Welcome back to our course, Quantitative Customer Insight Techniques. I'm James Lenz, with the University of Illinois. And I want to congratulate you on getting this far. It's taken your efforts to understand what we've tried to accomplish so far, and today we'll be working through even more new activities. I hope you will enjoy. Remember, what we've just finished here was your own focus group. Hopefully, you've had fun with your focus group. Enjoyed that and you've learned something, you've learned how to collect data, you've learned how to plot the data, and most importantly, you've learned about the results. And do these results agree with your ideas? And remember, any of this data it's about your analysis of it. It's the use of that data by yourself to make decisions, and is the data itself is nothing without your analysis that goes with it. There's four lectures that will be part of this module. The first one we'll talk about the new product development process. The second lecture will deal with tools that help you do market analysis and especially defining the market of interests. Then we'll work on something called market segmentation, and then we'll estimate revenue. There'll be quizzes at the end of each lecture. At the end of this module, there's an assignment for you to develop a revenue estimate using market segmentation around the original idea that you first came up with in module one of this course. So let's go back to that course and your idea. Hope that you can find this again and bring this back out. You filled it in with some of the evaluations or your peer reviews and give you some insight into these parameters. We're trying to understand tactical readiness, is a product defined, and also market forecast. And this module, now I'll start to give you more information and more ideas about how to get a better understanding of the market forecast for your idea. So I want to first, as i've always done in many of these classes, to give you a little, besides just give you the details of the technical actions associated with business management, but also give you some insight about new product development in general. And how as a field is a very difficult field to teach to, it's a very good difficult field to quantify, and really decide what it is. Here's a few interesting quotes that I've collected over the years from R.G. Cooper and he says, "Perhaps the problem is so complex, and each case so unique, that attempts to develop generalized solutions are in vain." Well, this is really what professors try to do. It's to develop generalized solutions about how ideas can be done. Certainly, all of you are taking this class. Each of your ideas are a little bit different, but how can we bring similar practices to help you manage those ideas, and bring them into a world of product development? Another one that I like very much is,"The mark of a true MBA is that he is often wrong but seldom in doubt." I think this again is an important thing, it's about your analysis and your ability to make decisions. You have to have confidence in this. But certainly, the data you're working with maybe is fuzzy, and very chaotic, and noisy so, it's sometimes difficult to say that you're often right. And you'll hear this today from one of the interviews that I have with one of the leading vice presidents in marketing in agribusiness. So with that, I will have you listen to a little bit to an interview I did with Mr. Jeff Kaiser. He's the Vice president of Sales and Marketing, with a new company called Iteris. It's a fascinating activity. Has been with him for a couple of years now. He's growing a new business based on precision agriculture and he's using new technologies to do this. So this is what area that I call product creation, which many business schools don't want to talk about. But there's many activities today where the companies are focused on this activity of finding new totally new customers to their business as well as developing new technologies for that business. It's a very challenging activity. So, I'd like you to listen to Jeff Kaiser, as I interview him about his job and his potential that he has this creating this new business. I want to talk about today's precision agriculture. And I would like you just give a little bit of background on precision Ag. Well, I've been involved in the observer precision agriculture for well since the early 90's, since about '91. I was involved in early mapping escapades for precision ag to try and fly the right [inaudible] fertilizer so forth and working for. Help this company grow into this new market. I mean, they describe it as an adjacent market but I don't think it's so adjacent in the form of businesses, it's adjacent grid geographically. It really was adjacent for some of our technology operationally because we had to have this landscape model that said how fast water moves, and how it's affected by temperature, and the atmosphere, and climate, and those kind of things. But you're right. We really had to focus on the unique needs of agriculture, and how farmers make decisions about what's the right rate of fertilizer? Or what's the right rate, what's the right time really? So, I always tell people the two questions that we answered most often with our product is related to where and when. A lot of product companies have answers for, what to do and how to do it? But not as much detail on exactly where and when. How did you come about developing the market research, and convince your company that there's a market here to pursue? One of the things that a lot of Ag tech companies these days are looking at is focusing on farmers, and how they have questions that need to be answered. And my solution to how do we attack the market was? We'll, not focus so much on farmers, not ignoring farmers needs, but more and the companies that have products that farmers want to consume. And how can we make those products better? It's almost like BSF used to say years ago, "We don't make the product but we make that product better." And that's exactly what we do with seed, and fertilizer, and chemicals. So, your market segmentation then start to look at the suppliers to the farmers. Not only the suppliers that make the products but also how do they get that product to the market. So they add retailers, and the distributors that are also responsible for partnering with these manufacturers on bringing those products to market. [inaudible] process that you've developed over the years for this market research, market forecasting, or have you copied one from a business [inaudible]? I think as much as anything, a lot of the things that iv'e learned over the