NEW PRODUCT INTRODUCTION: iPad 2

Alessandra Alberini Francesca Banzi Nicole Biscardi Giulia Vivarelli

Marketing Professor Alessandra Zammit 2 March 2012

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Introduction to New Product Development Strategy

There are two ways in which a firm can develop a new product. The first way is through the acquisition of another company, a patent, or a license to produce another firms product. The second way is through new product development performed internally by the firms research and development department (Kotler, 2005). New Product Development Process Companies must understand their markets, their consumers, and also the competition, in order to develop and deliver products to the market that are perceived to provide superior value to customers. To develop new products in the most effective manner, companies must practice a systematic new-product development process (Kotler, 2005).

(Kotler, 2005). Idea Generation Idea generation is the first step in the new-product development process, and is intended to generate a large number of ideas. This step is often referred to as brainstorming. Sources of new product ideas may be developed internally, for example, by the firms research and development department, or externally through sources such as customers, competitors, distributors, suppliers, and external design firms (Urban, 1980). Idea Screening The purpose of idea screening is to narrow down the pool of ideas generated in the previous stage in order to identify the best ideas, and discard the poor ones. During the idea screening stage, new ideas may be evaluated by writing up a description of

the proposed product idea and discussing the target market, competition, and potential profitability if the product is eventually launched in the marketplace. Development time and costs, manufacturing costs, pricing, and rate of return on investment are also factors that must be considered during the idea screening stage (Urban, 1980). Concept Development & Testing Following the idea-screening phase, the ideas that are selected must then be developed into a product concept. There are three levels of concept development. The first is the product idea that the company may potentially bring to market. The second level is the product concept. This is a detailed version of the idea. And finally, the last level of concept development is a product image, which is the consumers perception of an actual or potential product. Once a concept has been fully developed it can then be tested by being presented to large groups of target consumers either symbolically or physically. It is very common for firms to regularly test new product concepts with consumers before continuing to develop them into actual products (Kotler, 2005) Marketing Strategy & Development Marketing strategy and development requires the firm to design an initial strategy for introducing the new product to the market. A marketing strategy statement is composed of three parts. The first part describes the target market, planned product positioning, sales, market share, and profit goals for the first few years. The second part of the marketing strategy statement outlines the products budget and details aspects such as the planned price, distribution and marketing budgets for the first year. The third part of the marketing strategy statement describes the long-run sales and profit goals and the marketing mix strategy (Kotler, 2005). Business Analysis Business analysis involves a review of the projections of the sales, costs, and profits for a new product. This allows the company to evaluate the projections and determine if the projected results will satisfy the companys objectives. For example, after preparing a sales forecast, management can then estimate the expected costs

and profits for the product, and can then use these figures to analyze the new products financial attractiveness (Kotler, 2005). Product Development When a new product concept successfully passes the business analysis phase, it then moves on to the product development phase. It is at this stage that the research and development department will develop and test one or more physical versions of the product concept, typically referred to as a prototype. The product development process can take anywhere from days to years, and is often an expensive process. Products undergo rigorous testing to ensure that they are safe and effective for consumer use, and that consumers will also see the value in the product (Urban, 1980). Test Marketing Test marketing the next step once a product has cleared the conceptual and production phases. This is the stage at which the product and marketing program are introduced to more realistic market environments. Test marketing allows the firm to experiment with the marketing of a new product without incurring the cost of a full introduction. The amount of test marketing required varies from product to product. For example, companies may not perform any test marketing at all for simple line extensions or copies of competitors products that have already been proven to be successful. However, if the introduction of a new product requires a large capital investment, or if management is not sure of the product or marketing program, it is likely that the company will perform a great deal of test marketing. The costs of test marketing can be high, but in comparison to the potential costs of a marketing mistake or product failure, it is usually a good strategy to implement when introducing a new product. There are various types of test markets that a company can utilize such as standard test markets, controlled test markets, and stimulated test markets. Each type varies in cost, and therefore a company should consider their true test marketing needs before selecting the most cost-effective level of test market (Urban, 1980).

