INTRODUCTION
3 is one of the largest cell phone service providers in the
In this coursework, Hutchinson Whampoa will be advised on the following issues:
- The importance of new product development in the mobile phone market.
- Extension of the maturity stage for 3 by introducing new innovations at the right time.
- A medium-term directional marketing plan for their new video conferencing product.
NEW PRODUCT DEVELOPMENT
New product development is the term used for the process of generating new products or modifying the existing products that adds value to the existing line of products. New product development is considered to be lifeblood of any business because it is critically important for success of the organisation. (Kurtz & Boone, 2005; p396) Studies have demonstrated that new product and service success is relatively rare. One such study is the London Dun and Bradstreet study in which the following chart was found. The following chart indicates that for every profitable new product, there are approximately sixty ideas or concepts that do not make it to market successfully. (Cited at: www.decisionanalyst.com/Downloads/Looking4IdeasInWrongPlaces.pdf) Despite of that, the importance of new product development can be undermined.
Booz Allen Hamilton Decay Curve
Source:http://www.decisionanalyst.com/Downloads/Looking4IdeasInWrongPlaces.pd
IMPORTANCE OF NEW PRODUCT DEVELOPMENT IN THE MOBILE PHONE MARKET
New product development is driven by consumer demand and fuelled by advances in technology. This makes new product development very important for Hutchison Whampoa because the mobile phone market grows and thrives on both consumer demand and advances of technology. Therefore new product development becomes critically essential in order to survive in the mobile phone market. The importance of the new product development for Hutchison Whampoa in the mobile phone market is further discussed in details under the following sub-headings:
Provides new opportunities:
New product development would help Hutchison Whampoa in the mobile phone market to provide new opportunities in the face of declining market for the existing products. This is because the old products gradually lose their ability to generate profits due to inexorable forces of product life cycle. New products would help the mobile phone market to regenerate profit margins. (Webster, 1991; p124)
Source of competitive advantage:
New product development is now seen as a source of competitive advantage. Companies in the mobile phone market are coming up with similar products to their competitors in no time. Therefore in order to gain competitive advantage over competitors 3 must come up with new products regularly whether in the form of extension of existing product or a breakthrough because of the implied promise that it will lead to sustainable competitive advantage. (Thomas, 1993; p7)
Revenue, growth & balance:
In the mobile phone market it is evident, that the product life cycles are shortening. This is partly because of increasing rate of new product introductions and partly because of rapid technology advances in the mobile phone market. Therefore in order to maintain or increase revenue, companies depend on revenues from their new line of products. NPD would allow Hutchison Whampoa to grow revenues and retain high margins as newer products typically command higher margins in the market. Therefore new product development becomes very important in the mobile phone market. (http://www.sap.com/solutions/npdi/pdf/BWP_NPDI.pdf)
To cope up with changes in external environment:
New product development would help 3 to cope up with the changing consumer preferences and dynamic competition in the market place. It would also help to keep up with advancing technology and the state-of-the-art in industry. (Webster, 1991; p125)
Reinforces strategic direction:
‘New products can be used to reinforce firm’s strategic direction by enhancing its competitive advantage in the market.’(Thomas, 1993; p7) Products that are typically extensions of existing products introduce new features to suit changing consumer and market needs. These products serve the above purpose of reinforcing strategic direction. Therefore in the mobile phone market, new product development can help Hutchison Whampoa to reinforce strategic direction.
