Chapter 18: Developing New Market Offerings

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Have you ever looked at a new product, maybe something on a shelf or an app on your phone, and just wondered, how did they even think of that?

Yeah, or the flip side, right?

Something launches with huge fanfare.

Totally.

Big splash.

And then poof, it's gone, vanished.

Exactly.

So, what is the secret?

How do companies consistently bring those breakthrough ideas to life?

Well, today, that's exactly what we're getting into.

We're taking a deep dive, really unpacking a key chapter from marketing management, Kotler, Keller, and Chernev, focusing on developing new market offerings.

Right.

And our mission here is basically to give you a shortcut, a way to understand the playbook, the systematic process companies use.

We'll look at the core ideas, some real -world examples, and really how innovation shapes a company's future, making sure what they offer connects with you, the customer.

Okay, so to kick things off, think about James Dyson, you know, the vacuum guy.

He was just so fed up with vacuums losing suction because the bags got clogged.

The common frustration, for sure.

Definitely.

But he didn't just tweak it.

He completely reinvented it using centrifugal force, no bag needed, and that same drive, it led to those bladeless fans.

Which look amazing, by the way.

They do, and in the supersonic hairdryer.

It's not just about function.

It's this blend of, like, cool design and serious tech.

But here's the kicker, and this really sets the stage.

This kind of thing isn't cheap, and it's certainly not fast.

That hairdryer, over four years to develop.

Wow, four years.

Yeah, something like 600 prototypes, research on thousands of miles of hair, and get this, it cost around $71 million.

$71 million.

Okay.

So that level of commitment, it tells you something really important.

Developing new stuff isn't just, you know, a nice -to -have for companies.

It's the absolute engine driving their success long term.

And that engine, that innovation, it's more critical now than ever before.

Honestly, in today's economy, with everything changing so fast,

continuous innovation isn't just a strategy.

It's basically survival.

Companies that don't innovate, well, they risk becoming superfluous, irrelevant, real.

Superfluous.

Meaning, you know, customer needs shift, product life cycles get shorter, there's fierce competition, new tech pops up all the time, especially digital stuff.

If you stand still, you get left behind.

That makes sense.

And what's interesting is innovation isn't just about those huge, world -changing inventions like Dyson's.

It's more of a spectrum, right?

Exactly.

On one end, you've got what we call continuous innovations.

These are like minor tweaks, improvements to existing products,

think Tide pods or maybe Oreo thins.

Okay, smaller changes.

Yeah, relatively small.

But believe it or not, that kind of activity makes up like over 80 % of new product stuff at a place like Sony.

80%.

Wow.

But then on the other end, you have the truly new to the world things like Keurig's single cup coffee system that basically created a whole new market category.

Right.

Totally changed how people made coffee at home.

Precisely.

Now, these blockbuster products, they're rare, they're risky, but if they hit, they can massively boost a company's image, give them a huge edge and, well, bring in serious money.

Okay.

So if innovation is so vital,

why do we hear about so many new products just failing?

Ah, yes.

The failure rate.

It's shockingly high.

Estimates go up to 95%.

95.

That's almost everything.

It's staggering.

And it's why companies need that rigorous, systematic approach we mentioned.

It's like a ruthless filter for bad ideas, saves them potentially millions.

The reasons for failure.

They often boil down to things like ignoring market research, maybe overestimating the market size, development costs spiraling.

Or the product just doesn't perform well.

Right.

Or poor pricing, bad communication, distribution issues, competitors reacting strongly, lack of internal support even.

So lots of potential bid falsities.

Cuns.

Yeah.

But ultimately, it usually comes back to one fundamental thing.

The new offering just didn't create enough superior value for the target customers.

Or maybe it did, but not in a way that benefited the company or its partner.

That 95 % figure is just, wow, seems almost impossible to succeed in.

How do companies even start to manage that risk?

What structures do they use?

Well, they don't leave it to chance.

Organization is key.

Companies use different setups to try and foster innovation.

Sometimes it's managers in existing departments.

They know current customers well, but maybe aren't focused enough on truly new products.

Okay.

So maybe more incremental stuff there.

Often, yes.

Then you have dedicated new product departments.

These teams have real authority.

Eli Lilly, for example, brought R &D and their FDA approval teams together to speed things up.

Makes sense.

What else?

You also see innovation centers, physical hubs, often regional for design and collaboration.

Think Microsoft.

They have over 100 globally.

Cisco does this too.

Geographic focus.

Right.

And then there are venture teams.

You might hear them called entrepreneurs or famously skunkworks.

Skunkworks.

Like internal startups.

Exactly like that.

