Ch. 09 .doc

CHAPTER NINE DEVELOPING AND LAUNCHING NEW OFFERINGS Key Points This chapter stresses the need for nonprofit organizations to develop and launch new offerings and value propositions effectively and efficiently as part of their strategic planning. This may involve providing new or existing offerings to new or existing markets. Extensions into new offerings or markets may involve undertakings that are similar or dissimilar to current marketing programs. To develop new offerings successfully, the organization must be creative and systematic. The first stage is to generate ideas by searching available information or through artificial idea generation techniques. Once ideas are generated they must be screened to eliminate those outside established organizational goals or original mission. The next stage involves elaborating the idea into a concrete concept to be formally tested. The concept, if successful, must generate a specific marketing strategy and pass a business analysis. The final stages of the development process involve offer development and market testing, followed by a well-planned introduction to market process. New offerings follow an S-shaped pattern of growth over their life cycle. They move through: Introductory, growth, maturity and decline stages. The strategic issues facing the nonprofit manager differ across these stages. In the introductory and growth stages, the manage must secure trials of the new offering. Five target audience groups can be categorized as to time of entry in the innovation adoption process. First are the Innovators, who try anything new, are considered somewhat odd and often can be ignored by the new offer manager. The second group, the Early Adopters, cannot be ignored because they are often the opinion leaders who influence the next large group, the Early Majority. The Late Majority, which enters next, is less influenced by others in decision-making and must be convinced that the new offering is not a fad. Finally, the last group – the Laggards – can be ignored be cause they are tradition-bound and slow to try anything new. People move through the Stages of Change in the process of adopting an innovation. Innovations with significant advantages, that are compatible with the culture, that are not complex, that are easily communicated, and that are usable on a trial basis will receive faster acceptance. Chapter Outline Offer development — a problem of strategic planning Offer Strategy options for nonprofits Beware of mission creep A process for developing new offerings Idea generation Idea screening Concept development and testing Marketing strategy formulation Business analysis Offer development Market testing Introduction to market Launching the new offering Offer life cycle Introduction and growth stages Innovation adoption Finding potential innovators Stages in the innovation adoption process Innovation characteristics Vignette: Grameen Bank — Microcredit bank loans This vignette discusses the nature of developing and launching a new offering by a nonprofit. In this case, creating a bank, which offers only small “microcredit” loans to the poor. Gameen bank was founded by Muhammad Yumus, a professor of economics at Chittagong University in Bangladesh. He discovered that loaning very small amounts of money to the very poor to invest in crafts, farms, shops and small businesses helped the poor by meeting a need, but making the payments less onerous than traditional money lending. Between 1976 and 2006 Grameen Bank had more than $5 billion in loans, served 6.6 million borrowers, 97 percent of which were women. Grameen bank provides microcredit services in 71,371 villages and its impact on the poor has been well documented. In 2006, the bank’s founder, Muhammad Yunus and the Grameen Bank were jointly awarded the Nobel Peace Prize. Chapter Summary The market environment facing nonprofits in the twenty-first century is one marked by extremely aggressive competition in a large number of nonprofit sectors, including health care, charitable contributions, the arts, welfare reform and education. For an organization to survive in this exceptionally competitive market, it must continually produce new offerings. A system must be in place to generate, evaluate and market new ideas and then distribute, promote, and modify them through the introductory and growth stages of their life cycles. The nonprofit organization has nine basic growth strategies – easily communicated when organized into a grid: New offerings New offerings: Similar Existing offerings: Dissimilar Existing markets a. Market penetration b. Cost reduction c. Share maintenance 4. Offer extension 7. Offer development New markets: Similar 2. Market extension 5. Continuous diversification 8. Offer diversification New markets: Dissimilar 3. Market Development 6. Market diversification 9. Radical diversification The first three strategies focus on better using the current offerings and markets, expand the existing offerings to similar new markets or develop new dissimilar markets for the existing offerings. None of these requires major changes in the offerings themselves. The chapter focuses on how a mature nonprofit organization should develop offerings fitting into the remaining six strategies. Three strategies focus on providing new, but similar, offerings to existing markets, similar new markets and dissimilar new markets. The final set of strategies provides dissimilar offerings to the same three categories of markets. The very last strategy (cell 9) is the riskiest — bringing entirely new offerings to totally different markets. Many organizations offer new services that fail for a variety of reasons. These include: lack of administrative foresight; poor organizational systems for evaluating and implementing ideas; poor market size measurement, forecasting and research. Poor marketing planning (positioning, segmentation, under budgeting or overpricing); the distinctiveness of the offer of target audience benefits is not sufficiently clear; the value proposition