Enhance corporate image:
New product development in the mobile phone market can enhance Hutchison Whampoa’s corporate image among its stakeholders. Firms can introduce new products to refurbish the company image. (Thomas, 1993; p7) A good example is that of
EXTENSION OF MATURITY STAGE FOR 3 BY INTRODUCING INNOVATION AT THE RIGHT TIME
Innovation can be defined as ‘the embodiment, combination, or synthesis of knowledge in original, relevant, valued new products, processes or services.’(Lueke & Katz, 2003; p2) Innovation has become central to success in the corporate world. In a competitive environment the introduction of new products at regular intervals, is very essential for the profitability and possible survival of the company. The reason behind this is that all products have a limited life and that demand will decline over time. When a product is first introduced on the market, the demand is low, after this stage the demand grows due to acceptance in the market place. But such growth is likely to reach a ceiling as the product attains maturity, and demands levels out. This is known as product life cycle. The demand of the product is highest at the maturity stage. Therefore businesses must try and extend their maturity stage as much as possible. (Rowe & Roberts, 1998; p1)
Product Life Cycle
Source: QuickMBA, <www.quickmba.com/.../product/lifecycle/plc.gif>
In the case study on Hutchison Whampoa, it is clear that the mobile phone market fits the above pattern. Therefore 3 is would have a similar product life cycle. At the moment it is the leader in the 3G market. It has the highest customer base in the market sector. However, one must notice that only 6.7% of the 3 billion subscribers worldwide use 3G network. (source: http://www.gsmworld.com/technology/3g/statistics.shtml) Therefore it is clear that there is ample scope for 3 for growth and it is still in growth stage. But with the incresing popularity of the high speed 3G network, more and more companies are entering the sector. This would at one stage lead 3 into maturity stage. If the company does not handle the stage properly, it may see the saturation of the market and interest in the product or services may begin to decline. The company must extend its maturity stage because it is most profitable stage. One way of doing this is innovation. In the above case, it is possible to play variations on the maturity stage of the product life cycle. The BCG matrix method which is based on the product life cycle theory, can demonstrate the priorities of Hutchison Whampoa’s product portfolio. At the moment 3 is in the “stars” position as it is the leader of the business due to the high industry growth rate and high market share. It is the best position to be in and therefore all efforts should be made to retain the position.
BCG Matrix
Source: http://www.netmba.com/strategy/matrix/bcg/
In order to extend the life cycle of the old product, 3 must innovate and produce new formulations, for example high speed components, etc, for the old active ingredient or even by finding more uses for it. (Rowe & Roberts, 1998; p1) Innovations can help 3 in extending the maturity stage in the following ways:
Reduces competition: In the maturity stage, the excitement about the product decreases as the competitors come into the market with similar products and services. Innovation would help 3 to improve on its product and make it more attractive to consumers compared to those products and services provided by competitors, thereby, extending the maturity stage.
Increases responsiveness to customer demands: Innovations would also help 3 in extending the maturity stage by increasing responsiveness to consumer demand. This is because innovations are done on the basis extensive market research on the consumer needs and wants. For example, if the customer wants higher speed internet on their mobile, new innovations can fulfil these demands of the customer.
Higher product quality: 3 can use innovation process to improve the quality of its services, for example, reducing the number of calls lost etc. This would not only attract new customers, but would also help in retaining existing customers, thus helping in extending maturity stage of its products and services.
Capacity for a wider product range: Innovations would help 3 in widening its range of products. For example, it could add services like music downloads, video-conferencing, internet browsing, etc to its portfolio of products. Thus, innovation helps in retaining interests of existing customers and also attracting new customers. This would lead to extension of maturity stage.
Reduction in costs: In the maturity stage, 3 will have to decrease prices because of competition from competitors who will enter the 3G market. Innovations may help 3 in reducing cost of products and services, thereby would help in retaining the profit margins of the firm. Therefore this will help in extending the maturity stage.
First mover advantages: Finally, innovation can help 3 to get the advantages of being the first mover. By becoming the innovator of product and services which no other competitor have innovated in the market, 3 can become first mover and then benefit from all the advantages of being the first mover in the mobile phone market. For example, it became leader by being the first mover in providing 3G network.
