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1 Introduction
*12 Appendices..1-10.............................................................................................................................................
Kellogg's is a world-wide operating company. The business of Kellogg's is the Breakfast cereal market. In this assignment I'll make some assumptions which can't be true regarding the real characteristics of the company. Taking Kellogg's as the example, I'll have to organise a full new product development with all steps that are necessary to introduce the product into the market. Before I've got to explain the company why it is so important to introduce NPD as an permanent area in the organisation.
In the main body I refer to some Appendices. Some of them you should read are printed in bold letters (the questionnaires are to large for the main body), the others are only additional information. To provide a quick finding of the Appendices I have put them in a register (A1-A...).
Taking the role as an external consultant, I have to explain the board of directors, why it is necessary to have a vital New Product Development.
One reason is that markets never stand still. All companies have to adapt their products to the rising needs and wants of the customers. The NPD becomes vital to the survival of a company. The customer will decide about the success of a company by buying their products. Companies who don't want to take the pace of the market will not be successful over time.
This kind of force by the market to come up with new products has shorten the lifecycles of them. As a result of this, more and more expenses have to be made to develop new products. In the last years, some leading companies increased their expenses for this area tremendously. Facing this developments, the accurate allocation of the financial means has to be cautiously prepared.
You have to find the right balance between the amount of projects you develop and the budget for each project. It is better to develop less ideas with a bigger budget, rather than the other way.
You can develop new products by purchasing know-how from sources outside the company or you can develop your own products. The second way is the more vital one, I suggest Kellogg's because the control and Know-how remains in the company.
It is important to divide the NPD into different stages. The process of NPD is a very risky one and managers who conduct it are responsible for the success. To make the whole development more controllable, stages has to be build in the process. Each process expects some requirements on the idea/concept/prototype to be met. The gates after each stage check these necessary requirements against certain criteria. If they are met, the product passes the gate to the next stage, if not, the development will be stopped.
The stage-gate process prevents its managers to 'stuck' to the idea/concept/product through the whole development. In order to sort ideas out when they become more and more impossible and to prevent the company from spending huge sums of money to them, the gates are devised. I'll go through the following stages with the Kellogg's company.
There are many theories about the variables determining a products success. There are some mistakes Kellogg's shouldn't make in their New Product Development.
Our new product should not miss market orientation. We have to consider the customers needs and wants accurately. The customer must be involved in the whole process of NPD from the early beginning to the end.
This means early and much customer interviews from the beginning (Idea finding) and detailed market studies, as well as consumer panels and a test market I suggest Kellogg's.
We have to conduct the process properly. The new product ideas have to be screened radically and the chosen product concept must be pushed to the launch accurately. It is better to concentrate on a few good product-concepts rather than to try to develop many concepts poorly. No stage in the NPD should be cut off. Once decided to make e.g. a test-market, it has to be made accurately. Otherwise we should let it be. Especially the homework phase, where accurate investigations about the feasibility of the product with regards to the market and the production have to be made is worth doing precisely.
We should go through the process as quick as possible, but as slow as necessary. The nature of the cereal market is a very dynamic one. Competitors don't sleep. Kellogg's should come up with a new product quickly to surprise the competitors. The stages has to be managed carefully with the time taken to finish each level.
As the market leader, Kellogg's should not be satisfied with coming up with a me-too product. The leader should make the pace and prescribe the path of development. New products should be devised, to gain the competitive edge.
With this presentation I have shown the directors of Kellogg's the importance of the NPD. They give me the job, to implement the NPD-process buy launching at least one new product successfully.At first I have to form a team, which works with me in the process to develop a new product:
I suggest to form a multidisciplinary New product venture team. This multidisciplinary core team should consists of one employee from: marketing, R&D, Production, sales and one team leader (that's me in the first process of NPD). In such a big company like Kellogg the team members should be independent from their departments during the project, to maintain a sound NPW.
If the team is successful and the need for such a continuous area is recognised within the company, the team could become a department, to stop the exchange of employees with the departments involved.
When there is a special need for more people in further stages , they can be taken from their departments if possible. Their colleagues from the core team can inform them about the procedures before they joined.
The first step to start with is to generate ideas. They can come from inside the company or from outside. Both sources are crucial to the process of generation. The expectations should not be set to high. Many of them are not useful.
