Executive Summary
Saturn Corporation, a wholly-owned subsidiary of General Motors, is selected for product development analysis. Product development is seen as one of the core foundations of corporate planning. Its success or failure shapes corporate destiny. Because of this, particular attention is given to a discussion of new products, their adoption, and diffusion processes, the product life cycle, and new-product failures. During the 2005-2006 years, Saturn developed two lines: Saturn Relay and Red Line. A distinction was made between price determination and price administration. Saturn develops innovative programs that affect survival, profits, growth, volume, market share, R & D, and image. New product development is based on innovative solutions and a new vision of the company’s products, customers’ needs, and new demands. The focus of a good product-development program is a clearly defined set of corporate objectives and an inventory of corporate resources showing both strengths and weaknesses. Given product concepts and prototypes, further testing and research ensued. Marketing research, patent research, styling and redesigning, and cost and profit assessments receive attention. The evaluation of production, including techniques, material selection, and inventories, must be based on a cold look at market potential, for management faces the decision of making a considerable investment. Several guidelines have been developed for determining the extent of planning and testing in a new-product development program.
Introduction
By assessing new or modified products that can be added by acquisition and internal development, product development becomes the lifeblood of a business. Decisions in this area determine the products to be produced and stocked, as well as details concerning their appearance, form, size, package, quantities, the timing of production, price lines, and anticipated market segments. Product development combines the scientist’s function of analyzing, classifying, and organizing information into commercially feasible new products and the marketer’s function of assessing unsatisfied wants and needs and identifying profitable market opportunities. Usually, this activity necessitates compromise among engineering, production, marketing; typically, business growth is depicted by a pattern that shows an increase, reaches a limit, and then tends to decline. Although products and markets for particular items will decline, businesses need not (Hollensen, 2007). Continued growth becomes possible by properly developing new products that fit assessed opportunities. Market opportunity considerations have resulted in the development of a new industry in the United States — and industry of discovery — the discovery of new technology, new methods, new processes, and new opportunities. Expenditures on research and development have risen sharply recently and resulted in new products and processes. The company selected for analysis is Saturn Corporation. Saturn is a US-based car company specialized in Z-body and a dedicated engine. The purpose of the research is to investigate the product development strategies of Saturn corporation during 2005-2006 and evaluate their impact on the company’s performance.
Company Background
Saturn, the small-car unit (a wholly owned subsidiary) of General Motors Corporation, successfully meets the challenge of providing high levels of product, sales, and service satisfaction. In fact, the Saturn ownership experience is now considered by many in the automotive world to be the standard by which customer satisfaction is measured. Saturn is the perennial leader in the J.D. Power and Associates annual Sales Satisfaction Index, and the latest Customer Satisfaction Index put Saturn in seventh place (the top six were all luxury cars). One J.D. Power official observed that the top-ranking companies seem to have developed a corporate culture that stresses keeping the customer happy long after the car is sold. Saturn’s customer loyalty rate is now higher than those of its chief foreign competitors—Toyota and Honda. Pretty darn good for an auto manufacturer that has had only three products (coupe, sedan, and wagon) and eight short years to develop repeat purchasing customers. Since Saturn plans on being around 100-plus years from now, long-term customers are important. Saturn was thus born as a code name for the innovative project. GM needed Saturn to win back those customers who had given up on American small cars—a task deemed impossible by many auto analysts (Saturn Home Page 2008).
Product Development
Planning Process
Product development and innovations are the main priority for Saturn. These strategies are an important part of the strategic management process because they ensure stable growth rates and customers satisfaction. To assure profitable growth, companies must add new products that are tied to different phases of market development. When some products are declining, others should be enjoying market growth. Sometimes this is achieved by a merger; sometimes, it is done internally. Regardless, the combination of the total product line as it relates to markets establishes a company’s position. Opportunity assessment, therefore, must cover a span of time and continuously add growth opportunities to a company’s present product assortment. The market opportunity is not automatically assured by either population growth or lower prices (Hollensen, 2007). Planned market cultivation through such activities as product development, credit, advertising, or personal selling has an impact on opportunities. Market opportunity should determine the particular kind of mix to be offered. The major decisions on changing product lines or automating production, for example, imply risks and should be made only after assessing the market opportunity. Thus, the choice of fundamental policies and strategies, and hence company survival and growth, depending on the opportunity. Since company resources are limited, only selected opportunities can be effectively cultivated (Kotler and Keller, 2005).