Commercialization After test marketing has been performed, a companys management team must then decide whether they will actually launch the new product. This process is known as commercialization. In order for the company to proceed with the commercialization process, they must make decisions such as the timing, location, and distribution channels that will be used for the planned market rollout, which generally takes place over a period of time (Kotler, 2005)

Classification of New Products

Cost improvements, product improvements, line extensions, market extensions, brand extensions, and new to the world products are the six most common and broad classifications of new products being launched into the market (Panwar, 2007). Cost improvements do not involve any physical changes to the product, however they allow the firm to market the products as more affordable to the consumer, providing a competitive advantage. Product improvements main objective is to improve the functionality so that firms may advertise the new and improved nature of the product. Line extensions require the lengthening of existing product lines within a company. In the case of market extensions, original products are introduced into new markets or market segments, without any changes to the product itself. Brand extensions leverage the power of the brand to obtain a presence in a different product category. New to the world products are technological innovations that may create new markets that did not exist previously (Panwar, 2007). Performance of New Products: What makes a new product launch successful? The performance of a new product is directly impacted by the timing and quality of the execution of the launch. There are also direct relationships between the quality of execution of marketing activities, and the extent of channel cooperation on new product performance (Calantone, 2011) Cross-Functional Integration Cross functional integration can be defined as the united effort across the functional areas involved in new product development such as marketing, research and

development, manufacturing, and so on. Effective cross-functional coordination is critical in achieving the goals of new product performance, such as higher quality, shorter time to market, and greater financial success (Calantone, 2011). Business Unit Resources It has been proven in many studies of new product performance, that the business units level of marketing and technical resources, are a precursor to a new products success. Possessing a greater level of resources enables a business unit to carry out specific activities related to the marketing and the launch of the product more proficiently, which in turn is positively related to a new products success (Calantone, 2011). Manufacturing and Distribution A strong connection between a manufacturer and its distributors will lead to an open exchange of information between both parties, and more innovative new products with improved performance. The manufacturer can gain many advantages by cooperating with its distributors, since the distributors know the customer needs best. The distributor is dependent on the manufacturers ability to continuously improve product offerings in order to better satisfy their customers. Manufacturers can also gain a competitive advantage through their ability to provide economic support to their distributors. The more resources the manufacture has available, the greater the economic dependence of the distributors on the manufacturer, and the more compliant and cooperative the distributors behavior will be (Calantone, 2011). Market Orientation Market orientation is defined as company-wide production and distribution of market intelligence and information regarding customer wants and needs, and organizational responsiveness to such information. In terms of product development and launch, a market orientation can be exhibited in many ways. For example, frequent meetings with customers, interdepartmental meetings to discuss competitive strategies or market trends, periodic checking of the product development to stay in line with customer needs, and taking corrective action when customers are unhappy with service quality. A high level of market orientation is directly related to greater knowledge of the market and competition, which enables 6

firms to implement their marketing activities more effectively, and as a result achieve better success at the time of a new product launch. A firm with greater knowledge about the competitive environment and the marketplace is likely to have a better sense of the right time for a new product launch (Calantone, 2011). Execution of Marketing & Launch Activities The most crucial determinants of a new products success include understanding users needs and the scope of the marketing efforts. The execution of marketing activities (for example: test marketing, training the sales force, and developing and testing advertising) increases a products competitive advantage as perceived by the customer, ultimately increasing the level of success achieved by the product upon its launch. In addition, product-launch activities (such as providing service and technical support, advertising, distribution, appropriate pricing and adequate product availability) will also determine the level of a new product launchs success. Poor execution of product-launch activities can result in failure, even if other stages in the product development process were carried out well. Performing marketing activities effectively enable the firm to have a better understanding of the marketing efforts required a the time of launch for a new product, as well as target customers responses to price levels, resulting in better strategic launch decisions, such as improved timing. Recent research on product development shows that the effective execution of launch activities is directly related superior market performance (Calantone, 2011). Channel Cooperation Well-organized cooperation among channel members allows for more efficient sharing of information, and also increases synergy, resulting in a more successful new product development and launch than what would have been accomplished by any one of the participants individually. Close relationships among channel members help them respond more quickly to customer needs and bring new products to the market more quickly (Calantone, 2011). Market Competitiveness If a firm efficiently assesses market potential, performs good test-marketing, and carries out all other marketing activities well, it will have a better idea of the intensity 7