Cross -functional groups, separate budgets, often longer timelines.

Dell used this approach, creating separate units to shift from just PCs to broader solutions.

Interesting.

Any other models?

Yeah.

A couple more.

Communities of practice, basically forums for sharing knowledge across different departments and very commonly cross -functional teams that bring together diverse skills like engineers and marketers right from the start.

The goal there is to make sure R &D efforts actually line up with what customers need.

Okay.

So they set up these structures.

But once they decide to go for it,

how does an idea actually become a product?

Is there a standard process or is it just, you know, chaos?

Uh huh.

Well, ideally not chaos.

There is a common framework, often called the stage gate approach.

Stage gate.

Okay.

Yeah.

Think of it as a series of stages and between each stage there's a gate, a checkpoint.

The whole point is to minimize risk and make sure resources are being used wisely.

So like you have to pass the gate to move to the next stage?

Pretty much.

Now it's not always perfectly linear.

Sometimes you hit a snag at a gate and have to go back, maybe refine the concept.

But it provides clear guidelines.

And this whole process, it's guided by three aims for any new offering.

It needs to be, first, desirable customers have to find it attractive.

Make sense.

Want versus need.

Exactly.

Second, it has to be technologically feasible.

Can the company actually build it?

Okay.

The practical side.

Right.

And third, it must be viable.

Does it create value for the company or for its collaborators?

Does it make business sense?

Desirable, feasible, viable.

Got it.

These three aims become more critical as you move through the five key stages.

Stage one is idea generation.

Focus mainly on desirability.

Stage two is concept development, where you start really looking at feasibility too.

Stage three, business model design.

This is where all three, desirability, feasibility, AD viability, really come together.

That sounds like a big step.

It is.

Then comes stage four, offering implementation, actually building the thing.

And finally, stage five, commercial deployment.

The launch.

Okay.

That framework helps.

Can you give an example, maybe?

Sure.

Let's use that food processing company example from the book.

They want a new product.

They start generating ideas, maybe lots of them.

Let's say they land on a nutritional milk additive.

Okay.

Broad idea.

Very broad.

So idea generation, then concept development.

Who's it for?

Infants.

Adults.

What's the main benefit?

Taste.

Nutrition.

Energy.

When would they use it?

Maybe they narrow it down to an instant breakfast drink for dizzy adults, see how it gets more focused.

Yeah, definitely refining it.

Right.

And crucially, the investment needed goes up significantly at each stage.

You spend a little exploring ideas, more developing concepts, and a lot more designing the business model and actually implementing it.

That makes sense.

You don't want to sink millions into an idea that wasn't properly vetted early on.

Precisely.

So let's dive a bit deeper into those first couple of stages.

Idea generation.

It really kicks off by spotting an unmet customer need.

There are basically two ways companies approach this.

First is market -driven, sometimes called top -down.

This is often preferred because it starts with the customer.

So find a problem first?

Find an important problem or opportunity, then develop a solution.

Think of the motive ring.

People wanted fitness tracking, but trackers were often bulky.

Motive made it discreet, stylish, or nest thermostats addressing convenience and energy saving.

Okay.

Market need drives the idea.

What's the other way?

The other way is invention -driven or bottom -up.

Here you start with the technology or an invention, and then you look for a market need it could solve.

So solution first, then find the problem.

Kind of, yeah.

And often these applications are accidental discoveries.

Like the drug Ivista, it failed as a contraceptive, but became a massive osteoporosis drug.

Wow, really?

Yeah.

Or the slinky toy.

That came from a naval engineer trying to design something for battleships, totally by accident?

No way.

True story.

But for these invention -driven ideas, the key is finding a viable market opportunity.

The iPod wasn't the first MP3 player, not by a long shot, but Apple figured out how to make it desirable and built the market.

Right.

The execution and finding that fit.

So they have an idea, maybe market -driven, maybe invention -driven.

How do they check if it's actually any good?

What's that first filter?

That's idea validation, and it checks two main things.

Desirability, does it solve a real important unmet need?

And viability, does it make sense for the company?

Can it benefit them?

And getting this wrong can be costly.

Hugely.

There's a real danger of miscalculation.

Think about TiVo back in the day.

First digital video recorder seemed revolutionary.

I remember TiVo.

Right.

But the thing was, most consumers were actually fairly satisfied with how they watched TV already.

TiVo was cool and nice to have, but not a must -have for enough people early on.

It struggled.

Ah, didn't solve a burning enough need.

Exactly.

So companies can fail by not rejecting bad ideas or just as bad rejecting good ideas too early.

So how do they avoid that?

What tools do they use?

This is where market research tools are absolutely vital, especially exploratory research early on.