To give the whole process of idea generation a rough direction, I'll set a kind of motto or a strategy for the process which could be:
The aim of the ideation is: " Find a new product for Kellogg's in the accustomed market of breakfast cereals. The product should be in line with our philosophy of high quality, healthy products. Appealing new customers (mainly older people (20-50+)) to strengthen/extent the market share is desirable."
For Kellogg's I suggest to conduct an employee contest to gain new ideas.
It is important that all employees get involved in the process of innovation early.
I design a poster
Moreover it is important to ask the senior management in more detail. Therefore I invite managers from different disciplines (sales, marketing, production, R&D etc.) in groups of 8 people to a brainstorming session. Such sessions should be repeated in certain intervals, too.
To accelerate the process of idea finding, the salesmen are asked about customer's needs and wants, or enquiries.
Moreover I suggest Kellogg's to establish a consumer panel, which can be asked for ideas in this early stage. In later stages, the consumer panels can be invited to in-house tests. It is important to mix the right sample of people together.This people are asked about their ideas with the questionnaire in
To narrow the scope of gained ideas, I'll only mention a few. All pure followers to existing products of Kellogg's and all total unrealistic ideas are eliminated by the team before:
After one week the questionnaires of asking the panels are present with the following results:
Þ
The customers are not always the consumers (housewives buying for children).Now, the ideas are roughly screened in the team. Each member of it must evaluate the general feasibility of each idea. If one team member is against an idea (concerning his area), it will be cancelled. Afterwards there are only three left:
To be consumed with milk or vegetable juice.
This is a handy number of ideas. To screen them further, a more accurate discussion is necessary.
The ideas who are not under the chosen ones are collected in an idea database. Ideas are important raw materials. I suggest Kellogg's implement this kind of database.
5. Preliminary investigation(stage 1) and final screening (gate 2)
Interviewers are sent to malls to ask customers about these certain ideas. In addition some interviewers has to ask especially pet owners about the idea 'cereals for pets'.
In addition a brief desk research of secondary data is made by the team colleague from the marketing.
All information gained are summarised in one folder for each idea (Appendices 4.1-4.3) more detailed. The results of the second screening you can see in the appendices are not in the folder at this point of time !
In this Discussion I'll only mention the important bits of information.
Here are some important results from the Interviews:
The team member from the Marketing department must make his decision behind all collected market data and the interviews.
Considering the new gained information, a second screening is conducted with the team.
I make a questionnaire (Appendix 5). Each team-member must evaluate each idea for his area. After all this background of research, they must make a go/kill decision for each idea buy giving points. The points are collected in a scoring list to ease the decision process.
Calculation of results:
Two of the five questions in each area must be answered with 'yes' by the particular team member to enable him to make a 'go' decision. These questions are printed bold. One 'yes' of these necessary questions counts 10 points!
Each 'yes' of the other 3 questions brings 2 points for the scoring and all 'no', zero points.
At least each area must score 24 points to make a go decision !
That means at least both necessary questions plus two of the others must be answered positively.
The maximum score is (2*10 + 3*2) 26 points. So if only one necessary 'yes' is highlighted and all other 3 normal 'yes' the reachable amount is (1*10 + 3*2) 16 ! Þ The product fails !
For detailed answers and scoring details see Appendix 4.1-4.3, too.
The idea that survives the screening is 'Hearty Cereals'.
The 'killer variable' of the cereal drink is the positioning of the product. A clear position is missing.
The killer variable for the cereals for pets idea is at first the production, because it can't be manufactured easily on the same machines as the cereals for humans. Furthermore the problems they would create to develop them.
At this stage, the product ideas are transferred into a verbal or visual concepts allowing the customer to build up a picture of the product in his mind.
My concept for the new Kellogg's product is:
"Hearty vegetables: The hearty version of a breakfast cereal Mix for people with a special taste of Breakfast in mind."
At the end of this stage one product should be the winner, or (when more products have to be manufactured) the one
with 1st priority.
Moreover my team has to be empowered by additional members from the marketing department. In the next step, a detailed market study has to be made to develop a marketing strategy. After this the concept tests begin.
This and the next steps are belonging to the justification: Why the product has to be developed?
To learn more about our competitors, the colleagues from the marketing are collecting as many information as possible by: looking at competitive literature and advertising, asking salespeople about competitor trends in new products, and suppliers about competitor's capacities and equipment (threat of me-too-products).