is poorly designed; development costs are unexpectedly high; the competitive response is unexpectedly intense; and/or promotion is inadequate. However, even when new offerings succeed, an organization must guard against “mission creep” which means engaging in work that does not fit its mission and core operations. There are several steps in the new product development process: idea generation, idea screening, concept development and testing, marketing strategy formulation, introduction to market, and product or service launch. Creative and systematic idea generation requires commitment to seeking out new ideas, assignment of responsibility to someone such as an idea manager, development of a systematic procedure and building in creativity. Effective idea screening preliminarily reviews new ideas and eliminates all but the most promising. A screening committee can be established to develop evaluation criteria, assign weights for the criteria, compute weighted values for each idea and determine which ideas are to be moved into the next stage. The next stage involves concept development and testing — translating each idea into a concept statement that is meaningful to the target audience and then testing target audience reaction to each concept. Ranking concepts according to target audience’s intentions to act can identify which one has the best market potential. Once a concept is chosen, marketing strategy formulation commences, entailing (1) the nature of the target market, the product’s position and turnover goals, (2) the marketing mix and budget, and (3) long run goals and marketing mix strategy. Business analysis of the proposal comes next, based on break-even calculations. Then, if the concept is viable, offer development gives it concrete form through such things as brochures, schedules, ads and sales plans — each of which should be target audience tested. When this is ready, market testing is needed in an authentic market setting. Following a decision to launch the offer, introduction to market includes four decisions: when, where, to whom, and how to launch. Responsibility for the product launch is assigned and a formal scheduling procedure using PERT or CPM or similar program is determined. New offerings typically follow an S shaped growth pattern over the Offer Life Cycle (OLC), which is marked by four stages: introduction, growth, maturity and decline. Other kinds of offerings exhibit scalloped, cyclical and fad patterns. A distinction can be made between first time and repeated acceptance of the offering. The research of cultural anthropologists, sociologists, economists, educators, social psychologists and marketers can help determine how to elicit first-time behaviors. Innovation adoption theory classifies individuals into five adopter categories, based on their level of innovation, which refers to their responsiveness to new ideas and how quickly they move through the Stages of Change to try them. First, are the Innovators, who are venturesome, try anything new, are often considered odd and therefore can be sometimes ignored by marketers. Next, the Early Adopters cannot be ignored because they are respected opinion leaders who influence the next group; the Early Majority, who are deliberate, careful innovators. Next, the Late Majority members are skeptical, less influenced by others and wait to follow majority opinion. The last group, the Laggards, is traditional; slow to try anything new, and often can be ignored in a new offering introduction. The adoption process follows a normal distribution curve over time. After a slow start, an increasing number adopt the innovation, but this number reaches a peak and then diminishes as fewer non-adopters remain. Rogers and Shoemaker have identified stages in the innovation adoption process that parallel the Stages of Change cited earlier in the text. These are: (1) Knowledge (pre-contemplation stage) — becoming aware of an informed about the innovation; (2) persuasion (contemplation stage) — becoming motivated to take action; (3) decision (preparation/action stages) — based on determining the consequences of the proposed behavior change; and (4) confirmation (maintenance stage) — continuing the behavior after initial adoption. The model provides a sequence for scheduling tasks and a monitoring framework to diagnose reasons for slow acceptance. It also can be used to develop a market segmentation strategy. The characteristics of an innovation that will affect its rate of adoption are: its relative advantage (perceived superiority over previous ideas); compatibility (consistent with the target audience’s values and experiences); complexity (degree of user friendliness) divisibility (usability on a trial basis); and communicability (the degree to which results are observable and desirable.) Teaching Suggestions Continue to attempt to vary the lecture environment and style and introduce variance into the reading assignments and reading assessment to reinforce traditional retention. Continue to try to find new ways to incorporate visual and audio elements into the class. To demonstrate the concepts of “new offer “ — have students pretend to “invent” something that doesn’t exist, and work through the steps – on paper – to launch the product or service. Frequent discussion helps to illustrate key points – discussion of text points can lead to the next text point or key learning. Possible discussion points for this chapter include: Discuss the offer strategy options for nonprofit organizations, emphasizing those tied to new offerings. See if the class can identify a firm or product, which has recently launched a new product – and look at what they have done. Consider the steps and procedures for idea generation. The process of idea screening using weighted value and certainty ratings using the information on the University planning new offerings (p 9-10). Ask the students to speculate how the ratings would occur if these offerings were offered through their University. Discuss the normal offer life cycle (OLS) and