
  reasonably homogeneous across members of the
  target group.

26
Designing Courtyard by Marriott

• Problem for Marriott
• Early 1980s
• Running out of good sites for typical full
  service Marriott
• Hotels (missing low-end business traveller
  segment).
• Idea
• New chain for low-end business and/or pleasure
  travellers.
• Business travellers? (6 trips/mid-week).
• Pleasure travellers? (2 trips/stay in
  hotels/motels).
• Hotel Chain should
• Offer good value for the money.
• Have minimal cannibalization of Marriotts other
  facilities.
• Have market position with competitive advantage.

27
Overall Study Design

• 50 attributes, 28 levels/attributes.
• Hybrid conjoint task.
• Price elasticity, using ELASTICON model.
• Positioning analysis scaling, clustering to deal
  with demographics, attitudes and hotel usage.
• 263 mid-week business travellers,83 high-end
  business travellers,255 non-business travellers
• in Atlanta, Dallas, San Francisco, Chicago.

28
Optimal Hotel Design Features

• 1. External factors G building shape
• G landscape design
• G pool type and location
• G hotel size
• 2. Rooms G room size decor
• G type of heating cooling
• G location/type of bathroom
• 3. Food-related services G type/location of
  restaurant
• G room service
• G vending services/stores
• G in-room kitchen
• 4. Lounge facilities G location
• G atmosphere
• G type of people (clientele)

29
Optimal Hotel Design Features contd
5. Services G reservations G
registration/checkout G limo to airport G
bellman G message center G secretarial
service G car rental G maintenance 6.
Leisure facilities G sauna G exercise
room G racquetball courts G tennis
courts G game room G childrens playroom
yard 7. Security factors G security guards G
smoke detectors G 24 hour video
30
Overall Study Design and Analysis
What combination of features and
services? Supplementary tasks and background
data
What type of location to select? Attitude
and preference scaling Preference for
location types Recommendation for type
of location
What pricing strategy to follow? ELASTICON Pr
ice/demand response Pricing
recommendation
What is the best competitive position? Hybrid
conjoint analysis and simulation Multifact
evaluation of complete offering Cross- valida
tion
Is the concept viable Self-explicated evaluat
ion Simulation Guidelines for product
design, positioning and advertising
Management Question Model Respondents Tasks
Additional Modeling and Validation Output
Cross- validation
Additional guidelines for segmentation, positionin
g and product design
31
50 Factors and 167 Levelsthat Describe Hotel
Features

• External Factors Pool type Corridor view
• Building shape No pool Outside
  access/restricted view
• L-shaped w/landscape Rectangular
  shape Enclosed access/unrestricted view/
• Outdoor courtyard Free form shape balcony or
  window
• Landscaping Indoor/Outdoor Hotel size
• Minimal Pool location Small (125 rooms, 2
  stories)
• Moderate In courtyard Large (600 rooms, 12
  stories)
• Elaborate Not in courtyard
• Rooms Size Sink location Bathroom features
• Entertainment Small (standard) In bath
  only None
• Color TV Slightly larger (1 foot) In separate
  area Shower Massage
• Color TV w/movies at 5 Much larger (2.5
  feet) In bath and separate Whirlpool (Jacuzzi)
• Color TV w/30 channel Small suite (2
  rooms) Size of bath Steam bath
• cable Large suite (2 rooms) Standard
  bath Amenities
• Color TV w/HBO, Quality of Decor Slightly
  larger/sink Small bar soap
• movies, etc. Budget motel decor separate Lar
  ge soap/shampoo/
• Color TV w/free movies Old Holiday Inn
  decor Much larger bath w/ shoeshine
• Entertainment/Rental in room New Holiday Inn
  decor larger tub Large soap/bath gel/
• None New Hilton decor Very large/tub for
  2 shower cap/sewing kit

32
50 Factors and 167 Levelsthat Describe Hotel
Features

• Food Restaurant nearby Store Vending
• Restaurant in hotel None No food in store None
• None (coffee shop next Coffee shop Snack
  items Soft drink machine only
• door) Fast food Snacks, refrigerated Soft
  drink and snack
• Restaurant/lounge combo, Fast food or coffee
  shop items, wine, beer, machines
• limited menu and moderate restaurant liquor
  Soft drink, snack, and
• Coffee shop, full menu Fast food or coffee
  shop Above items and sandwich machines
• Full-service restaurant, and good
  restaurant gourmet food items Above and
  microwave
• full menu Room Service In-room kitchen
  facilities available
• Coffee shop, full menu None None
• and good restaurant Phone-in order/guest
  to Coffee maker only
• Free continental pick up Coffee maker and
• None Room service, limited menu refrigerator
• Continental included in Room service, full
  menu Cooking facilities in room
• in room rate
• Lounge Type of people Lounge nearby
• Atmosphere Hotel guests and friends None
• Quiet bar/lounge only Lounge/bar nearby
• Lively, popular bar/ Open to public Lounge/bar
  w/