of promotion and distribution that will be required at the time of launch. It will ultimately manage its launch activities more effectively and efficiently, providing a more successful new product launch overall. Superior execution of marketing activities increases the level of cooperation among channel members, since the assistance they receive from the manufacturer (marketing support) helps them to achieve their launch efficiency targets, and also attain levels of distribution desired by the manufacturer (Calantone, 2011). Performance The timing of a new product launch is a critical variable in determining the ultimate success of a product. There is a close relationship between product performance, launch timing, value delivered to the customer, and the likelihood of success. If the timing of the launch is too early or too late, it could be detrimental to the performance of the new product. Research has proven that an optimal launch time exists, and it is influenced by the objectives of several stakeholders such as top management, customers and consumers, and distribution channel members (Calantone, 2011).

Apple Inc.
Steve Jobs, the legendary founder of Apple Computers, returned to the company in 1997 after being removed by the board of directors in 1985. He returned first as a part-time adviser, and later as interim CEO after Gilbert Amelio was ousted in September 1997. During that same year, Apple suffered $1.6 billion in losses, and worldwide market share plummeted to around 3% (Yoffe, 2011). Jobs quickly instituted radical changes within the company. The first major strategic move was obtaining a 5-year, $150 million investment from Microsoft to develop core products such as Microsoft Office for the Mac. Jobs also halted the licensing of the Macintosh and the Mac OS because it was cannibalizing profits. He cut Apples current 15 product lines down to just four: desktop and portable for either professionals or consumers. Contracts were developed with Taiwanese assemblers to manufacture Macs, and distribution channels were completely revamped. Apple moved from small outlets, to national chains, and for the first time launched a website

for direct sales. Inventories were decreased and the company heavily invested in research and development. Jobs goal was to reinvigorate innovation within the company (Yoffe, 2011).

Thinking Different
The amount of competition in the PC market was immense in the late 1990s. Jobs was well aware of this competitive threat, and upon his return to Apple, his goal was to differentiate the Apple brand from the other brands of PCs available in the marketplace. He was focused on breaking away from the companys tired, tarnished image, and desired to create a cultural force with the Apple brand. Jobs invested in multi-million dollar advertising campaigns to help re-brand Apple, with perhaps the most memorable advertising slogan being the Think Different campaign. Jobs broke away from traditional media used by PC manufacturers such as technology and trade magazines, and placed Apple advertising in fashion magazines. The marketing campaigns also promoted the Apples laptops as the greenest lineup of notebooks, highlighting their energy efficiency and composition of recyclable materials. All of these measures helped in rebranding Apple, and differentiating their products in a highly competitive marketplace (Yoffe, 2011).

The Digital Hub

Apple celebrated their 25th Anniversary in 2001 with Jobs presentation of his vision of a digital hub with the Mac being the preferred hub to control, integrate, and add value to electronic devices such as digital cameras, music players, and mobile phones. Apples current manufacturing philosophy of having fully integrated hardware and software was unique in the PC industry, and provided the company with a competitive edge in implementing Jobs digital hub strategy (Yoffe, 2011).

iPod
The introduction of the iPod in 2001 set Apple on the path to explosive growth. The iPod was a superior music player, holding 1,000 songs compared to the competition, which was producing players that could hold just one hour of music. Apple was continuously innovating and producing new iPod designs and releasing them into the

marketplace. By 2010, Apple managed to acquire over 70% of the mp3 market in the United States. The marketing strategy for the iPod was much more open than that of the Mac. IPods were able to synchronize with both the Mac and Windows operating systems. Apple created an accessory market with the iPod, and studies show that for every $3 spent on an iPod, that one additional dollar was spent on an accessory. IPods were priced slightly higher than the competition, however, there were many versions of the iPod, offering various price-points, satisfying multiple segments of the portable music player market (Yoffe, 2011).