During 2005-2006 Saturn paid special attention to the development of innovative solutions and products for its main product line. Among the new products were Saturn Relay and Red Line. For Saturn, technological change creates not only new products but also whole new industries. Consider the impact of lasers, transistors, jets, nylon, or the space program. “The most important long-term impact of the new space capabilities is that they open tip a new frontier for exploration and economic development” (Kotler and Armstrong 2005, p. 7). Such developments accelerate progress in such areas as power sources, high-temperature materials, and controls, all of which will have a great economic impact. Some may even result in the establishment of totally new industries (Crawford and Di Benedetto, 2002). The space frontier will expand the risk-taking and thinking of business people into vast investments, with greater potential long-time commitments in global and interplanetary space. Similarly, concern with the pollution of environments will result in further development of “the ecological industries” — industries focused on the maintenance and improvement of environments and the quality of life. “The Relay lineup continues in 2006 with front-wheel drive passenger models available in Relay 2 and Relay 3 trim levels, as well as the uplevel Relay 3 with all-wheel drive. The Relay receives additional safety enhancements for ’06, including available first- and second-row seat-mounted side airbags that provide additional head and thorax protection” (Saturn Drives Its Product Revitalization, 2007). The need to dispose of waste and sewage, to reduce auto and plane emissions, to control the contamination of our food, and to cleanse our air and water presents untapped market opportunities. In this decade, billions of dollars will be spent on products and services designed to meet ecological needs. Saturn isn’t just about building cars. It’s about building a unique and powerful relationship between the people who build, sell, service, and own the cars (Drejer, 2002).
Thus, at the beginning of 2005, it seemed that the innovation time scale was collapsing. The time interval from the perception of dysfunctioning to acceptance of innovation has been decreasing. This places additional pressure on management to understand more fully the process of managing change and programming innovation through manipulation of knowledge. Innovation approaches manageability when participation in the process becomes part of the continuing responsibility of all levels of management. Management must develop the appropriate environment and set of attitudes to encourage innovation. Only then can a firm hope to deploy its resources most profitably in order to meet the challenge of change (Crawford and Di Benedetto 2002).
Sales Forecasting
In order to ensure the success of its products, Saturn used sales forecasting techniques and methods. Saturn relates its Sales forecasting to all entrepreneurial functions but is most closely associated with the assessment of opportunity and planning. It both provides the background and is the result of the former. For the latter, it provides the basic information for plans and programs. The sales forecast is concerned with evaluating market and sales potentials. It is the basis for matching marketing resources with future opportunities to achieve company objectives. It affects almost every other phase of business operation and is used in establishing marketing controls, budgets, policies, and directions (Crawford and Di Benedetto 2002). Thus, sales forecasts determine the limits of management programs and decisions. They provide the basis for evaluating the functioning and productivity of various business segments so that future effectiveness can be improved. Opportunity estimates based on sales forecasts truly reverberate throughout the company as coordinating and integrating tools. Sales forecasts are the “drivers” of business — the basic information and control inputs that shape company operations. Essentially, sales forecasting is a means of providing information about the size, nature, and trend of various market segments, and hence, the anticipated profitability of markets. In reaching opportunity estimates, management has two types of information available: information about the past and information about the future. Information about the past is provided by various feedback mechanisms, such as marketing research, accounting, various corporate records, surveys, published statistical data, and experiments. This information is referred to as factual and is available from either the company itself or such secondary sources as governmental bureaus, universities, and trade associations (Drejer, 2002).