course of my career with probably include suppliers, with the ag retail business, even with manufacturers like John Deere and Monsanto. They have a process about trying to understand what the problem is, looking at the market conditions, and so forth that create an opportunity and then going to attack those with a plan. Oftentimes, we've had to adjust in. I would say, that we probably have developed on the order of about two dozen different products for different markets. Fantastic. Yes. And have the sales met your forecast? Well, they certainly met our expectations. Sometimes our forecast exceed our expectations because we always try to strive to outdo ourselves. We certainly have excelled in what we've set out to do. And is there one great story that you have where you really found a new market, an unmet need, and you got something done in a few months or? I think the one that sort of resonates most with me is with potatoes. I was for a potato company that operates in many countries but primarily in the US, all the way from Texas up to North Dakota. And one of the things they were doing because they were trying to take out packing potatoes which are very subject to the temperature of those potatoes brought out of the ground are done. And one of the things that we're doing, we're sending the agronomists out with probes to sense the temperature of the soil at the depth of potatoes were at. In order to make sure they only brought them out of the ground, at the the right temperature so they didn't have too much cost in storage and they also minimize damaged. Well, all that effort took an awful lot of folks going out to the field each day, multiple times during the day. As we interjected our models into there, they could verify and validate for us that our models were within one degree Fahrenheit of exactly what their temperature sensor were actually measuring. And so, they actually did away with that activity for the randomness, save time, improved the actually the quality in which they brought potatoes off the ground, and increase the efficiency of the machinery that went down the harvest [inaudible]. Getting into business, I mean, you could have build a career like you have in market research and market analysis. I think, the biggest piece of advice that I could offer them is don't be undoubted or I guess discouraged when people say, "No. That's not possible." Because oftentimes, I felt and have been advised that things aren't possible. When I put my mind to it, when I collaborate with others, when I find out and ask questions if people really have done, what we're trying to do? We often find it that things are possible. At least, they have to think about it in a different way. Okay. Hopefully you've enjoyed the little discussion with Jeff Kaiser. I have three takeaways that I've grabbed from that interview. As I mentioned, he was hired to grow a business in the area of precision agriculture. And it's interesting he has a long history in this. In fact, he talked about growing up on a farm and being still part of a farming operation, where they started using precision data taking to help manage that farm back 20, 30 years ago. He used this market segmentation as the value chain methods to find where can his company add value and create a new business. So he wasn't so much dealing directly with the customer like the farmer, but finding the suppliers that the farmer was using and seeing if they can make those products better. And he's had a tremendous amount of success because of that. As I say, he's now the vice president, he was hired as a marketing person just a year ago. His interest into yourselves, again, is to believe in yourself. Again, this idea of having confidence. And sometimes he says the impossible is possible. And this is some of his results, the last couple of years working with this company. So let's talk about new product development, the S curve. And then also the process of new product development, which is called the Stage-Gate process. I think you've probably heard of these activities already, so I'm going to go through them relatively quickly, in your previous courses, this is a fundamental thinking around new product development and so, you're probably quite familiar with this. I'll just give you maybe a little bit different twist and thinking about them than what you've heard in the past. The S curve, I like this chart, there's hundreds of versions of it. I like this one showing the idea of units sold. I mean you can also do this in the form of effort and so on. And if you're familiar with my book, you've been reading, taking readings out of this book, I use this curve here as an effort, as an example of effort. And there's a number of activities go on before you do product launch, but I'd like to think of effort as the activity that you're managing because effort means the money that you're spending. And that's what you're trying to manage in new product development, not so much you want to forecast units sold but you're trying to manage the effort to make sure that you will have a profitable product at the end of it. By the way, as you know, I would like you to purchase this book if you are. It's available on Amazon, any place in the world, Amazon book sells it with your local currency as well. So, you can get a paper version of the book that you have. So as we look at this S curve, I think also what's interesting about new product development is methodologies to make it faster. Because the sooner you pull a product in, the more money you make, and the fact that it's been shown that you actually make faster money and higher value than by taking a long time. My experience is, most product development take about three years before you actually get the first units sold. But there's a lot of activities going on for a year and a half. As we know, with the.com business, the web business, the app business, they're trying to pull this into a few months. And certainly, a lot of bakeries are doing things in a few months now as opposed to taking three years to get things done. So, it's a lot of effort to use the same principles, but how do I get through them faster? But the bottom line is, the world tends to work on these S curves. The stage-gate process you've seen this probably before. RG Cooper is credited for coming up with the basic theme of this, of five stages and five gates. What we've been working on is this idea screening and discovery activity that feeds us now into this scoping activity. And then we build the business case, which is what will be the next course after this one. We'll talk about taking customer inputs and building the business case. And then