iTunes
The introduction of the iTunes store decimated the competition of mp3 players and bolstered the sale of iPods from average sales level of 113,000 per quarter, to 733,000 per quarter. ITunes continued to carry out the digital hub strategy, offering consumers a quick and easy way to purchase music, movies, and other media individually, and most importantly, legally. ITunes was a barely profitable division of the Apple brand but proved to be a crucial component in the dominance of iPods in the portable music player market (Yoffe, 2011).

iPhone
The release of the iPhone in 2007 marked the official repositioning of the Apple brand, complete with a name change from Apple Computers to Apple Inc. The iPhone was Apples attempt at reinventing the phone. It has been reported that it took two and a half years and $150 million to develop in the highest level of secrecy. The iPhone was revolutionary in that it did not have a keyboard, but instead a 3.5-inch intuitive touch screen interface (Yoffe, 2011). The initial price of the first iPhone to hit the market was $499, and unlike virtually all other cell phones, it was not subsidized by the mobile provider, AT&T, which held the exclusive rights for the iPhone. Instead of having the typical subsidy agreement, AT&T agreed to a revenue sharing agreement with Apple, providing Apple with

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control over the distribution, pricing and branding. The first generation iPhone sold over six million units during the first five quarters it was on the market (Yoffe, 2011). The second-generation iPhone was released in 2008 and operated on a 3G network. At this time, AT&T agreed to a subsidy agreement, and the product was priced at $199 with a two-year contract. The revenue sharing agreement was dropped, and sales of the iPhone surged to $13 billion by the end of 2009. The third generation iPhone 3GS was released in June of 2009 with a subsidized price of just $99 with a two-year contract agreement with AT&T (Yoffe, 2011). In just two years time, the iPhone went from zero to 30% of Apples total revenue, and possessed 14% of global market share for cell phones. The launch of the App Store in 2008 was a major contributing factor to the iPhones growing success. It provided marketing benefits similar to those provided by iTunes for the iPod (Yoffe, 2011).

App Store
The App Store was initially introduced as a part of iTunes, since consumers were already familiar with iTunes from using iPods. The App Store was Apples first outlet that made it easy to distribute, access, and download applications directly onto the iPhone. Many of the apps offered were free, however, even the apps that required users to pay for them were priced starting at just 99 cents. This was drastically cheaper than the third-party applications available for competing products, such as the Palm, whose applications averaged $10 each. The App Store was a great success, and over 4 billion apps were downloaded worldwide within the first 18 months (Yoffe, 2011).

Success Story
With several technologically innovative products, such as the iPod and the iPhone, and a new retail strategy with outlets such as iTunes and the App Store, Apple rose to the fourth largest PC vendor in the United States, with an 8% market share by the end of 2009. Apple also experienced particular strength in the premium-priced PC

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market. In the United States, 91% of PCs priced over $1,000 were sold by Apple (Yoffe, 2011).

Apple Inc.'s New Product Launch Strategies

Apple product launches are legendary, and it has become clear to the masses that Steve Jobs knows how to launch a new product and maximize it's sales. We can find several important strategic methods that Apple employs to ensure the memorable and successful product-launches that have made Apple a differentiated leader in their market. First, Apple focuses on peoplespecifically their consumers, more so than the actual product. During the presentation of a new product, for example, Steve Jobs has always aligned the features of a new product alongside of how the consumers can use it, and demonstrates precisely how the new product will benefit their lives. Apple's new products are about simplicity, productivity and style- all aspects of a new product that Apple knows their consumers value. The appearance of their products has always been a key feature and differentiation point. Consumers of Apple products are most interested in the functionality and beautiful style and design simplicity of their products (Launch like Steve Jobs). Apple has always been a media master, ensuring that press, online magazines and newspapers and bloggers were talking about the new product well in advance of the actual product-launch. In doing so, they have been able to create media buzz- conversation and speculation in the marketplace that sparks excitement and anticipation among consumers. This method has proven to be an extremely beneficial kind of free advertising employed by Apple prior to a new product launch (Launch like Steve Jobs). The next step in Apple's pre-launch strategy is secrecy. Apple has always made a big deal about announcing a new product. However, the announcement of any details about the new product remains shrouded in secrecy until just before the actual

