BMGT352 Final Exam Study Guide

BMGT 352

Prof. Joshi

                                                Final Exam Study Guide

 Articles to Read for the Final Exam

 Overview

●      Brown in Harvard Business Review, Jun 2008: “Design Thinking”----http://www.ideo.com/by-ideo/design-thinking-in-harvard-business-review

○      Giving consideration to user’s needs and preferences

○      Design Thinking - a methodology that imbues the full spectrum of innovation activities with a human-centered design ethos

■      innovation is powered through understanding of what people and and need in their lives and what they like or dislike about the way particular products are made, packaged, marketed, sold, and supported

○       

 Opportunity Identification

●      Peter Drucker in Harvard Business Review, August 2002: “The Discipline of Innovation

●      http://hbr.org/2002/08/the-discipline-of-innovation/ar/1

○      Innovation work of knowing rahter than doing

○      means by which entrepenuers create new wealth producting resoures or existing resources with enchanced potentional for creating wealth.

○      Entrep. correlated to innovation - the effort to create purposeful, focused change in an enterprise’s econ/social potential

○      Sources of Innovations

■      Internal

○      Unexpected occurences

○      Incongruities

○      Process Needs

○      Industry/market changes

■      External

○      Demographic Changes

○      Changes in perception

○      New Knowledge

●      Kim and Mauborgne in Harvhttp://hbr.org/2004/10/blue-ocean-strategy/aard Business Review, Oct 2004: “Blue Ocean  Strategy”

●      r/1

●      Day in Harvard Business Review, Dec 2007: “Is It Real? Can We Win? Is It Worth Doing?”

●      http://hbr.org/2007/12/is-it-real-can-we-win-is-it-worth-doing-managing-risk-and-reward-in-an-innovation-portfolio/ar/1

 Concept Generation

●      Huston and Sakkab in Harvard Business Review, Mar 2006: “Connect and Develop: Inside P&G’s new model for Innovation”

○      It was, and still is, a radical idea. As we studied outside sources of innovation, we estimated that for every P&G researcher there were 200 scientists or engineers elsewhere in the world who were just as good—a total of perhaps 1.5 million people whose talents we could potentially use. But tapping into the creative thinking of inventors and others on the outside would require massive operational changes. We needed to move the company's attitude from resistance to innovations "not invented here" to enthusiasm for those "proudly found elsewhere." And we needed to change how we defined, and perceived, our R&D organization—from 7,500 people inside to 7,500 plus 1.5 million outside, with a permeable boundary between them.

○       

○       

●      http://hbswk.hbs.edu/archive/5258.html

●      Goldenberg, Horowitz, Levav and Mazursky in Harvard Business Review, Mar 2003: "Finding your Innovation Sweet Spot"

●      http://hbr.org/2003/03/finding-your-innovation-sweet-spot/ar/1

 Design

●      HBS Note: “Analyzing Consumer Perceptions” (Course-pack)

●      HBS Note: “Conjoint Analysis: A Manager’s Guide” (Course-pack)

 Testing

●      Case: Prototyping: A Quick Introduction (Course-pack)

●      HBS Note: “Researching and Monitoring Consumer Markets” (Course-pack)

●      HBS Note: “Forecasting the Adoption of a New Product” (Course-pack)

 Launch

●      Marn, Roegner and Zawada in McKinsey Quarterly, 2003(3): “Pricing New Products” (Canvas)

○      Charge too much and the product will not sell

○      Charge too little and the company forgoes revenues and products, and fixes the products market value position at a low level

○      80-90% of poorly chosen prices are too low

○      Incremental approach-use existing products as a reference point. ex. if the new product cost 15% more to make than the old one, include a 15% price markup on the new product

■      can underestimate the value of new products

○      Good prices are based on an expansive and not an incremental approach

○      Have to explore the full range of pricing options: what are the highest and lowest prices you can charge?