The counterpart of past information is future information. Future information is available through the sales forecasting process, just as past information is available through the feedback process. Sales forecasts are, of course, based on past data and results from the application of predictive techniques to past information and accounting departments. For example, the high specifications stressed by engineering may push costs above market acceptance. Effective product development adopts a critical but positive posture. Management cannot be satisfied with current products, regardless of how good they are. Such an attitude and expression of expectations achieve an even better match of corporate offerings with consumer expectations. “The Relay is distinguished by its wide choice of passenger entertainment choices, including the optional Mobile Digital Media Powered by PhatNoise system that allows customers to store hundreds of hours of music, video and entertainment files on a removable 40-gigabyte hard drive cartridge” (Saturn Drives Its Product Revitalization, 2007).
Thus, product development refers to the conversion of ideas into successfully marketed products. It combines technical and marketing competence and is concerned with strategies of the programmed introduction of new products to markets as replacements for decaying ones. Since it carries out an important mission directed at corporate growth and advancement, product development should report to top management. That product development is a top management responsibility is implied in these observations, and in such statements as top management’s two major responsibilities are innovation and marketing (or innovation and research and development). The establishment of product-planning departments that search for opportunities, recommend new products, and coordinate the efforts necessary to develop them is a recognition of management concern for these critical tasks (Kotler and Keller, 2005).
Product Positioning
Developing Saturn Relay and Red Line, the company follows horizontal product diversification. Horizontal refers to diversification with new products in the same industry. During the product development stage, Saturn takes into account that product-diversification programs must be related to marketing objectives (Crawford and Di Benedetto 2002). The maintenance of profits and sales positions requires changes in product-and-service mixes – sometimes drastic changes. A company’s product line, therefore, is far from stable, even in a five- or ten-year period. The life cycle of products dictates changes, and products in developmental phases must have sufficient market capability to overcome the loss of those in stages of decline. Multi-product firms must have a mix that is growing in total potential and profits. Although product change is rapid and inevitable, products must solve problems for sellers long enough to justify the risks of research, development, and commercialization. Product obsolescence is an activity that shortens the company’s payback period (Drejer, 2002). The strategy is to make consumers dissatisfied with products before their “functional utility” disappears. For example, an objective of the women’s clothing or automobile industry is the creation of planned product obsolescence (Kotler and Keller, 2005).
Product obsolescence is often attacked on the grounds that it results in a glaring waste of resources — that consumers would be better off if fewer products were produced and were used longer, and the resources saved redirected to other more beneficial activities. This situation is multidimensional, and no simple, definitive answer is possible. Any position taken will depend first on the perspective adopted — micro or macro. Is the perspective that of business people competing for their niche in a keenly competitive business situation, or one of the best uses of resources for social objectives, regardless of their individual corporate impact? Then there are concerns with the desirability of maintaining a free market system, with companies free to introduce new products and styles and offer them to the marketplace, and consumers able to exercise choice over a wide range of products. Questions have been raised about the productivity of individuals spurred on by altruistic motives rather than their own self-interest. The business has often argued that planned obsolescence is particularly important in creating markets in an economy of abundance and that it creates employment opportunities and even provides used products at lower prices for people in lower-income groups. Although definitive conclusions are not possible in the abstract, it is evident that product development has a role to play in the effective deployment of resources (Crawford and Di Benedetto, 2002).
Developing Saturn Relay and Red Line, the company takes into account that innovation is becoming a way of corporate life. New products are planned in research and development departments to be introduced into the competitive environment. Seen as a method of assuring growth and survival, innovation is becoming institutionalized. Newness is not merely a matter of haphazard discoveries and research, for a planned innovative cycle is put into effect. Innovation is managed and becomes programmed, with new products developed to meet a marketing calendar. Yet many innovations have not been the result of goal-directed research. To become successful innovations, new products must be based on the familiar. They must not tax the adjustment capabilities of consumers. Innovations succeed where the consumer can adapt with ease (Drejer, 2002). Therefore, innovation, in part, is the process of making the new or different very familiar. It is not merely individualism or the willingness to accept something new that supports innovation; conformity plays a large part. Only with a mass market can the necessary conformity result that assures the success of the innovation. “The Enhanced Performance Package also includes modifications to the suspension to provide a firmer, sport-oriented ride. Valves that control the flow of hydraulic fluid within the suspension struts are modified to provide more resistance, and the stabilizer bar diameter is increased. In addition to the firmer ride, the changes reduced body lean when cornering” (Saturn Drives Its Product Revitalization, 2007).