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launch. For example, when a late prototype of the iPhone 4 was accidentally left in a bar by an Apple employee and found by a blogger, Apple first denied they had any knowledge of the product. Then, when details were made public, Apple pursued legal action against the blogger who wrote about it. Apple attempted to make an example of the blogger, in order to deter future leaks or unauthorized reporting about new products. Apple continues to employ their strategy of secrecy with all new forthcoming products prior to the official announcement and launch presentation by the company (Launch like Steve Jobs). Another technique that Apple uses in their product-launch strategy is to create an event around the presentation of a new product. Unlike most common and traditional new product-launch communications and announcements, Apple has always created an event that takes place on a theatrical stage, where Steve Jobs, the great speaker and showman, has introduced the new product with carefully crafted scenery and props. These events are broadcasted over the web so that everyone could participate in, and feel like they are a part of, the Apple experience (Launch like Steve Jobs). New Apple products are generally available for sale about a month after the productlaunch event. However, they day after the launch event, the company usually will begin to take pre-orders. This is probably one of the most overlooked launch strategies that Apple employs. Every company knows that consumers are eager to get their hands on the first units of a new product that are available for sale in the marketplace. To respond to this consumer-desire, Apple offers pre-orders on their new products, and as a result, it's not uncommon for them to sell hundreds of thousands of units within the first few weeks following the official launch event (Launch like Steve Jobs). All of the components of Apple's new product launch strategy are carefully planned and executed, and are a brilliant example of how a company can turn a new product launch into an extraordinary event, providing potential customers with something to talking about. The timing and amount of information released, paired with creative 13

advertising and public relations, all work together to create a valuable customer experience with every new product launch.

The iPad
In 2002, a Microsoft designer contacted Jobs and tried to convince him into developing a tablet, for which the programmer had designed software. The tablet was quite large and required the use of a stylus pen. Jobs was neither impressed nor interested. In his mind, a real tablet had to be lighter, without any cumbersome hardware. In 2007, after the development of the first iPhone, Jobs had clear in his mind what he wanted to do. Everything had to be dependent on a touch-screen, similar to the iPhone. In fact, the iPad is a hybrid between a smartphone and a laptop computer. With the iPad, Apple redefined again an industry. Jobs decided to take more control over the components. Between 2008 and 2010, Jobs bought two microprocessor design companies for about $400 million. The iPad became the first Apple product to run on its own, banded chip, the A4 (Yoffe, 2011). In January 2010, in San Francisco, the first generation iPad was finally presented. In the next 24 hours Jobs was swamped with emails from bloggers, journalists and fans that wanted to criticize the new Apple product. To some people it was useless, it missed some very important features (such as USB port), the color wasn't good, and not even the name was appreciated. So, within just a few hours after the launch of the first iPad, Jobs was already thinking about the iPad2 (Apples Branding Strategy). On March 2, 2011 the new and improved iPad2 was finally unveiled. The iPad2 was a modified version of the original iPad, and was exactly what Jobs had always wanted the Apple tablet to be. The launch was preceded by 5 months of rumors, which began in September 2010, just 8 months after the launch of the original iPad. The first rumors to reach the media discussed the perfection of the camera, however, no other information was released at this time. But, this simple information was enough to start sparking the interest for the new Apple product. A few weeks later, a fake patent for the new iPad hardware surfaced on the Internet. The first substantial information

