They were operating in a very mature industry and were seeking a way to differentiate themselves in a highly competitive and concentrated industry.  I went on a tour of their dealers – a tour that was ostensibly designed to elicit from the dealers ways that that the company could increase its market share.  They were losing share to competitors who were felt, by the manufacturer, to be more innovative.  The truth was the competitors’ products worked better.  Market share loses were being experienced by the manufacturer, not the dealers, who were selling competitive product.  Their share in this product line was actually increasing.

The boys from the manufacturer came into these meetings armed with new ideas on how they could transform their product into something more exciting and hopefully desirous.

Dealers were asked what could be done to improve market share.  They responded with a bunch of suggestions such as:

1. Understand who you are pricing against.  Our product cannot compete against the top tier products so it should not be priced against them but rather against the lower tier products.  In short our prices are too high for the quality we offer (sounds like a value problem).
2. Provide better technical support.  We can’t get questions answered in a timely manner.
3. We can’t get parts to fix the products.
4. Attachments do not arrive with the product resulting in delays in getting the purchased product into the customer’s hands.
5. Why can’t we get quality product?  Our product does not stand up to competitive product in a number of key areas.

The boys from the manufacturer essentially dismissed these comments and instead began running out their ideas about “new and improved.”  These were ideas from engineering and product development and after each one was explained they asked, “Do you think you could sell this?

The dealers were incredibly frustrated.  Finally one dealer stood up and shouted:

“Do the basics right before we bring out more product that we can’t get parts for or can’t get technical support for or can’t sell because we are charging too much for the quality we are delivering.”

Not surprising the boys from the manufacturer took note and continued running out their ideas.

This was a really interesting experience that clearly pointed out a number of problems with the manufacturer:

1. They were almost exclusively product oriented.  The company was dominated by engineers who did not understand markets or customers.
2. There was insufficient control over the entire supply chain.  Their response was they couldn’t do anything about that.
3. They were deaf to what the dealers were telling them about what was occurring in the market place.  There was no room in their thinking for feedback from the market.  They operated in a vacuum.
4. They did not understand how the targeted markets defined value.  To them, value was an abstract concept that they talked about.  Their sense of value was one that focused on product features such as fit and finish, engine reliability, weight to power ratios, all at the expense of what customers wanted – a strong dealer who could fix things when they were broken, the ability to get parts in  a timely manner, warranties, etc.

This experience points out the tradeoff between innovation and doing the basics.  This company was not losing share because they were not innovating but because they could not deliver on the essentials that the buyer wanted after the purchase.  I’m not advocating that companies shelve their new product development efforts but I am advocating that they make sure they can provide the kind of value that the customer wants.  Do the basics right, not glamorous but critical.

Most commercial new product development processes take the following form:

· Idea generation

· Concept development/testing/reconfiguration

· Prototype development

· Market testing

· Roll out

The purpose of a disciplined, systematic approach to product development is to reduce the risk of bringing to market a lousy product that no one wants. New product development has been cited as the most risky of the growth strategies because of the investment in it. A systematic approach seeks to reduce the risk at each stage of the process and increase the probability of a successful launch.

If the healthcare development process is any indication, the government has little knowledge or interest in this type of process. Instead, they go from idea generation to concept development/testing/reconfiguration/reconfiguration/reconfiguration …… to roll out. This is the process that gives us all of those costly “products” whose costs are always underestimated and become part of the deficit generating landscape.

In the current situation, the impediment to concept acceptance is that a growing number of Americans see little value in the current healthcare concepts that have made their way to our attention. Value is the relationship between the quality of the product/service (or in this case, the program) and the cost of that product/service/program.

Value is a ubiquitous concept to be ignored only at the peril of any organization or administration. Value is also a lubricant that speeds the acceptance of the concept and ultimately the speed of penetration when the product is rolled out. The greater the value in the concept, the greater the likelihood of the acceptance of the product/service/program and ultimately, the quicker its adoption. Do you think for a minute that if the American public saw and understood the value in the current healthcare proposals that it would be suffering the problems that it is? Not likely. They are scared to death of the quality component of value and the price that they and their families, current and future, will have to pay for it. Moreover, with all of the changes in the “concept” it is difficult to calculate the value proposition inherent in the program. Confusing the buyer is never a good idea.