Companies may diversify product lines for several reasons. Diversification can increase the use of production or marketing facilities to spread the overhead costs and make a contribution to profit. It also offers a method of limiting or reducing the impact of seasonal and cyclical declines by adding products that dovetail with existing lines and eliminate wide sales swings. Product diversification has also been used to dispose of by-products and to capitalize on a company’s research and development efforts. In fact, the diversification of a product line has been a basic way of achieving long-term market survival. If one considers the rapid technological advances that are being made and the new products being developed, then diversification does not become an incidental or peripheral activity but a pivotal activity worthy of vigorous and sustained pursuit. Attempts to diversify product lines create a risk, for dealer and customer reaction is always uncertain (Crawford and Di Benedetto, 2002).
To some extent, the risk may be reduced through the use of marketing intelligence, as is the case when products that enjoy good differential advantages are discovered. It may also be reduced by mergers with established firms whose products are well accepted. Product diversification may result in either trading up or trading down. In trading up, the manufacturer adds related items to his line that will sell for an increase in price, whereas trading down is the reverse process. There are two objectives involved in a decision to increase the number of variations in price and quality: to gain sales by catering to a new segment of the market and gaining sales in the existing market by trading up or down (Kotler and Keller, 2005).
Product Differentiation
Product differentiation gives Saturn Relay and Red Line a share of a broad, horizontal market, whereas market segmentation tends to result in the cultivation of a market position in depth. Given the analogy of a layer cake, product differentiation seeks to secure a layer of the cake, whereas segmentation seeks a wedge. Differentiation followed by Saturn is characterized more as a promotional strategy that endeavors to control demand by advertising and other promotional efforts, whereas segmentation (which relates to recognition of segmented, homogeneous product preferences) is a merchandising strategy. Successful product development requires the utilization of both product differentiation and market segmentation. The former strategy adjusts or bends demand conditions to meet the seller’s conditions. The latter represents a more precise adjustment of products and production to market conditions (Crawford and Di Benedetto 2002).
Market segmentation applied for Saturn Relay, and Red Line results from substantial growth. After markets are developed on some general basis, they reach the point where additional effort tends to yield diminishing returns, and attention is given to specific market segments that become large enough to be attractive. By cultivating specific market segments, companies seek to make use of a greater opportunity to maximize customer satisfaction. This maximization, in turn, results in the development of a more secure market position and posture. Differentiation and postponement may have opposite effects. Postponement serves to reduce marketing risks since it means that products can be matched to broader segments. Differentiation, however, which matches products with the specific needs of a particular market segment, also makes the product less suitable for remaining market segments and increases the risks incurred if these markets do not accept it. By shifting differentiation nearer to the time of purchase and making the product more appealing to a generalized market, postponement reduces the risk (Kotler and Keller, 2005).
Since Saturn Relay and Red Line are areas of convergence for both customers and companies, product-development programs are directly related to company growth, survival, rate of return on investment, image, status, and the attainment of personal-management goals. Although the specific product development processes vary among companies, a general product-development cycle exists. It includes the following sequential stages: a concept phase, an exploration phase, a development and evaluation phase, a market preparation phase, and a commercialization and review phase. The concept phase includes assessing future opportunities, developing product ideas, and establishing programs for generating product ideas utilizing both internal and external sources. The exploration phase focuses on screening ideas. Here ideas are expanded into a product concept, and a quick analysis is done to screen them. Various functional areas are often represented on a screening committee, where ideas are appraised as to their patentability for the company (Drejer 2002). Development and evaluation include the appointment of a person or persons responsible for developing a prototype, improving the design, specifying the product, determining the best product features, limited field testing, and further refinement. The market-preparation phase builds on market research and product engineering to reduce costs, improve styling, make modifications, and conduct accelerated field testing prior to commercialization (Crawford and Di Benedetto 2002). Commercialization includes the whole program to market the product. It extends beyond product development in a narrow sense. For successful commercialization may be viewed as the objective of a product-development program. Product-development programs are the foundation of corporate planning since the business strategy is expressed in products (Hollensen, 2007).