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leak regarding the iPad2 occurred on the 26th of November 2010, when Economy Daily printed an article discussing five new characteristics that would make the iPad2 revolutionary. The new attributes were discussed in the article were, the products extreme thinness, a gyroscopic screen, Face Time capability, a second dock port and a new display. In December of the same year some fake pictures from Japan were spread on the web. Other rumors followed these, but on February 23 of 2011, people started to talk about the presentation of iPad 2 that would taka place in San Francisco on March 2nd. This rumor was confirmed when Apple that finally decided to officially publish the event (Apples Branding Strategy). The presentation of the iPad 2 followed the style of all other Apple presentations, complete with a dark stage and a big black screen with a white apple in the middle. Steve Jobs began by showing all of the previous Apple products that have been a huge success. He then started presenting his company using a very simple and strong vocabulary. He stated the fact that Apple has changed peoples lifestyles, and he highlighted the superiority of Apple compared to its competitors, that he identified as copycats. The first iPad, despite all of the criticism, was a really strong product- it was a notebook killer, and it drove a new consumer behavior. The iPad has improved peoples lives by entertaining children and adults, and helping people simplify their work with a wide variety of new applications. It was also used professionally, for example, in the medical field, as a clinical treatment instrument for autistic children. But, the original iPad was not complete. With the iPad2 and all of its new improvements, Apple again demonstrated to the world its capacity to continuously innovate and raise the bar (Yoffe, 2011).

The Core of the Apple Why New Product Launches Succeed

Apple's core competency of delivering an exceptional experience through superb user interfaces is the basis of the company's successful new product strategy. ITunes, the iPhone, the iPad, and the Apple App store all play key roles in delivering this experience.

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Apples branding strategy focuses on the emotions. The Apple brand personality is about lifestyle, imagination, liberty, innovation, passion, dreams, aspirations, and power-to-the-people through technology. The Apple brand personality is also about simplicity and the removal of complexity from people's lives; people-driven product design, and a heartfelt connection with its customers. The Apple brand is not just intimate with its customers, it's loved, and there is a real sense of community among users of its main product lines. The brand equity and customer franchise that Apple embodies is extremely strong. The preference for Apple products amongst the "Mac community, not only kept the company alive for much of the 90's, but it even enabled the company to sustain premium pricing in comparison to its competitors. The value proposition of the Apple brand presents Apple with an enormous challenge to live up to. The innovative, beautifully-designed, highly ergonomic, and technologicallyleading products which Apple delivers are not only designed to match the brands promise, but are fundamental to keeping it alive. Apple fully understands that all aspects of the customer experience are important and that all brand touch-points must reinforce the Apple brand (Gallo, 2011). Apple has expanded and improved its distribution capabilities by opening its own retail stores in key cities around the world in quality shopping venues. The very successful Apple retail stores give prospective customers direct experience of Apple's brand values. Apple Store visitors experience a stimulating, no-pressure environment where they can discover more about the Apple family, try out the company's products, and get practical help with Apple products at the Genius Bars. Apple retail staff members are helpful, informative, and let their enthusiasm show without being brash or pushy. The overall feeling is one of inclusiveness by a community that really understands what good technology should look and feel like - and how it should fit into people's lives (Gallo, 2011). All of these aspects and techniques of Apples branding and new product launch strategies are what make Apple Inc. a success-- a unique brand that many around the world have come to know and love.

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Works Cited
Apples Branding Strategy. http://www.marketingminds.com.au/branding/apple_branding_strategy.html 18 Feb 2012. Calantone, Roger J., C. Anthony Di Benedetto, and Michael Song. Expecting Marketing Activities and New Product Launch Execution to be Different in the U.S. and China: An Empirical Study. International Journal of China Marketing 2.1 (2011): 14-44. ProQuest Central. Web. 16 Feb 2012. Gallo, Carmine. Pensare come Steve Jobs. Milano, Sperling & Kupfer S.p.A., 2011. Print. Kotler, Philip and Armstrong. Principles of Marketing 11th edition. Upper Saddle River, NJ, Prentice-Hall, 2005. Print. Launch Like Steve Jobs: 7 Ways to Build Buzz for Your Next Product Launch. http://blog.kissmetrics.com/product-launch-strategies/ 18 Feb 2012. Panway, J S and Bapat, Dhananjay. New Product Launch Strategies: Insights from Distributors Survey. South Asian Journal of Management 14, 2 (Apr-Jun 2007): 82. ProQuest Central. Web. 16 Feb 2012. Urban, Glen L. and Hauser, John R. Design And Marketing Of New Products. Englewood Cliffs, NJ, Prentice-Hall, 1980. Print. Yoffe, David B. and Kim Renee. Apple Inc. in 2010. Harvard Business School Case 910-467 (21 March 2011).

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