Innovations are important for businesses; but making good innovations does not make it a success on its own. Innovations are risky as well as rewarding. Many innovations fail despite being very good concepts. In order to make innovations effective, 3 must realise that the key to innovation lies in total company effort, strong planning, a marketing focus, and a systematic innovation management function. Innovation has technological and organisational dimensions and needs to be supported by every department or function of a business. (http://www.manufacturingadvice.org.uk/pluto-resources/1130403493714.pdf)
medium-term directional marketing plan for 3’s new video conferencing product
Marketing planning is the term ‘used to describe the methods of applying marketing resources to achieve marketing objectives’. Marketing planning is used by firms to ‘segment markets, identify market position, forecast market size, and to plan viable market share within each market segment’. (Westwood, 2000; p6)
A marketing plan is a document which designs the plan for marketing goods and services. (Bangs, 2002; p17) The following marketing plan would be used by 3 to prepare an argument for introducing their new video conferencing product.
I. Executive Summary
The Hutchison Whampoa plans to launch a video conferencing product in the
It will be supported by an integrated marketing communications program. Advertising and marketing will be handled by the marketing department. (Keegan, 2001; p222)
II. Industry analyses
Videoconferencing is part of a $4-5 billion dollar real-time collaboration market that includes audio, video, and web conferencing products and services. Increasingly, video-conferencing is becoming part of the services provided by mobile phone operators. 3G: Next generation wireless networks hold promise for video applications that require mobility, such as emergency response, site inspection, or staff who are often on the road, allowing users of 3G phones to connect in point-to-point or multipoint video calls. (http://www.tandberg.com/collateral/Video_Communications_Information_Backgrounder.pdf)
The industry analysis for the Hutchison Whampoa’s video-conferencing product is done below.
SWOT Analysis for Hutchison Whampoa
Strengths:
- Leader in 3G technology: The biggest strength of Hutchison Whampoa is its leadership in 3G technologies which is prime requirement for the video-conferencing product. Moreover it has already invested heavily in the technology and has the most comprehensive network of 3G communications.
- Popular brand and strong brand image: Hutchison Whampoa owns a popular, recognisable and a respected brand called ‘3’. Moreover it has a strong brand image of providing highly advanced and high quality products and services.
Weaknesses:
1. Vulnerable to competitive pressures: One of the major weaknesses of the company would be its vulnerability to competitive pressures. This is because of increasing number of competitors in the industry who are looking to enter the 3G market.
Opportunities:
- Faster market growth: The video-conferencing product market has been growing rapidly because the increasing needs of the enterprises today to compete on a worldwide basis, to strengthen corporate partnerships, and to improve productivity for all employees while maintaining tight cost controls. This provides Hutchison Whampoa with huge opportunities to sell their video-conferencing product.
- Add complementary products: Hutchison Whampoa’s video-conferencing product provides itself to add complementary products to its portfolio of products like equipments that aids the application of video-conferencing.
Threats:
- Likely entry of new competitors: Hutchison Whampoa will face some threats from the likely entry of competitors in the industry. These competitors can target Hutchison Whampoa’s market share. Therefore, the firm must be ready to face the threat and win over it to save its market share.
- Threat for cheaper substitutes: Some cheaper substitutes like free online video chatting can hurt the business in the short run. Therefore, the firm must also be ale to provide cheaper alternatives to fight competition from them.
III. Market Segmentation
Market segmentation would help the marketing plan to focus on the subset of prospective customers that are most likely to purchase the product. Hutchison Whampoa should use Target Marketing or Concentrated Marketing and target the following subsets of prospects in order to get maximum returns from the marketing expenditure.
- Small and Medium Enterprises (SME): Enterprises those who need to compete on world-wide basis, to strengthen corporate partnership and to improve on productivity for the employees and reduce costs should be targeted. Moreover, businesses that use ‘outsourcing’ and ‘teleworking’ as a strategy in their businesses should be targeted as these would help them improves communications between teaming partners and helps make such business arrangements less costly and more productive. (Source: (http://www.tandberg.com/collateral/Video_Communications_Information_Backgrounder.pdf)
- Schools having partner schools in other parts: Schools that have branches or partner schools in other parts of the world often need to have meetings and conferences between them. Hutchison Whampoa’s video conferencing product can help them to establish link with them easily and economically. Moreover, lecturer’s from partner schools can give lectures to students using the product.