Companies observe customers, how they behave in stores, online, what websites they visit.

They do index interviews to uncover needs.

Customers might not even be able to articulate themselves.

The classic Henry Ford quote, right?

Faster horse.

Exactly.

Though companies like Apple or IKEA, they listen, but maybe take it with a grain of salt to avoid getting stuck only making incremental improvements.

They trust their own vision too.

Right.

They also talk to their own employees.

Toyota apparently gets millions of ideas a year from its staff.

LinkedIn uses hack days and they talk to outside experts.

The whole open innovation movement taps into external knowledge.

Analyzing competitors is huge to reverse engineering understanding weaknesses.

And crowdsourcing.

I hear about that a lot.

Yeah.

Crowdsourcing is powerful.

Engaging outsiders.

Baskin -Robbins had a flavor contest, got like 40 ,000 entries.

P &G used a network to find a chemist to solve a specific dish soap problem paid $30 ,000 for the solution.

Wow.

Tapping the global brain.

Okay.

So the idea passes validation.

What's next?

Concept development.

Right.

Concept development.

This is where you start turning that validated idea into something more tangible.

An initial version.

A prototype.

No.

A prototype doesn't have to be a perfect, fully working thing right away.

Early on it could just be a diagram, a drawing, maybe a rough physical model.

It gets more complex as you go through the stages.

And then you test it.

Yes.

Prototype testing.

First usually comes alpha testing.

That's internal engineers, employees, experts putting it through its paces.

Like Vibram testing new shoe soles in extreme conditions.

Checking it works basically.

Yeah.

Kicking the tires internally.

Then comes beta testing.

This is where you get it into the hands of actual customers.

P &G has labs where people try new diapers or lipsticks.

Microsoft's insider program for Windows is a huge beta test.

Getting real world feedback.

Crucial feedback.

And all this testing feeds into concept validation.

You're asking, hey, can we actually build this thing at scale?

And importantly, does it fulfill that customer need better than what's already out there?

How do they measure that?

Often through more formal research like experimental studies, maybe A -B testing different versions or using techniques like conjoint analysis to really understand which features customers value most.

Okay.

So that leads into the next big stage, right?

Business model design.

Exactly.

And this is where the investment really starts to ramp up significantly.

Business model design.

It's about taking that validated concept and figuring out how to make it a commercially feasible offering.

Remember those three aims.

Desirability, feasibility.

Now viability becomes absolutely central.

Can this make money?

Can it create value for the company and its partners?

Right.

The business side kicks in hard.

Totally.

And this stage involves defining three key components which actually link back to foundational marketing concepts.

First, the target market.

Who are the customers, really?

Who are the main competitors?

Who are the key collaborators, suppliers, distributors?

What's the context?

For that food company example, maybe it's time -pressed middle -class families with kids.

Getting specific.

Very specific.

Second, the value proposition.

What exactly is the value you're offering?

For the customers, maybe convenience, nutrition, good price.

For collaborators, like extra sales for retailers.

And for the company itself,

revenue, profit, maybe building the brand.

Clearly defining what's in it for everyone.

Precisely.

And third, the market offering itself.

This is the nitty -gritty.

The final product specs, the service elements, the brand name and identity, the pricing strategy,

any incentives or promotions, the communication plan, the distribution channels.

So like for the food company.

Yeah.

It would be things like, okay, it's a $2 .99 box at retail.

We sell it to distributors for $78 a case.

We'll run some introductory promotions.

We need a $6 million advertising budget.

Maybe split between TV and online ads.

We need a budget for ongoing market research.

All those specifics get hammered out.

You can see how digital marketing fits right in there with the communication plan.

Absolutely.

It's integral from this stage onwards.

Then comes business model validation.

You check those three pillars again.

Is it desirable?

Crystal Pepsi.

Remember that.

Clear Cola.

Failed on desirability.

People just didn't want it.

Uh -huh.

Yeah, I remember that.

Weird.

Is it feasible?

Can we actually make it and deliver it as planned?

You know, a perpetual motion machine isn't feasible and crucially, is it viable?

Can it make money?

Pets .com is a classic dot com bust example.

They famously lost money on every sale because their costs were too high.

Failed on viability.

So they're all interconnected.

Deeply.

And a big part of checking viability is demand forecasting.

Trying to estimate the potential market size.

You want to use surveys, what people say, run test markets, what people do, or analyze past sales data for similar products, what people have done.

Okay, business model with solid demand seems there.

What's next?

Implementation.

Stage four.

Offering implementation.

This is where the rubber really meets the road.

You turn that validated business model into an actual market -ready product or service.

