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The development organizations of Microsoft and Salesforce.com are very comparable in this regard. Microsoft is like AMD specifically with their Customer Relationship Management (CRM) systems. They are methodical, deliberate and will take years to eventually get all the integration with their own operating systems complete. Yet when Microsoft fulfills its product development vision for CRM, every other Microsoft application including Microsoft Outlook, Instant Messenger and all other personal productivity applications will work directly with CRM.
Salesforce.com, the upstart hosted applications vendor also in the CRM arena, has a much more rapid product development cycle. The philosophy at Salesforce.com is to quickly get new applications out and see what the reaction is from customers, and then quickly fine-tune the applications until they align as best as possible with customers' needs. Microsoft deliberately does its revisions internally with slow changes seen from the outside. Salesforce.com's mercurial approach to product development, in conjunction with its "always on" hosted platform, is giving the smaller and more agile competitor a major lead in the race for CRM market share, especially in small and medium business.
While the pace of both companies is markedly different, there is one constant, and that is both have automated and standardized new product development processes, which is best practices in the new product development process according to Aberdeen Research (2005).
Another critical aspect of the differences between AMD and Intel on microprocessors, Microsoft and Salesforce.com when it comes to CRM and many other companies is their relative levels of performance on the new product introduction process. Burkett (2006) states that 32% of product introductions fail due to being late to market or missing demand, 30% fail due to product quality, and 17% fail due to a lack of product availability. The product launch is the moment of truth for any new product development effort, and from the statistics from Burkett, show that there is a major disconnect between systems in many companies that need to communicate to enable a successful launch.
Figure 1: Grid of product introductions (Source: AMR Research 2006)
Figure 1 shows the analysis from AMR Research (2006) regarding the perfect product introduction. Their analysis defines the synchronization of market demand and delivery readiness. For the perfect product launch AMR Research sees high levels of synchronization required.
New Products: Blue Ocean or Red Ocean Strategy?
For AMD and Intel, Microsoft and Salesforce.com the challenges of breaking out of maturing markets and finding new areas of growth is why R&D investments are made in the first place. CRM Buyer (2005) provides an interesting analysis of how unstructured content found in many forms of consumer-generated media can provide insights into new ideas. This article also discusses the book Blue Ocean Strategy (2005) which is based on an intensive analysis of new products over the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000). This book has a wealth of insights into how to re-engineer and re-orient new product development to not "make the ocean of an industry more red" with price reductions but to discover "blue oceans of opportunities" where there is little competition. The essence of new product development efforts is to find these blue oceans of opportunities, not just adding more products into the "red ocean" of commoditized markets.
Managing Product Lifecycles
For Intel and AMD, their product lifecycles are 30 months at the most, while Microsoft and Salesforce.com have product lifecycles that are often years long. Geoffrey Moore, in his landmark book, Crossing the Chasm, defines the critical phases of moving customers from being early adopters into mainstream customers. In terms of managing products through the product lifecycle, the need for keeping pricing as competitive yet profitable as possible is essential for a company to remain in business. For each phase of a product lifecycle there is also the need to manage against commoditization, and in the latter stages of a lifecycle, managing for differentiation over and above just price. Clearly for AMD and Intel their product lifecycles are continually being lengthened with product line additions and flanking competitive moves. Yet both companies would do well to stop and ask where the blue oceans of opportunities are instead of continually competing in the red oceans of declining markets.
Bringing Innovation into Products
The methods and approaches companies use for bringing innovation into their products vary significantly, as each company's culture defines their approach to innovation. What is clear however those are listening to customers, listening to market experts, and trying to find unmet needs in the context of a target audience or segment is critical. For Intel, innovation in their microprocessors comes from focus groups and an intensive research effort that relies on finding the Voice of the Customer to inject their innovation with strong insights. Coupled with the strength of their innovation cycle and high levels of spending on R & D, Intel has found a solid approach for attaining sustainable new product introductions through innovation over time. AMD uses a comparable approach based purely on an Internet panel of users who rate and discuss the hosted applications online. These approaches all center on bringing the customer into the center of the innovation process, focusing on their unmet needs.
The Power of Pricing
For any business model or even the strategies that support them to survive, there has to be more of a balance between the 4 Ps of marketing which include promotion, place or distribution, and product in addition to price. In fact price is the most volatile and over-used of differentiators in many companies and entire industries, as Wal-Mart exemplifies in their loss-leader pricing strategies.
This has been exacerbated by toy manufacturers moving their manufacturing and production off-shore as a direct result of the loss-leader pricing strategies of Wal-Mart. These manufacturers are looking for the 40-70% reduction in costs to justify moving their services spending, manufacturing operations, or both offshore, which has been promised to them by companies who specialize in offshore manufacturing in the toy business.
The fundamental fact of the matter is that pricing cannot sustain a business model for more than several quarters, even in the most commoditized of industries, according to research completed by Marn, Roegner, and Zawada of McKinsey and Company (the Power of Pricing, Pages 27-36) in McKinsey (2003). Of the many insights from the McKinsey research regarding pricing, the following lessons learned from Marn, Roegner and Zawadas' work apply to Wal-Mart's approach to loss-leader pricing also defined by Aimi (2005) and Sarnevitz (2005).
First, the issue of the price/quality relationship needs to be evaluated. With Wal-Mart driving down the price of toys as a loss-leader, these practice forces manufacturers to permanently modify their production processes to always produce toys with lower price points, as the majority of their sales are during the holidays. This forces a permanent reduction in the eventual quality of toys, further supporting the findings of the McKinsey researchers of there indeed being a price/quality relationship emerging over time. it's forced on manufacturers over time due to price reductions draining their ability to increase quality. This is the essence of why loss-leader pricing strategies on the part of Wal-Mart are going to eventually drive down the ability of manufacturers to provide quality products. Eventually Wal-Mart's pricing policies will define the quality levels of toys, and this is already going to be visible as early as the holiday session now just beginning. Penetration pricing as defined by Thompson (2004) as being most beneficial when the conditions of a market being highly sensitive to low prices producing higher market growth, production and distribution costs fall as sales volume increases, and low prices serve as barrier to entry of competitors, all of which favor Wal-Mart's approach to sourcing and distribution.
In taking Thompson's definitions of pricing strategies (2004) into account relative to Wal-Mart, several key insights emerge. First, through the use of business analytics and the trial program in 2003 of significantly dropping prices, Wal-Mart discovered a high level of price elasticity in toys, and the fact that this specific type of merchandise was a great draw for holiday shoppers. Analysts have commented that Wal-Mart may have done too far with their pricing strategies according to Grant (2005) and that they have left money on the table with…[continue]
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