○      Revolutionary products: so new that it creates its own market

○      Evolutionary Product: upgrades and enhances existing products

○      Me-too products: bring a company into line with the rest of the market without adding new benefits

○      Evaluate all benefits to the consumer in order to find the price ceiling

○      Use cost-plus pricing to find the lowest price (floor)

■      Must account for all costs

■      overly optimistic market projections can create false estimates of fixed costs

○      Must gauge the market size at each possible price point

○      Use penetration pricing when:

■      There is a new market and benefits offered by a new product are high, and customers are price sensitive

■      A supplier’s cost to serve will decline sharply and rapidly because of economies of scale or the learning-curve effect

■      The company’s competitors have a higher cost structure or are  locked into agreements that limit their pricing freedom

○      Aspects of new product pricing that are against targeting the largest market

■      Reference price: release price-any discounts or other incentives

●      tells the market what a company really thinks a new product is worth

■      Competitors Reactions: low prices can trigger price wars

■      Life cycle strategy: Start out with higher prices in order to capture profits from early adopters who are willing to pay a premium. Also helps match demand to production capacity.

■      Cannibalization: low prices might promote cannibalization of profits from another product your company owns. This is a positive effect if the old product is being retired.

Lecture Notes Topics to Prepare for the Final Exam

Opportunity Identification

Blue Ocean Strategy:

Identifying opportunities: look at market trends, value maps for attributes

Red ocean- compete in existing markets, beat competitors, exploit existing demand, choose between differentiation OR low cost

Blue ocean- create uncontested markets, make competition irrelevant, create new demand, achieve differentiation AND low cost

                 examples: Ipod (compete on merit + standard attributes), cirque du soleil

                 -Achieving low cost + differentiation - change target market, exploit idiosyncrasies, revisit assumptions and status (and if they provide value)

Creating blue

                 -build strategy canvas- capture current state in known market (attributes, competition, investments, customers) and plot value maps

                 - redraw canvas and plot new value maps (Four actions framework)- where can you eliminate/reduce costs, or raise standard/create new differentiation

                 - implementation

                             - change competitors aspects offered and target - change use, customers, purchase’s purpose

                             - identify consumers between two markets and offer best combination

                             -make functional product emotional (into luxury)

                             - make emotional product functional (into commodity)

Screening Opportunities

Holistic judgment

                 -multivoting- exceptional only if majority chooses (Darwinator)

                 -surveys

Detailed evaluation - smaller set

                 - scoring- weights importance of attributes in terms of core competencies and profits
- RWW - Real, win, worth (Real, Win, Worth article)

                             - Real - market has need or desire, wil.l buy

                                         - product has clear concept, produced, satisfiable to needs

                                         - determined by ideas

                             - Win - product is competitive, has advantage and is sustainable

                                         - company is competitive, has resources, management, and market response

                                         - determined by guesstimates

                             - Worth - profit worth risk

                                         - strategic sense- fits growth strategy, supported by top management

                                         - determined by extensive market research

Concept Generation

Design

Testing

  -Prototyping

Prototype: and approximation of the final product or service. A mechanism to help answer specific types of questions:

                 -Learning: about performance and feasibility (proof of concept)

                 -Communication: demonstration for feedback (3D models of style or function)

                 -Integration: combine sub-systems into system (alpha/best test models)

                 -Milestones: goals for development schedule (first testable hardware)

Approaches:

                 -Prototypes → Specifications (during concept generation)

                             -smaller companies/simpler products - use prototypes to get consumer feedback

                 -Specifications → Prototypes (during design and testing)

                             -big companies/complex products - coordinating large amounts of info - manage a large base of users

                             -use market research to drive specifications

Types:

                 -Sequential: A continuous cycle from build → test → scrutinize → redesign → build….

                             -learn from the first to build the second; lower dev costs & less resources needed

                 -Parallel: build many and select best option available

                             -faster time to market and creates internal competition

  -Testing Procedures

Main Goals of Testing:

                 -reduce risk in stages (first test individual components then test integrated product

                 -maximize expected benefit (verify consumer perceptions match firm beliefs; identify right marketing mix

                 -have we designed/developed it right? can we predict market success? are we ready for launch? etc.

Methods for Testing

                 -Internal tests:

                             Laboratory Testing: effective for measuring performance; focused on “engineering” measures

                                         -lab is not representative of how consumers use the product

                             Employee Testing: “dogfooding” - may be biased though

                             Expert Testing: expert panel evaluates the innovation across a set of criteria.

                                         -experts may not accurately reflect consumers

                 -External tests: with customers; complementary to internal tests.