I'll only mention the main characteristics in the following text. The more detailed study about the competitors and the market you find in
The competitor study has given the following information:
Despite of all the many products in the market, there are mainly four big competitors:
Kellogg
is market leader with a declining share of 42,5% in 1995 and an average growth of 9,4 %.All competitors have muesli labels, and are able to come up with vegetable products, too.
For this reason, the Marketing a promotion must be very powerful to set competitive advantages early!
A tremendous average growth have the Cereal Partners brands with 58% and a share of 8,2%. In the 1990s Nestlé and General Mills made a joint-venture. The company called 'Cereal Partners' was formed. Nestlé is our main competitor with a huge capacity and company image.
All the companies mentioned above competing for a total sales potential in this share of 443,000 tonnes. The market has an estimated growth (for 1995 !) of 14,8%.
In the last years, the market for Breakfast cereals has been growing.
Due to a strong development of innovations and much promotion, the UK market was worth £1 billion.in 1995 (Mintel).
The whole market can be roughly segmented into:
There was a shift in eating habits. People take care for their health more than in the past. Thus, the habits in eating cereals have changed, too.
Demographic changes in society have a further effect on the market of the breakfast cereals. On the one hand there are more and more housewives working outside and don't have the time for cooking or making breakfast.
On the other hand, there is a growing number of singles who don't want to cook for their own.
For this reasons, cereals became a snack during the day, too.
All these factors are convenient developments for hearty vegetables.
Total sales of cereals rose from 1990 to 1995 by 19 %.
As you can see from the picture, the Muesli mixes and other high fibre breakfast cereals cover a huge market potential. Both segments are competition areas for our new product.
Due to the large variety in the market, we estimate a market share of 2% (within the Muesli and other high fibre segment) in the first year. (3% in the second year, 4% in the third).
That means a volume of roughly 10,000 tonnes in the 1st year.
(Explanation for this estimation is in Appendix 9. )
There are no problems in manufacturing the products. All ingredients can be bought. The challenge is the right mixture of all. The only thing to invest in is a more accurate machine part to mix the spice-powder. The above mentioned production volume is no threat.
After doing all these researches, I can specify the product accurately. Doing this, I'll enrich the concept with the gained information and the consumer wishes of the stage before.
|
Product |
Hearty Cereals Muesli Composition |
|
Package |
Common 375g boxes Package design similar to Kellogg's Nutri Grain |
|
Price |
Between 1.30 and 1.50 pound Average price 1.4 ; premium price for all target groups |
|
Target group |
heavy users, aged 25-50 who care for health less children |
|
Positionning |
Hearty Cereals are a new alternative to all common breakfast meals for people with a different taste of breakfast in mind. Various spice mixes allow individual tastes. |
|
Features |
Vegetable Muesli Mix consisting of dried vegetable(e.g. Paprika, carrots, tomato); Mixed with Bran Flakes and a minor component of rolled oatsAt the beginning each cereal box incl. Three diffenentspice mix satchels which must be determined by customer tests. Possible mixes (Mexican, Italian, Nature etc.) |
|
Benefits |
welcome change in Breakfast |
|
Marketing objectives |
gain initial market share of 2% in Market of Muesli, extend this share to 4% until me-too products enter market. |
Normally a broad needs-and-wants study is necessary to get to know the real needs and wants. In this assignment I only use the gained information from the preliminary investigation before.
I'll make the research studies BEFORE the concept test (according to COOPER), because they can be done with less effort (in the practice) than the consumer test.
In the concept tests, the consumer is asked by presenting him the product concept. In addition the interviewer shows some computer made pictures of how the mix should look like. In this stages there still is no prototype of the product.
After this the interviewer uses the questionnaire
You can see the results in Appendices 8.1 , 8.2. They empower the product definition, lined out before.
The older age bracket(36-50+):
The younger age bracket(25-35):
is more willed to taste new things
(they like exotic spices)
(more positive attitudes 45%)
(65% can imagine to substitute e.g. bread with sausages)
(have more friends who would be interested, too)
In both groups are many people who aren't sure about the product. They could be a huge potential.
Now, many data for the financial analysis are collected. I ask the colleagues from the marketing, R&D department to estimate their costs out of their experience.