33
50 Factors and 167 Levelsthat Describe Hotel
Features

• Leisure Racquet ball courts Childrens playroom/
• Sauna None playground
• None Yes None
• Yes Tennis courts Playground only
• Whirlpool/Jacuzzi None Playroom only
• None Yes Playground and playroom
• Outdoor Game room/Entertainment Pool extras
• Indoor None None
• Exercise room Electric games/pinball Pool
  w/slide
• None Electric games/pinball/ Pool w/slides
  and
• Basic facility w/weights Ping-Pong equipment
• Facility w/Nautilus Above movie
  theater, Pool w/slides, waterfall,
• equipment bowling equipment
• Security Smoke detector Sprinkler system
• Security guard None None
• None In rooms and throughout Lobby and
  hallways only
• 11 a.m. to 7 p.m. hotel Lobby/hallways/rooms
• 7 p.m. to 7 a.m. Alarm button 24-hours video
  cameras
• 24 hours None None

34
50 Factors and 167 Levelsthat Describe Hotel
Features

• Services Limo to airport Cleanliness/upkeep Specia
  l Services
• Reservations None Management skill None
• Call hotel directly Yes Budget motel
  level Information on
• 800 reservation number Bellman Holiday Inn
  level restaurants, theaters, etc.
• Check-in None Non-convention Hyatt Arrangements
  and
• Standard Yes level reservations
• Pre-credit clearance Message service Convention
  Hyatt level Travel problem
• Machine in lobby Note at front desk Fine hotel
  level resolution
• Check out Light on phone Laundry/Valet Car
  maintenance
• At front desk Light on phone and None None
• Bill under door/leave key message under
  door Client drop off and Take car to service
• Key to front desk/bill by Recorded
  message pick up Gas on premises/bill to
• mail Secretarial services Valet pick up and
  drop room
• Machine in lobby None off Car rental/Airline
  reservations
• Xerox machine Self service None
• Xerox machine and typist Car rental
  facility
• Airline reservations
• Car rental and airline
• reservations

35
Room Price per Night is 44.85
This full profile description of a hotel offering
is one of the 50 cards developed by a fractional
factorial design of the seven facets each at the
five levels (developed by the Marriotts
development team). Each rpondent received five
cards following a block design.

• Building Size, Bar/Lounge
• Large (600 rooms) 12-storey hotel with
• quiet bar/lounge,
• enclosed central corridors elevators, and
• all rooms have very large windows
• Landscaping/Court
• Building forms a spacious outdoor courtyard
• many trees shrubs,
• the swimming pool plus a fountain, and
• terraced areas for sunning, sitting eating.
• Food
• Small, moderately priced lounge and restaurant
  for hotel guests/friends
• limited breakfast with juices, fruit, Danish,
  cereal, bacon eggs,
• lunch soup sandwiches only, and
• evening meal salad, soup, sandwiches, six hot
  entrees including steak.
• Hotel/Motel Room Quality
• Quality of room furnishings, carpet, etc., is
  similar to
• Hyatt Regencies, and
• Westin Plaza Hotels.

• Room Size Function
• Room 1 foot longer than typical hotemotel room
• space for comfortable sofa-bed 2 chairs,
• large desk coffee table, and
• coffee maker small refrigerator.
• Service Standards
• Full service including
• rapid check-in/check-out systems,
• reliable message service,
• valet (laundry pick-up/delivery),
• bellman,
• someone (concierge) arranges reservations,
  tickets, generally at no cost, and
• cleanliness, up-keep, management similar to
  Hyatts Marriotts .
• Leisure
• Combination indoor-outdoor pool,
• enclosed whirlpool (Jacuzzi), and
• well-equipped playroom/playground for kids.
• Security
• Night guard on duty 7 pm to 7 am,

Would stay there Would stay there Would stay
there Would rarely Would not o almost all
the time o on a regular basis o now and then o
stay there o stay there
36
Result
Courtyard by Marriott not small Marriott
37
Marriott13
38
Implementation/Impact

• From three test hotels in 1983, by late 1988, 175
  Courtyard by Marriott Hotels were open 300
  hotels by 1994, sales over 1 billion, 14,000 new
  jobs.
• Market share 4 of that projected by consumer
  simulation.
• Occupancy rate above industry standard.
• Created new market segment (5 new clone chains
  have been developed).