IV. Marketing Strategy
Product positioning: Hutchison Whampoa must position its video-conferencing product as a leader in the industry that uses highly advanced 3G networks yet provides economical solutions to businesses.
General strategy: Hutchison Whampoa should follow the strategy of Differentiation for its video-conferencing product. Since it’s a market leader in 3G technology, it should differentiate its product products from those of competitors on the basis of superior technology compared to those owned by competitors.
Marketing mix: The specific marketing program would be addressed under the marketing mix.
Product: The product here is the video conferencing product. The product will have high quality and would be backed by strong after sales service to assist the customer 24x7. It should be branded under the brand name ‘3’ because of its strong brand image and popularity. It will also carry product support options.
Price: The price strategy that would be used is Versioning. Versioning is popular with services or technical products, where you sell the same general product in two or three configurations. A trial or very basic version may be offered at low or no cost, for example, with upgrades or more services available at a higher price. This would help Hutchison Whampoa to fulfil the individual needs of the SMEs. (http://www.websitemarketingplan.com/techniques/pricing2.htm)
Place (Distribution): The product would be distributed to consumers through the existing 3’s retail outlets and distributors. Moreover existing customers using 3’s mobile service would also be able to get the product through the 3G mobile phones.
Promotion: The product would be advertised extensively through electronic and print media. Mediums those are more accessed by SMEs will be used in order to target the SMEs. The promotions would also include products sold at a low introductory price to new customers. The main motto of the promotion is to create an awareness of the product among the target segment, that is, SMEs and Schools that have partners in other parts of the world.
V. Short & Medium term projections
Short term projections: The immediate short term projections of the strategy would be to create awareness of the product among the target customers and to make clients that require the product on the consistent basis.
Medium term projections: The medium term projection is to expand the coverage area of the distribution channels so as to increase the revenue from the product.
CONCLUSION:
Therefore, to conclude, New Product Development and Innovation is very important for Hutchison Whampoa. In today’s world, every organisation is looking at opportunities to come up with innovations and new products as these are considered a necessity for growth and survival. However, coming up with new products is not an easy task. As discussed before using the Booz, Allen & Hamilton decay curve, for every successful new product, sixty product ideas do not make it to market successfully. Because of this, organisations have to spend a large amount of money on the innovation and new product development. Therefore organisations must looks for ides in the right place and in the right direction.
In the above case, Hutchison Whampoa is already a leader in 3G technologies. Therefore, it must capitalise on it and come up with new product ideas and innovation so that it can reap the first mover advantages. Innovations would also help the company to stay a step forward from its competitors and retain the ‘stars’ position in the BCG matrix. Therefore Hutchison Whampoa must understand the importance of the new product development and innovation and incorporate these concepts within their business effectively.
REFERENCES:
Books:
- Bangs, DH (2002), The Market Planning Guide: Creating a Plan to Successfully Market Your Business Product or Service,
- Keegan, WJ (2001), Marketing Plans That Work, Elsevier, p 222.
- Kurtz, DL & Boone, LE (2005), Contemporary Marketing, Thomson South-Western, p 396.
- Lueke, R & Katz, R (2003), Managing Creativity and Innovation,
- Rowe, RC & Roberts, RJ (1998), Intelligent Software for Product Formulation, Informa Health Care, p 1.
- Thomas, RJ (1993), New Product Development: Managing and Forecasting for Strategic Success, John Wiley and Sons, p 6.
- Webster, FE (1991), Industrial Marketing Strategy, John Wiley and Sons, pp 124-125.
- Westwood, (2000), . How to Write a Marketing Plan, Kogan Page, p6.
Websites:
1. GSM World, viewed
2. SAP Business solutions, viewed
3. The DTI Manufacturing Advisory Service, viewed
4. Tandberg Video conferencing, viewed
5. Website marketing plan, viewed
6. Decision Analyst, viewed