All other costs in million pounds !
The explanations to this table are in
Appendix 9
Analysis:
the highest loss the investment can create is £1.3 million.
the payback time (cumulated cash flow) is slightly over one year.
very small break even point (except first year)
Now the decision to be made at Gate 3 is crucial. In reality, one product should be defined as the winner at this point, because of the high costs in the next stages.
I call my team for a conference. The same criteria as for the detailed screening at gate 2 are discussed for this product. With the new information, the decision for the next step can be made more proficiently.
There is only one product left, the gained data empower the good results form the assessments before and the product passes to the next stage.
7. Development of the Hearty Cereals (Stage 3, Gate 4)
Now the real product has to be made. The concept becomes reality.
The different suppliers of spices and vegetables are asked to send test packages. The R&D Department produces spice mixtures in different combinations of the particular spices from each supplier. The aim is to receive a mixture that tastes the way the customer expects from the spice-mix names.
The three favourite spice mixtures are chosen from the questionnaire: 'natural', 'Mexican Salsa', 'Italian Inferno'.
The aim is to mix the spices in a way, the customer likes.
Therefore, above defined customer panels are regularly invited to in-house tests. So the most impossible variants are sorted out. After each test there is a group discussion with the consumers where people from the R&D department take part, to find out the wishes. In addition, the tests should be monitored by a food-chemist.
"The mixtures should not be too spicy or too hot.";"They should stay in the 'back-
ground' of the taste.";"The most important thing are the tastes of the vegetables". Are some opinions from the discussions.
I think this phase is very important for the success in the market. So there should be no shortcuts. As many consumers as possible has to be asked. (Specially in this case where success is a question of taste).
Parallel to the product development a marketing plan is constructed. This would boost the assignment again. The In-house tests show, that the product definition given in chapter 7.4 is right.
At this stage a modification of the marketing strategy and the product strategy is necessary again, but the last study was good enough for our product and since this study not much time has passed, so we don't make any modifications.
Advertising is one facet of the marketing and a very important thing in our case. I send a briefing to our advertising agency "competition concepts". They are working for Kellogg's regularly and know the market. The briefing contains the detailed market research, the product definition and the results of our questionnaires. In addition we'll send them some prototypes to taste the product.
Additional instructions and aims are:
the budget for our new product is worth spending is 3% from our total annual advertising
budget. The standard advertising will be £4,500,000. The product will be launched in
spring (April). The budget refers to the months after.
In addtion Kellogg's can spent a budget for the product launch in GB of £ 10,000,000. It
must be high, because competitors could come up with a me-too product early. We have to
build up a competitive edge with the promotion. (Kellogg's is well known as a heavy
advertiser for its brands. Once it spends £6,000,000 for the repositioning of Kellogg's K.)
the advertisement should create awareness of at least 70% of the whole target market
audience within the first half year.
The agency should emphasis in their message/spot the healthiness of the product and the innovation impact it brings into the market.
After 6 weeks we get the results of the agency with the invoices. (Appendix 10)
Here is the brief version of the costs and use:
The following costs are referring to the fist three month of the launching campaign. After it the normal advertising will be made for the product.
Accurate Breakdowns in Appendix 10 !
During the first three months of the launch, the advertising frequency must be higher. After that the level decreases to a normal (usual) level.
Because of the long experience of the advertising company with Kellogg's, we know that they used the right media to reach the customers.
At this point of time we have the optimal taste-mixtures, we have a detailed marketing plan and a financial analysis. In addition the way of production is clear.
The team meeting at Gate 4 : All results are within our expectations.
Moreover the salesforce is provided with samples of the Hearty Cereals. These samples are joined by a detailed leaflet about the cereals and with proposals of the right selling-arguments for the customers (wholesalers). The salesmen are asked to evaluate the materials sent.
8. Simulated Test Market: Testing the product (Stage 4,Gate 5)
Hearty cereals are a new product for Kellogg's the success is unclear, because it is a matter of taste to buy / like this product. Our customer tests received a positive reaction, with a relatively high potential of unsecured customers. These people have to be persuaded quickly before other competitors get them. Therefore the advertising must be relative high.
Because of the high risk of success the board of directors wanted to conduct a pilot launch before "Hearty cereals" are introduced in the market. I suggest, that the time is pressing. A test market would last too long to be effective and would be too expensive. The competitors could become aware of the test and had enough time to make own researches.