ask student to identify a nonprofit with offerings in each category. What determines their selection? Present the innovation adoption theory focusing on adopter categorization on the basis of relative time of adoption of innovations. As the class to give examples for products and offerings that are currently at each stage, and why? Where does the Apple iPhone fall and why? What about female condoms? Abstinence? Blu-ray or other DVD High Density Recording devices? Why? Are there any instances when nonprofit marketers should target innovators? Similarly, should laggards ever be targeted? Examine the four Stages of Change and Stages in the Innovation adoption process (p 9-22) and the hypothetical distribution of target audience members across adoption categories (Fig. 9-3) assuming it is data on reaction to a new program to participate in fitness walking. What should be done to help members of each segment move through to the maintenance stage? Short Answer Questions Why do new programs and services offered by nonprofits fail? Idea is pushed through despite a lack of supporting evidence Poor organizational systems for evaluating and implementing ideas, poor criteria High development costs, poor or inadequate promotion, aggressive competitive response Poor market size measurement, forecasting and market research Poor planning, positioning, segmentation and/or budgeting Describe the five adopter groups in terms of their values Innovators — venturesome, like new ideas, risk takers, cosmopolitan Early adopters — respected, opinion leaders, balanced risk takers Early majority — deliberate, adopt ides before the majority, respond to opinions of others Late majority — skeptical, only adopt an innovation with the weight of the majority Laggards — traditional, slow to adopt Describe the sequence of tasks in the adoption of a new behavior and how they relate to the Stages of Change. Knowledge (Pre-contemplation stage) — awareness and information about the offer Persuasion (contemplation stage) — motivated to act by incentives or coercion Decision (preparation and action stages) — wants to know the consequences of the desired behavior Confirmation (maintenance stage — continuing the behavior once adopted Describe the factors that affect the rate of adoption of an innovation Relative advantage — perception of superiority to previous ideas Compatibility — consistent with the values and experiences of the target group Complexity — degree of user friendliness Divisibility — able to be used on a trial basis Communicability — the degree to which the results are observable and desirable to others Multiple Choice Questions An organization may well choose to maintain the status quo as a growth strategy when a. it wishes to extend the market b. it wishes to diversify its offerings c. it wishes to penetrate the existing market d. it wishes to respond to a declining market (Moderate p 209) (AACSB – Reflective Thinking e. it faces little or no competition The greatest risk for a new product or service offering is to present a. a similar offering to an existing market b. a dissimilar offering to a radically different market (Moderate; p 209) (AACSB – Reflective Thinking) c. a similar offering to different but similar market d. a dissimilar offering to an existing market e. a similar offering to a dissimilar market An organization may well choose to maintain the existing offer in existing market approach as a growth strategy when a. it wishes to extend the market to new geographic areas b. it wishes to diversify its offerings by creating a new service or product c. it wishes to cut costs and accept modest growth though better and more efficient marketing and operations to its current clients (Moderate (p 209) (AACSB – Reflective Thinking) d. it wishes to respond to a declining market e. it faces significant competition A new offering follows a growth pattern known as a. the diversification cycle b. the offer extension cycle c. the offer life cycle (Easy; p 221) (AACSB – Reflective Thinking) d. the opperant resources process e. the innovation adoption cycle Which of the following is NOT a source for new idea generation a. Taking ideas from similar organizations or competitors b. Reach for prior experiences and prior approaches (Moderate; p 212) c. Review of sources of grants and foundation bequests d. Review of journals, newspapers and magazines e. Ask employees and volunteers currently on staff The introduction to market activities include a. deciding where, when, how, and to whom a new product should be launched (Moderate; p 220) b. seeking the target market’s reaction to a new product c. using break-even analysis to determine the attractiveness of the proposal d. developing a preliminary outline of the marketing strategy it will use to introduce the product e. develop brochures, schedules, ads, marketing materials and other materials People who are the first to try any new fashion, technology or new product are called a. early adopters b. laggards c. early majority d. late majority e. innovators (Easy; p 224) The Rogers – Shoemaker adoption model shows that a. market segmentation is difficult and very risky for high involvement behaviors b. the reasons for a slow rate of adoption are too complex to be properly identified c. a sequence of steps must be gone through for adoption of a new behavior (Moderate; p 227) d. the “Stages of Change” model is not reliable e. messages aimed at blue-collar workers can also be used for seniors and pregnant women The Rogers – Shoemaker adoption model, which helps to understand the stages of the adoption process, can be used a. as a guide to understanding consequence selection b. to develop a segmentation strategy (Moderate; p 227) c. to isolate opinion leaders d. to assess the riskiness of a particular innovation strategy e. as a determinant of whether the innovation will succeed or not Which of the following is NOT a characteristic of innovation? a. relative advantage b. compatibility c. comparability (Moderate; p 228) d. complexity e. communicability 87