Too many organizations, including the current administration, believe that they can manage the new product development process simply by advertising and trying to make people believe that there is a strong core of value in it. This is a traditional marketing approach found in those organizations that have a strong selling orientation. That is, they rely heavily on the ability to promote their product regardless of whether the buyer sees any value in it. Think of Willy Loman in Death of a Salesman as a representation of this philosophy.

Six Sigma Marketing would have begun by identifying the specific groups using specific types of insurance. They would then have spent time understanding how these product/markets define healthcare value. Baby boomers are more than likely to define healthcare value differently from Gen X individuals. These differing definitions of value then would be used to develop healthcare proposals tailored to the value needs of each group. These proposals would form the core of the concepts to be developed/tested and reconfigured where necessary. Prototypes would be developed and market tested with a key criterion being the perceived value the plan offered the targeted healthcare buyer. Roll outs would take place on a limited basis where the results could be monitored, problems identified and corrected. Only at this time would a “universal healthcare” program (whatever that is) would be deployed nationally.

Unfortunately, the government is not a Six Sigma Marketing practitioner and has little understanding of value and what it means for new product development. The good news for them is that they will not have to bear the cost of marketing a lousy product. They’ve got us to pick up the check!

]]> http://blogs.e-bim.com/sixsigmamarketing/2009/09/15/new-product-development-the-government-way-where%e2%80%99s-the-value-in-national-healthcare/feed/ 0 http://blogs.e-bim.com/sixsigmamarketing/2009/09/08/to-every-thing-there-is-a-season-%e2%80%93-a-time-to-cut-costs-and-a-time-to-grow-market-share/ http://blogs.e-bim.com/sixsigmamarketing/2009/09/08/to-every-thing-there-is-a-season-%e2%80%93-a-time-to-cut-costs-and-a-time-to-grow-market-share/#comments Tue, 08 Sep 2009 07:52:43 +0000 Eric Reidenbach http://blogs.e-bim.com/sixsigmamarketing/?p=79 There are numerous reports regarding the future of American manufacturing -some thoughtful and some not. Some reports are typified by emphasizing the same old “in the box thinking” focusing on: labor costs, regulation, production efficiencies, innovation, etc. as the keys to the future success of American manufacturing. While these things are important it’s time to think out of the box.

Many manufacturers have grabbed hold of the cost cutting prowess of Lean and Six Sigma. But the growth of American manufacturing will not come through cutting the costs of American manufacturing. Yet this is the current legacy of Lean and Six Sigma. Both have been lauded for their ability to cut costs – and depending on their application, non-value adding costs.

But cost cutting can go only so far. So, with that as background let me ask three simple questions that manufacturers will have to answer:

· How has cutting costs opened up new markets for American manufacturing?

· How has cutting costs furthered penetration of current markets for American manufacturing?

· How has cutting costs developed new innovative products for American manufacturing?

These are three ways in which organizations can grow. Strategies that focus on opening new markets are called market development strategies. Their objective is to allow the organization to offer their current product/service lines to new markets. For example, Caterpillar is marketing its equipment lines in China.

Market penetration is the strategy that involves selling more of its product/service lines in the current markets they serve. This is a strategy used by all organizations. It can logically be argued that by cutting costs and reducing prices, manufacturers can create a differential advantage based on price. This is a differential advantage that is easily and readily neutralized but has nonetheless been a tried and true strategy for many organizations.

Product development is the strategy where an organization offers new product to the current markets that they currently serve. This is perhaps the most risky growth strategy because estimates of new product failures are extremely high and hence costly.

The point that I want to make is now is the time to turn the power of Lean and Six Sigma on other organizational goals such as growth. American manufacturing has reached a point where failure to grow means its survival is at stake. If you are not growing you are dying. An old cliché perhaps, but one that offers some useful advice.