I suggest the directors to make a test market. The time for conducting the market is very short. Hearty Cereals are kept out of competitor's eyes.
On the other hand test markets are not so accurate as real world tests, but much more cheap. It is better to spent the money for advertising.
The test market is a good opportunity to test the production system. Because there are no critical changes in production, it is possible to make a trial. Here, the products for the test-market are produced.
In the trial production a bottle neck occurs: The proposed additional (more precise) machine-adapter for the mixing of the spices, can't be used for larger productions. In this case a new machine has to be bought for £ 750,000. This investment don't has huge results on our financial calculation so it can be made.
I choose a supermarket and invite some customers (all potential consumers with the right segmentation) for a shopping trip. Before I show them some advertising spots (many new ones they can't know and spots from competitors). Under the spots is the spot for Hearty Cereals, too. Then the market is opened and the customers can make their buy. They are provided with a certain amount of money they can spent, say £30.
There must be some researchers who will investigate the consumers during the trip. They are suited like personal of the supermarket. The investigators will pay their attention to the cereal shelf, where the Hearty Cereals are positioned. The amount of packages of Hearty Cereals (and other cereals) which are bought have to be noticed
After the purchase the customers are asked about the reasons of their purchase. They can take the goods bought at home and use them. After one week they ( the customer who bought Hearty Cereals) are asked by phone about Hearty Cereals. The same questionnaires as in Appendix 7 are used. The time for collecting and analysing the results is two weeks.
Therefore the marketing team has to be empowered to cope with the information.
At the team meeting at Gate 5 the results from the simulated test-market are discussed:
There were mainly positive results upon our new product. The customers like the new idea. Because of the optimal advertising, a large amount of unsecured users bought the product to test it. The spice-mixtures are regarded as appropriate and the vegetables, too.
The results of these tests convince the board of directors to launch the 'Hearty Cereals' in GB.
The advertising seem to be very effective and stimulates customer's trust.
I assume that all the marketing planning done is optimal for hearty cereals. No changes have to be made. The marketing objectives have been approved and seen as realistic.
Now I'll invite the team for an Situation Size-up.
Here all data concerning Hearty Cereals will be put together. The results of the test-market are completing the information referring to the advertising media. In the size up, the current market situation is discussed. A Macroenvironmental Analysis takes the market situation for the Hearty Cereals in a broader frame to access the situation of the whole economic situation (GNP and disposable income etc.).
Moreover the internal Assessment considers the internal strengths of Kellogg's once again.
Taking a look at the salesforce, there are well-prepared with the samples given for the wholesalers. Our channel system is optimal for distributing the new product.
Now the product is ready for the market. The winter has gone and the spring will start in the next month. This is the optimal time to launch our new product. The springtime could be an additional advertising gag.
We will launch hearty cereals in whole GB as a blitz campaign to surprise the competitors. The distribution has its tip around London and the South-Middle England. Here are the most target-customers. The distributors in this areas will be provided here with the most contingents of 'Hearty Cereals'. When they become famous in GB the launch in the rest of Europe will follow.
Here is a brief description of the further proceedings:
a detailed plan with milestones must be made (use experiences from Test Market)
salesmen are given a go to sell hearty cereals.
appropriate shelf positions must be bought
When goods are on the way to customer the advertising will start in all media mentioned
Appropriate control systems and feedback from the sales are set
There should be regular meetings with the team to discuss the development of the launch
10. Conclusion / Recommendation
I described the new product development with Kellogg's because the company and its marketing are very interesting to me. Without having a product in mind, I started a brainstorming session for Kellogg's and came up with some interesting products.
The remaining three ideas are all very interesting. Especially the cereals for pets are a good idea for the pet food market. I chose hearty cereals, because they would be totally new for the market.
I tried to detail all necessary steps (according to Cooper) as short as possible so the work could be more detailed with a wider scope of words
Finally, I think to work as a new product manager is a very stressing, but interesting job.
Kotler, Amstrong, Saunders : "Principles of Marketing-European Edition", Prentice Hall Europe 1996
Robert G. Cooper :"Winning at new Products" Second Edition, Addison Wesley Publishing Company 1993.
MINTEL Market study about 'Breakfast Cereals (1995)'
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