Consulting and Strategic Imprint in New Product
Module 5
Introduction to Strategy in NPD
The module extends core strategy disciplines into NPD: Blue Ocean strategy, new product business plans, and strategy consulting in product development.
Strategy Canvas
A strategy canvas is a visual representation mapping different levels of investment in competitive factors by industry players. It highlights the transition from competitive spaces to uncontested market segments.
Case Study: Southwest Airlines
Southwest created a unique model vs. full-service carriers. Full-service used hub-and-spoke, causing connection delays. Southwest adopted point-to-point without changeovers. They avoided major airports (NYC, Chicago) due to taxing delays, operating from tier-two airports. They maximized airtime by eliminating long boarding and turnaround. A single aircraft size simplified maintenance and pilot training.
| Factor | Regular Airlines | Southwest |
|---|---|---|
| Price | High | Low |
| Meals & Lounge | High | Eliminated |
| Hub Connectivity | High | Zero (point-to-point) |
| Speed & Punctuality | Low | High |
ERRC in Blue Ocean
| ERRC Action | Definition | Southwest Example |
|---|---|---|
| Eliminate | Remove factors the industry takes for granted but aren't mandatory. | Free meals, lounge access, hub connectivity. |
| Reduce | Decrease factors below industry standard. | Connecting flight options. |
| Raise | Increase factors above industry standard. | On-time efficiency and quick turnaround. |
| Create | Introduce factors the industry never offered. | Direct tier-two to tier-two connections. |
Red Ocean vs. Blue Ocean
| Element | Red Ocean | Blue Ocean |
|---|---|---|
| Market Space | Compete in existing space. | Create uncontested space. |
| Competition | Beat the competition (zero-sum). | Make competition irrelevant. |
| Demand | Exploit existing demand. | Create and capture new demand. |
| Customer Focus | Existing customers. | Non-customers. |
| Value-Cost | Trade-off (differentiation OR low cost). | Break the trade-off (both simultaneously). |
Case Study: Indian Premier League (IPL)
BCCI launched IPL to solve the long-duration problem of Test and ODI cricket. Younger demographics found traditional formats boring; satellite TV exposed them to EPL and NBA. India's 2007 T20 World Cup win provided timing. Franchise-based teams replaced national teams; player auctions ensured balanced talent; the format combined sports, business, and Bollywood into a 3-hour family package. This attracted non-traditional fans without requiring deep cricket knowledge.
New Product Business Plan
| Component | Description |
|---|---|
| Executive Summary | Fact-based proposal, market potential, estimated profit. |
| Business Model Justification | Gap the product solves; model rationale. |
| Buyer Conversion | How the firm reaches and converts buyers. |
| Stakeholder Identification | Implementation teams and channel partners. |
| Risk Mitigation | Potential fallouts and contingency plans. |
| Strategic Fit | Alignment with firm goals and competencies. |
| Critical Numbers | Most critical financial and operational metrics only. |
Mistakes in Business Plans
- Customer mistakes: lack of deep customer understanding, choosing convenient vs. best-fit markets, imitation products, insufficient price options, underpricing.
- Cost mistakes: unjustified high startup capital (buying when renting is possible), wasteful resource allocation, high fixed-to-variable cost ratio, skipping prototype testing.
Strategy Consultants
Hired when: an unrecognized performance problem exists, the internal team cannot fix a known problem, or difficult strategic choices must be made.
| Contribution | Description |
|---|---|
| Domain Expertise | Deep industry knowledge and best practices. |
| Data Synthesis | Objective interpretation of market/production data. |
| Strategic Structuring | Credible options, trade-offs, implementation paths. |
| Quantitative Modeling | Simulations and scenario planning. |
| Prototype Testing | Quick wins and short-term feedback analysis. |
Failures and Best Sellers in Emerging Markets
AMD Personal Internet Communicator (Failure)
In 2004, AMD launched a $250 device for emerging markets. It failed because cyber cafes offered low-cost access without device ownership, and second-hand PCs offered full functionality for similar price. The PIC also required expensive, slow internet.