Sounds like a lot of work.

It is.

It involves two main streams of activity.

First, developing the core resources.

Do you have everything you need behind the scenes?

Like manufacturing capacity, call centers, IT systems, supply chains, distribution networks.

Do you have the right skilled people?

Enough capital.

So the infrastructure.

Precisely.

And companies might build these themselves.

They might outsource parts, acquire another company that has them, or collaborate with partners.

Okay.

Get the backend ready.

And the second stream, that's developing the market offering itself.

Finalizing the actual product, designing the packaging, locking down the brand identity, setting the final prices, planning the promotions, creating the advertising and communication materials, setting up the distribution channels, getting everything ready for launch.

And how much testing do they do at this late stage?

Good question.

It depends.

Factors like how new or novel the product is, how complex it is, and how much it would cost to change things after launch all play a role.

Some companies do extensive market testing.

Interestingly, South Korea and China are often used as test markets for global brands like L 'Oreal or Gucci because consumers there are seen as demanding and trend savvy.

Good place to get insights.

But sometimes they skip that.

Sometimes, yeah.

Hmm.

Especially if speed to market is critical.

Starbucks, for example, launched its mobile payment app, apparently.

It was a bit flawed initially, but they iterated quickly and now it handles millions of transactions.

General Mills sometimes launches in just, say, 25 % of the U .S.

to get quick sales data and adjust fast.

So get it out there and learn fast.

Exactly.

And that ties into a really important concept, especially relevant for anyone thinking practically about launching something, the Minimum Viable Offering, or MVO.

MVO.

Minimum Viable Offering.

What's that about?

It's about developing a streamlined version of the offering, maybe with only the absolute essential features, just enough to launch, test the market's reaction, and learn quickly before investing in a full -featured version.

So test the core idea without building everything.

Precisely.

It's a way to learn with minimal risk, fail fast if necessary, and iterate much more quickly.

It's a really powerful, practical approach.

MVO sounds smart.

So after implementation, testing, maybe an MVO, it's finally time for launch.

Finally, stage five.

Commercial deployment.

This is about formally introducing the offering, telling target customers about it, and making it available for them to buy.

Now, companies often don't launch everywhere all at once, especially with riskier innovations.

They might use selective market deployment.

Launching in just a few places first.

Exactly.

Maybe one city or one region, or targeting only a specific channel.

It minimizes the initial risk and cost.

It lets them learn how customers, competitors, and partners react in a real market setting, gives them agility, and starts generating some revenue.

Who do they target first in that selective launch?

Usually the primary target, the customers most likely to be early adopters.

For our food company, maybe they'd launch only the chocolate flavor initially because market research showed it was the most popular potential flavor.

Focus the initial effort.

Makes sense.

Any examples?

StubHub is a good one.

They started basically as eBay for tickets, focusing specifically on the gap in the market for people selling unused event tickets.

Clear need, clear target.

They started with sports tickets, proved the model, then expanded into concerts, theater, and so on.

It shows how you can succeed by nailing a specific need first.

Start focused, then broaden out.

Right.

And once the offering proves successful in those initial markets, then comes market expansion.

Scaling up production, promoting it to the full target market across all intended regions, making sure it's widely available.

And often, this is when they'll introduce product variations, like maybe volume packs or different flavors for that breakfast drink, to appeal to a broader range of customer needs and preferences.

It's a cycle of launch, learn, refine, expand.

OK, so that covers the company's process.

But you know, once the product is out there, how does it actually spread?

How do people adopt it?

This is where it gets really interesting for me.

The diffusion part.

Ah, yes.

The diffusion of innovation.

How new ideas, products, services spread through a population.

It's a fascinating area, and there are a couple of key models that help us understand it.

Let's hear them.

The classic one is Roger's model of adoption of innovations.

Roger's looked at how people adopt things over time and group them into categories based on their speed of adoption.

First, you have the innovators.

Tiny group, maybe 2 .5%.

They're the tech enthusiasts, venturesome, love tinkering, willing to try unproven stuff, maybe even beta tests.

The first ones in line.

Definitely.

Then come the early adopters, about 13 .5%.

These folks are opinion leaders, respected in their communities.

They adopt early, often seeking a competitive advantage, and they're usually less sensitive about price.

They influence others.

Hugely important for influence.

After them comes the early majority, a big chunk, 34%.

These are the deliberate pragmatists.

They adopt, but only after they see proven benefits.

They bridge the gap to the mainstream.

OK, the first big wave.

Right.

Then you get the late majority, another 34%.

They're more skeptical, conservative, often risk -averse, maybe a bit technology shy.

They wait until it's really established.