Saturn Corporation is no more successful than its product. Thus, product planning is a major top management responsibility that cannot be delegated. Neither a haphazard nor a random activity, it must be planned and programmed. Specific criteria for new products must be laid down, yet the whole new product-development function is one of continuous evaluation and assessment. Organization and control of the product-development function should relate to the stages of new-product evolution that require inter-departmental teams operating on a coordinated basis. Ultimately, the market must be the focal point for all new product development. Saturn Relay and Red Line should tie in as much as possible with corporate resources — financial, personal, and physical — and companies should plan to update their product lines on a regular basis (Kotler and Keller, 2005).
Product differentiation for Saturn Relay and Red Line is concerned with minor variations, adjustments, or adaptations in a product, such as in varying the kinds of filters in cigarettes, filter flows in automatic washers, or chrome molding or grills on cars. It may also be imparted by varying the package or color of the product. Or it may be achieved through a totally redesigned product or a technological breakthrough, as in the use of transistors in electronic products. Companies that differentiate products are faced with the need to instill an image in the minds of customers that distinguish their products from others and causes the customer to react more favorably toward them (Drejer, 2002). This might be the result of the image of the company itself, its distributors, or the product per se. In matching differentiated products with markets, executives have the choice of selecting converging or diverging strategies. Converging strategy refers to the convergence of demand for product variety among individual market segments so that distinct markets are satisfied by a single or limited offering. Here, variations in individual consumer wants are minimized, and heterogeneous demand converges upon the product or product line. Divergent product policies adjust product lines to individual market segments — they implement market segmentation (Crawford and Di Benedetto, 2002).
Newness and Innovation
Saturn Relay and Red Line ease or hinder the job of product acceptance. For example, newness can result in improved convenience, lower prices, and better performance, or it may lead to new methods, unfamiliar behavior, and higher costs. Products that have a real advance in design, concept, or function as related to market needs are the ones most likely to succeed. Moreover, an idea about one product may very well yield many other successful products. This is the case with transistors, laser beams, and satellites. New products must be viewed from the point of view of the systems within which they function (Kotler and Keller 2005).
The innovation interval has three phases: (1) the period before the innovator’s gains are felt by his competitors; (2) the time before the competitor makes an effective response; and (3) the interval before the competitive response wipes out the aftermath of the innovator’s gains. There is a difference in each interval span for different innovation categories. Fundamental innovations tend to have substantially longer intervals than adaptive innovations. For example, a competitor’s response to a price or advertising innovation can be made directly and quickly. Innovating firms face a range of possible marketing policies. At one extreme, they can choose policies to make the maximum short-run profit and then decide to meet competition as it arises, as with a pricing policy of skimming markets. At the other extreme, they can build a solid market position by accepting modest immediate returns and taking a longer period of time to cover their outlays, thus making it more difficult for new entries, as with a pricing policy of market penetration. Between these extremes, they may choose to be reimbursed for their original outlays while still holding a competitive advantage and then use the advantage to increase volume and build a stronger market position. From a social perspective, the benefits of various innovations are often challenged (Crawford and Di Benedetto, 2002). Fundamental innovations that create something new in the physical sense are hailed as beneficial. Adaptive innovations, particularly those that generate psychological values and are based on style or design obsolescence, are often criticized. Yet even the latter is beneficial in a highly industrialized economy. The initial introduction of a new product is generally met with small sales, for consumers do not know about and accept changes readily. As product experience accumulates, the product will be altered to meet the demands of markets. Given the larger volume, new-product costs and prices tend to decline, thereby affecting (broadening) the market. The product then is likely to become widely diffused, and both the rate of purchase and actual purchases rise rapidly. Eventually, the rate of purchase declines, and product sales tend to level off; market saturation is reached. The initial costs of cultivating a market may be heavy (Drejer, 2002).