Nokia Feature Phones (Success)
Nokia succeeded with 3310, 3315, 1100: low-priced, robust, low-maintenance, long battery life. The Nokia 1100 (developed after rural India field study) had a torchlight, wipe-and-clean surface, side-grip lines, and simple navigation for senior/semi-literate users.
Emerging Markets
| Consideration | Product Design Implication |
|---|---|
| Value-Consciousness | Customers evaluate both quality and price (not just cheapest). |
| Poor Road Infrastructure | Products must be available nearby. |
| Unstable Electricity | Function without regular power (Pureit candles, not electricity). |
| Low Labor Costs | Use human labor for last-mile, not robotics. |
| Real Estate Constraints | Smaller appliances for smaller households. |
| Community Living | Marketing supports social sharing, group opinions. |
Building Base of Pyramid Markets
Products must be highly functional but feature-minimal, intuitive (minimal training), robust (harsh environments), modular (gradual upgrades). Firms must provide innovative financing aligned with segment cash flows, long-term service warranties, and trade-ins.
Winning Customers in Emerging Markets
| Condition | Strategy |
|---|---|
| High intent, can't afford current options | Create lower price points. |
| High intent, priced out by excess features | Reduce features to lower price. |
| High demand, suboptimal current choices | Design appropriate products; migrate users. |
| Latent demand, products seem inappropriate/expensive | Build value proposition. |
| Latent demand, products seem too cheap | Elevate brand perception (e.g., Zudio). |
Design Thinking for NPD
Traditional education emphasizes left brain (logical, linear), increasingly replaced by computing and AI. Product development requires right-brain capabilities for context and unique solutions.
| Right Brain Capability | Application |
|---|---|
| Design | Novel, aesthetic, ergonomic solutions. |
| Storytelling | Weaving context, appealing to emotions. |
| Symphony | Strategic, big-picture thinking. |
| Empathy | Viewing the product from the user's perspective. |
| Playfulness | Creative use of available resources. |
Economies of Soft Innovation
Soft innovation alters aesthetic/intellectual appeal without changing core functional performance. Examples: new packaging, creative advertising, new book titles, varied pricing (mobile data plans, combo offers). Protected via design registration, not patents. Doesn't change underlying supply-demand economics.
Soft innovation thrives in hyper-competitive markets:
- Episodic Hyper Competition: short-term fads (packaging changes).
- Transformational Hyper Competition: long-term shifts (feature phones → smartphones).
In hyper-competition, launching is costly and risky, but not launching is riskier due to share loss.
Case Study: Luxottica
Italian eyewear multinational that established a near-monopoly via vertical integration. Starting as a sunglass manufacturer, Luxottica acquired distribution networks, signed licensing for Armani/Chanel/Prada frames, owns Ray-Ban and Oakley, acquired Essilor (largest lens manufacturer), bought LensCrafters and Sunglass Hut chains, and an eye health insurance provider. This end-to-end control allows markups up to 1000%.
Ultra-Quick Revision (Exam Essentials)
Key Concepts & Distinctions
| Concept 1 | Concept 2 | Distinction |
|---|---|---|
| Red Ocean | Blue Ocean | Red: beat rivals in crowded markets. Blue: make competition irrelevant. |
| Price-Conscious | Value-Conscious | Price: lowest cost. Value: quality-to-price ratio; premium for longevity. |
| Left Brain | Right Brain | Left: linear/logical/analytical. Right: synthesis, empathy, storytelling. |
| Functional Innovation | Soft Innovation | Functional: changes physical operation. Soft: aesthetics/packaging/pricing. |
| Episodic Hyper Competition | Transformational Hyper Competition | Episodic: short-term fads. Transformational: permanent technology/taste shifts. |
Must-Know Terms
- Strategy Canvas: Visual mapping of competitive factor investment.
- ERRC Grid: Eliminate, Reduce, Raise, Create.
- Bottom of the Pyramid: Functional, robust, minimal-feature products with innovative financing.
- Latent Demand: Demand existing beneath the surface but unfulfilled.
- Vertical Integration: Owning multiple stages of the supply chain (Luxottica).