They need more convincing.

For sure.

And finally, you have the laggards, the last 16%.

They're tradition -bound, very resistant to change.

They often only adopt when the old way is almost impossible to maintain.

So that's the spectrum.

Any drawbacks to Roger's model?

Well, it's a great framework, but it doesn't give you a perfect rule for slotting every single person into a category.

And you know, you might be an innovator for smartphones, but a laggard for, say, smart home devices.

It can vary by domain.

Right.

Context matters.

Is there another model?

There is.

Especially relevant for technology products.

It's Moore's model of adoption of new technologies.

Geoffrey Moore adapted Roger's ideas, but added a really crucial insight.

He uses similar categories, slightly different names.

Technology enthusiasts, visionaries like early adopters, pragmatists, early majority, conservatives, late majority, and skeptics, laggards.

But Moore's big contribution was highlighting what he called the chasm.

The chasm?

What's that?

Moore argued that adoption isn't a smooth curve, it's discontinuous.

There's a significant gap, a chasm, between the early market, the enthusiasts and visionaries, and the mainstream market, the pragmatists, conservatives, skeptics.

So it's hard to cross from the early fans to the regular folks.

Extremely hard.

Crossing that chasm is often the biggest challenge for tech companies.

Many cool technologies get adopted by early enthusiasts, but never make the leap to the mainstream market because they can't bridge that gap.

Fascinating.

Okay, let's tie this back to some real -world examples.

How have companies navigated this whole process, maybe keeping diffusion in mind?

Okay, let's look at a couple.

Honest Tea is a great story.

They spotted a really clear, untapped niche.

People wanted bottled tea, but less sweet, more natural, organic, fair trade.

Tapping into health and ethical trends.

Exactly.

They aligned perfectly with growing awareness, and this group sometimes called cultural creatives, consumers looking for products that matched their values around health, sustainability, ethics, they built a solid business, and then Coca -Cola invested.

That gave them the resources for massive distribution growth, going from like 15 ,000 stores to over 140 ,000.

Wow, huge scale up.

Massive.

And that scale allowed them to launch new lines, like Honest Kids Less Sugary Juice Drinks.

It became a bestseller, even got picked up by McDonald's.

It shows how identifying a trend, meeting a need, and then scaling, effectively crossing into the mainstream, can lead to huge success.

And aligns with sustainability goals, too.

Great example.

What about something more digital?

For digital, you have to talk about WeChat in China.

It's an absolute masterclass in innovation, diffusion, and understanding consumer behavior.

It started simply, just a messaging app.

But Tencent, the company behind it, iterated rapidly.

They added voice messaging, fun features like shake, or message in a bottle to connect people, then official accounts for brands and media.

So constantly adding value.

Constantly.

But the game changer was payments, WeChat pay.

And they did it cleverly with the red packet feature.

Tying into the lunar new year tradition of gifting money digitally, made it instantly viral and culturally relevant.

Smart integration.

Very smart.

And then they launched mini programs, basically apps within the WeChat app.

You can shop on JD .com, find a Tesla charger, order food, pay bills, all without ever leaving WeChat.

An entire ecosystem.

Exactly.

It became completely ubiquitous in China because it kept identifying and fulfilling evolving digital needs.

It shows incredible speed of innovation and how deeply a product can integrate into daily life, essentially capturing the entire market spectrum, maybe even creating its own chasm for competitors outside China to cross.

Those are powerful examples.

So wrapping this all up, what's the big takeaway for someone listening?

Well, from Dyson's relentless pursuit of better suction to WeChat building that whole digital world, what we've really seen today is that successful new offerings, they aren't just lucky breaks or random inventions.

Right.

They're the result of a really structured iterative process.

It's about taking that initial spark, that idea, and then carefully, systematically validating it every single step of the way.

From idea to concept to business model to launch.

The core lesson, I think, is about deeply understanding the market, validating desirability, feasibility and viability at each stage, and just being persistent with iteration and learning.

It really boils down to making sure your offering creates genuine value for you, the customer, and of course, for the company and its partners.

So maybe as you go about your day to day, think about a product or service you use all the time.

Can you sort of guess which stage gate steps it might have gone through?

Yeah.

Or maybe think about a new technology you recently adopted or decided not to adopt.

Where do you think you fit on Madras or Moore's adoption curve for that specific thing?

Were you an innovator or maybe waiting for the pragmatists?

Food for thought.

Definitely.

Well, that brings us to the end of this deep dive into developing new market offerings.

Thank you so much for joining us from the Last Minute Lecture Team.

We really hope this has given you a clearer picture of that engine of innovation that shapes so much of the world around us.