from that, you'll launch into development, and then testing and validation, and then the launch of the product. So last three are more of a production type of activity, more of the development side of R&D. The first two scoping and building businesses are more part of the research side of R&D. But all of these are needed and very well understood. What this builds is what's called the durable process. It's trying to take out uncertainty as you go through this process, so that you have a very solid product that has high quality that meets the customer's demands as it is developed. Another way to look at this stage-gate process is many companies have developed questionnaires or gates they call. So many companies have meetings, certain meetings and many companies I've worked with all have had meetings, at certain points where you make a decision. Are you ready to go from stage one to stage two? So that's when more money is available, more funding is available, maybe different teams are put together, additional people are added into these activities. So this gating concept is very interesting from a management standpoint, because it brings in different aspects of the company. And so you started out a little bit smaller but you build in bigger and bigger things and certainly when you get to stage three, here you now you have a huge activity to modernize your factory or change your factory or figure out what is involved in the development activity of these types of programs. Software development has developed its version of a stage-gate process, but they call it the V diagram. And you typically start out with requirements and detailed designs, you define the project, and the bottom of the V diagram is the code developments, when you actually start developing the code. And now you start integrating that code into whatever system is going to be used with, and then verified and validated and then released. This concept has been around for many years as long as the stage-gate process but they call it the V diagram, because software tends to have a lot of rework. And so they bring this instead of a linear process like we show with the stage-gate process. This tries to show a process where the back-end can hook back into the front-end again, and you bring things through. What's important about this process, is they show that when you do rework you've got to bring things back to the beginning and work them through this process. Again, this idea of building durability and having a structured process that everything's been validated as it goes through the activities. If we look at new product development funding, where is the money spent? As I said, in this R&D, these five stages, people can now, because of these stages, and because so many companies are following these stages, you can now start to do statistics on, where is the money spent? And of course as a manager, you want to think about where are you allocating your company's resources and where are you getting the return from those resources? So here of course, the main activity has done is the product development. This is where you really are spending the money to develop the product, and of course start up, getting the production going and then rolling out the product. These are the three major activities where most of the money, 75 percent of the money is spent by the company. But what's critical is all of this other activities are relatively small, but they're probably are more critical to the success of the product than these other three activities, because there's more uncertainty with those. And what's interesting is when you have uncertainty, you tend to spend less money on it. So you have to be smarter. You have to think about how you can get through this. It becomes much more of a mystery type problem than a puzzle type problem. I look at this as these three major funding activists, are more puzzles and the other activities are more mysteries. So it take more types of human input and more types of insight into understanding how to get the data for each of those steps and get through those gates. In fact, if you look at then causes of potential of product failure, RG Cooper has done many studies on this. The number one reason is inadequate market analysis. So it just did not really understand what the market need was. What was that unmet need? Defining that specifically, very precisely. And I've run a number of courses here with students developing their own ideas. And it's been fascinating as they work on them that they get at about 80 percent right. Most people can get a product defined to about 80 percent accurate. But it's that last 20 percent of really working that product to fit that unmet need, fitting that together takes most of the effort, but that's where the value is created. You will pretty much get things right, what the pricing should be? What the volume is going to be? But how do you distinguish yourself in the marketplace? Understanding that market analysis and that's why I've really spent a lot of part of my career not just developing products, but also helping to fit them into the business place and learning the business aspect of new product development as much as the technology aspect. And of course there's many other things that go on here. But I think it's interesting for our course to look at that market analysis is an important thing. But if you go back one slide and look at this, you'll see that very little money is spent on this. So, it just shows that it's a very difficult thing to manage, but it's also a very risky thing to manage as well. So with that, and summary here of lecture one, there's three different things, points I want you to remember is, not understanding the market causes more new products to fail than problems with developing the technology. Most of us think the technology is the hard part. But really the market analysis is the hard part. And in fact, has the most uncertainty with it. New product development is very complex and almost each development will need to address its own unique problems. And this is kind of an interesting thing in physics today. People don't like these singular, called singularities. And no one thinks about developing a theory for a singularity. But in business, this is what we are doing. We're trying to develop theories and concepts and methodologies that work on very unique cases. And the last thing is the depth of knowledge and perseverance are important skills. As I said, this confidence, building confidence, building your appreciation, and your decision making around these ideas. So with that, there's a short quiz. And then we'll be back for the next lecture.