Globalization has introduced a new complexity into the mechanics of manufacturing. The pursuit of value has now become even more complex and calls for a systematic approach for capturing and harnessing value creation and delivery for superior market performance. Six Sigma Marketing offers that disciplined and fact – based approach. Its focus is market share growth by providing superior value to targeted product/markets.

Under the old manufacturing model where the concentration was on domestic markets many manufacturers found value was pretty difficult to manage. The new global manufacturing model places value at the center but the scope of operations has made value identification and creation more important but significantly more complex. If you think identifying value in Paducah, Kentucky was problematic consider what is involved in identifying, creating and delivering value in Seoul, Korea. What will make value identification, creation and delivery easier and manageable are the tools of Six Sigma Marketing. The tools for tearing down are different from the tools for building.

Taken collectively the SSM tools are designed to identify specific product/market opportunities (P/M Matrix), define value and prioritize CTQs (Value Model), compare the value propositions of key competitors (Competitive Value Matrix), assess the loyalty and nature of that loyalty of your customers (Customer Loyalty Matrix) assess and identify areas of value weakness of your competitors (Competitor Vulnerability Matrix). Other tools link value opportunities to specific value streams and processes for improvement and leveraging. These are the tools that will grow market share for American manufacturers throughout the global market place.

The season for tearing down has passed. Now it’s the season for building.

The greater the value in a product/service offering, the faster the market penetration and market share growth.

Six Sigma Marketing has a laser like focus on value creation as the driver of market share growth.  Let’s look at the mechanics and dynamics of market share growth driven by SSM.  Much emphasis is placed on the degree of market share growth – from 5% to 7%, for example.  Much less attention is paid to the rate of market share growth.  In other words, how long does it take to reach 7% market share?  Think of the speed of value – both in terms of the rate of market penetration and the degree of penetration.

There are four options for corporate growth:

·         Market penetration – marketing current products to current markets

·         Product development – marketing new products to current markets

·         Market development – marketing current products to new markets

·         Diversification – marketing new products to new markets

All four of these growth strategies have one thing in common – the need for quick penetration into the market or fast adoption of the product.  And, it is the value of the product/service offering, defined not only by the quality and price relationship embedded within the product or service, but also contained within the entire value delivery system that is the lubricant that makes this speed possible.  Speed to market is one thing, but speed to market growth is equally important.

Here are a couple of value propositions:

The greater the value in the organization’s value creation and delivery system, the faster a new product is adopted.  For the new buyer that can readily understand and see superior value the more likely that buyer is to buy the product, try the service and recommend it to their friends.    This means that during the concept testing stage and the market testing stage, the organization must have a new product idea, concept or prototype that readily demonstrates its superior value.  It means that focus groups and surveys must uncover what the targeted product/market defines as value and have that definition at the core of the new offering.  This also means that the organization must have the product or service support system that compliments this value.

The greater the value, the faster a competitive value gap can be closed, and the faster market share growth takes place.  Value is the best leading indicator of market share growth and those organizations that have a superior value advantage that is sustainable are typically the share leaders.  If you are on the losing end of the value gap, closing the value gap will neutralize the leader’s advantage and lead to greater share gains.

As a corollary, the greater the value gap that an organization has over its competitors, the greater their market share position. 

The greater the value in the product/service offering, the faster a new market can be penetrated.  This means that pay back periods are shortened and ROIs are greater freeing up cash for additional innovation.  New products that can exit the introductory stage and enter into the growth stage faster, the more likely their success.  Not only are trials more likely, so too are repurchases.  For new products that wallow in the introductory stage because customers see little or no value in them, the more costly the initiative.

The greater the value, the more likely customers are to recommend your product or service to others.  The value of word of mouth has been well documented.  Value has a very strong relationship to recommendation.  Recommendation can be a significant compliment to your promotional program.

Six Sigma Marketing is the vehicle for bringing the speed of value to your marketing efforts.  It does this by focusing on superior value creation and delivery in targeted product/markets for the purpose of growing market share.  Value is like a lubricant that reduces the friction of introducing new products or entering new markets.  And, Six Sigma Marketing is the means by which the value lubricant is applied to the organization’s growth activities.