Management can choose among alternative policies. At one end of the scale, management may choose to push the product through the distribution channels to the market. It may do so by undertaking expensive advertising campaigns. This campaign may be bolstered by a hard-selling effort designed to get wholesalers and retailers to promote the product. At the other extreme, the manufacturer may hope to pull the product through the channels to the market by cultivating the ultimate consumers. For example, manufacturers may advertise to their customer’s customers, thereby creating effective demand and force wholesalers and retailers to handle the product (Hollensen, 2007).
For Saturn Relay and Red Line, the product life-cycle concept emphasizes the familiar pattern of product sales volume growing slowly, then more rapidly, reaching a peak, tapering off, and declining. For different products, the length of the cycle, the duration of each phase, and the exact shape of the curve will vary (Hollensen, 2007). Eventually, however, sales decline because of competitors, new products, the satisfaction of needs, and changing wants. Products now seem to mature more rapidly, and their life cycles are getting shorter (Crawford and Di Benedetto 2002). This means that product lines will have to be audited more carefully and strategies directed to capitalize on the life-cycle situation. Firms too often only pay attention to current problems, neglecting life-cycle considerations and the impact of marketing strategies. They can deter sales declines, speed introductions, and stimulate growth phases through advertising, personal selling, and pricing (Hollensen, 2007).
Saturn Relay and Red Line are defined broadly to include both physical products and services. Products are perceived as means of problem-solving for both buyers and sellers. The discussion relates to both consumer and industrial goods. Product-line management involves the addition of new products to the line and the deletion or modification of current products. Product diversification (horizontal, vertical, or heterogeneous) may be the result of internal product policies or mergers. Reasons for diversification vary from spreading risks to using by-products and increasing profits. Product policies and strategies may be offensive or defensive, convergent or divergent.
Conclusion and Recommendations
The case of Saturn Corporation and its innovations during the 2005-2006 years vividly portrays that product development and redesign is a need for every market. Once the company is well satisfied that the proposed product has withstood realistic tests, the product may be put on the market. Launching the product is a costly affair that requires constant audit and control. It is necessary to support new products with adequate promotion and distribution. Feedback from the market is essential so the product can be reassessed and adjusted. Despite careful screening and testing, many new products fail. The failure rate has been estimated to be as high as 67 to 80 percent for consumer goods. Although various figures have been offered, valid statistics do not exist on failures, but it is evident that new-product failure rates are high. This attests to the fact that consumers exercise collective judgment in the marketplace. Yet, regardless of the risk involved in endeavoring to be competitive, firms are almost forced to have one or more possible replacements for each important existing item under active development long before market acceptance shows a visible decline. If the development is not started until this decline becomes evident, there is the possibility of serious loss of profit and market position. Coupled with an estimate of the future economic climate, this knowledge of corporate goals can provide a valuable background for a development program and assessment of possible product ideas. By differentiating products, Saturn managers try to bend demand to meet their supply and so ensure a niche in the marketplace. Each of the phases of the product development process (conceptualization, exploration, development, market preparation, commercialization, and review) should be considered.
References
- Crawford, C. Merle, And Di Benedetto, C. Anthony, (2002(, New Products Management, McGraw-Hill/Irwin; 7 edition.
- Drejer, A. (2002), Strategic Management and Core Competencies: Theory and Application. Quorum Books.
- Hollensen, S. (2007). Global Marketing: A Decision-Oriented Approach. Financial Times/Prentice Hall; 4 edition.
- Kotler, Ph., Armstrong, G. (2005), Principles of Marketing. Prentice Hall; 11th edition.
- Kotler, Ph, Keller, K. (2005). Marketing Management. Prentice Hall.
- Saturn Home Page. (2008), Web.
- Saturn Drives Its Product Revilitalization. (2007).