                             Beta Tests: common for software, services, industrial products - with key customers

                                         Firm benefits: core design, support design, marketing mix design, direct sales promotion

                                         Customer benefits: experience with product (lowers training costs); influence on final product

                                         Risks: customer could be “wrong”; serious problems could affect purchase decision

                             Simulated Test Markets:

                                         Simulate a shopping situation (controlled parameters); observe customer; draw inferences

                                                     Model: target market * awareness * trial * repeat = sales

                                         Advantages over real test markets: cheaper, quicker, easier to keep secret

                             Test Markets: test cities where products are sold and marketed locally. data monitored electronically

                                         -initially used for deciding whether to launch; now used to determine how best to do so

                                         Advantages over simulated: STM models don’t predict implementation issues

                                  Weaknesses of both sim/real test markets: promo is unrealistically high; competition low

                             Continuous Experimentation: changing small parameters (colors, sizes, styles, wording, features, etc.) and seeing how sales/usage changes and adjusting accordingly

  -Diffusion of Innovations

                 Empirical generalizations: adoptions follow systematic patterns

                             Unit adoption is bell shaped - cumulative adoption is S-shaped

                 Factors Impacting Diffusion

                             -Relative Advantage: better than what it replaces

                             -Compatibility: closely matches needs, values, lifestyle

                             -Complexity: easy to understand and use

                             -Trialability: easy/accessible to try out

                             -Observability: easy to see its benefits

                 Key differences in motivations for consumers to drop and innovation

                             -Influentials/Innovators: value the innovation more, are less risk averse, like to lead

                             -Followers/Imitators: like proof of concept, buy based on recommendations; like to follow

                 Bass Model: number of adopters (in a given unit of time) = rate of adoption * number who haven’t adopted

                 Adoption Rate: driven by two parameters:

                             Innovators: “individual component” and likelihood of adopting regardless of social influence

                             Imitators: “social” or “contagion” component; increases with number of previous adopters

use estimates/data to get m. use previous analogous product data for p and q

                             Use bass model to predict first adoptions (no repeat purchases) and to predict category dynamics for really new innovations

Launch

  -Pricing

Strategies

                 1. Price skimming- start with high price then drop over time, “Skim” market one value segment over time

                             -deliberate strategy to extract value from early adopters- social status and functional utility

                             -optimize sales from demand, production economies (of scale)

                             -common for tech products

                             -drawbacks: slow adoption, inventory turnover, negative publicity, invites competition

                 2. Penetration pricing- set at low price then increase over time

                             -set low price to encourage trial, adoption, and switching ex. cable

                             - benefits: trial, positive word of mouth, defers competition because of low margins

                             -drawbacks: cost pressures, low price expectations

                 3. Bait and hook pricing- price bundles

                             -low initial costs but replacement parts are expensive (ex. printers)

                             - risks: generic producers can supply parts

                 4. Freemium- free service

                             - free service creates word of mouth, referral

                             -additional premium price for enhanced, value-added services

                 5. Prestige pricing- luxury/designer goods

                             -high price creates perception of high quality brand, exclusivity, excellence

                             -risk: reliant on brand perceptions which requires careful maintenance

Pricing Techniques - intuitive, incremental, suboptimal

                 1. cost plus (price= total cost +markup percent of cost)

                             -benefits: easy to implement, guaranteed profits

                             -risks: overly optimistic of sales, bias, unaccounted costs

                 2. competition-based (price = competition price + deviation)

                             - target costing- considers demand/supply constraints, set price cannot exceed target cost, profit if target is achieved, must be reasonable, quality must be maintained

                 3. Value-driven

                             -objective value- measures benefits given

                             -perceived value- value customers understand

                             -differentiation (economic) value = positive differentiation value - negative differentiation value + reference value

                                         EXAMPLE: A or B?

                                         Option A= current cost for n years

                                         Option B= cost of new strategy

                                         reference value = current cost (for comparable n years)

                                         positive differentiation= costs eliminated from choosing option B

                                         negative differentiation= costs incurred from choosing option B

                                         (EV = ref + pos - neg)/ # units = price

                             -Managing EV

                                         - reference value- position in high frame of reference, use promotions instead of lowering price

                                         -positive dif- cost saving through quality, service, materials, processes

                                         -negative dif- cost of switching

                             -concerns- project correct value of innovation by educating sales force, address value differences by pricing by segments

Best Approach for pricing

                 ceiling- value to buyers

                             competitive factors

                             final pricing

                             corporate objectives and regulatory constraints

                 floor- cost

  -Planning for Launch