Unit 4- Product Planning and

Identifying Customer Needs

Syllabus
The Product Planning Process, Four Types of Product Development Projects and the
Process. The Importance of Latent Needs, The Process of Identifying Customer Needs.
Summary of Topic

Product planning is a periodic process that considers the portfolio of product development
projects to be executed. The resulting customer needs are used to guide the team in
establishing product specifications, generating product concepts, and selecting a product
concept for further development.

Portfolio-a collection of drawings, documents

Introduction

A mission statement for each product development project documents

the product description, benefit proposition, business goals, target
markets, critical assumptions, and the product’s stakeholders.

Identifying customer needs is an integral part of the concept

development phase of the product development process. The
resulting customer needs are used to guide the team in establishing
product specifications, generating product concepts, and selecting a
product concept for further development.
 Tony Fadell had been a product development leader at
Apple for more than a decade, participating in the creation
of the iPod portable music player and the iPhone
smartphone. After leaving Apple, he contemplated
entrepreneurial opportunities and eventually decided to
create a better thermostat for control of home heating and
cooling systems. Exhibit 5-1 shows the Nest Learning
Thermostat, the first product he and his team created
from their new company, Nest Labs.
EXHIBIT 5-1 The Nest learning
thermostat, which programs itself based The Nest team aspired to create the best thermostat on the
on patterns of activity in the home. market, and knew that understanding and delivering on
customer needs was key to success. The Nest thermostat
was extremely well received in the marketplace, and just
three years after its formation, Nest Labs was acquired by
Google for $3.2 billion, representing a phenomenal financial
outcome for the young company.
This presents a method for comprehensively identifying a set of customer
needs, and is built around the example of creating a better thermostat.

The goals of the method are to:

• Ensure that the product is focused on customer needs.

• Identify latent or hidden needs as well as explicit needs.

• Provide a fact base for justifying the product specifications.

• Create an archival record of the need’s activity of the development process.

• Ensure that no critical customer need is missed or forgotten.

•Develop a common understanding of customer needs among members of the
development team.
The philosophy behind the method is to create a high-quality information channel that runs
directly between customers in the target market and the developers of the product. This
philosophy is built on the premise that those who directly control the details of the product,
including the engineers and industrial designers, must interact with customers and
experience the use environment of the product. Without this direct experience, technical
trade-offs are not likely to be made correctly, innovative solutions to customer needs may
never be discovered, and the development team may never develop a deep commitment to
meeting customer needs.

The product planning process takes place before a product development project is formally
approved, before substantial resources are applied, and before the larger development team
is formed. Product planning is an activity that considers the portfolio of projects that an
organization might pursue and determines what subset of these projects will be pursued
over what time period. The product planning activity ensures that product development
projects support the broader business strategy of the company and addresses these
questions:
•What product development projects will be undertaken?
•What mix of fundamentally new products, platforms, and derivative products should be
pursued?
•How do the various projects relate to each other as a portfolio?
•What will be the timing and sequence of the projects?

Each of the selected projects is then completed by a product development team. The team
needs to know its mission before beginning development. The answers to these critical
questions are included in a mission statement for the team:

• What market segments should be considered in designing the product and developing its
features?
• What new technologies (if any) should be incorporated into the new product?
• What are the manufacturing and service goals and constraints?
• What are the financial targets for the project?
• What are the budget and time frame for the project?
The Product Planning Process

The product plan identifies the portfolio of products to be developed by the organization
and the timing of their introduction to the market. The planning process considers
product development opportunities identified by many sources, including suggestions
from marketing, research, customers, current product development teams, and
benchmarking of competitors. From among these opportunities, a portfolio of projects is
chosen, timing of projects is outlined, and resources are allocated. Exhibit 4-2 is an
example of a product plan listing products to be developed and indicating the time
frame for each.

The product plan is regularly updated to reflect changes in the competitive environment,
changes in technology, and information on the success of existing products. Product plans
are developed with the company’s goals, capabilities, constraints, and competitive
environment in mind. Product planning decisions generally involve the senior management
of the organization and may take place only annually or a few times each year. Some
organizations have a director of planning who manages this process.
EXHIBIT 4-2 The product plan identifies the portfolio of projects to be pursued by the development organization. This
plan divides projects into four categories: new platforms, derivatives of existing platforms, product improvements, and
fundamentally new products.
Organizations that do not carefully plan the portfolio of development projects to pursue are
often plagued with inefficiencies such as:
• Inadequate coverage of target markets with competitive products.
• Poor timing of market introductions of products.
• Mismatches between aggregate development capacity and the number of projects
pursued.
• Poor distribution of resources, with some projects overstaffed and others understaffed.
• Initiation and subsequent cancellation of ill-conceived projects.
• Frequent changes in the directions of projects.
Four Types of Product Development Projects

Product development projects can be classified as four types:

• New product platforms: This type of project involves a major development effort to create a
new family of products based on a new, common platform. The new product family would
address familiar markets and product categories. The Xerox Lakes project, aimed at the
development of a new, digital copier platform, is an example of this type of project.
• Derivatives of existing product platforms: These projects extend an existing product
platform to better address familiar markets with one or more new products. To develop a new
copier based on an existing light-lens (not digital) product platform would be an example of
this type of project.
• Incremental improvements to existing products: These projects may only involve
adding or modifying some features of existing products to keep the product line current
and competitive. A slight change to remedy minor flaws in an existing copier product
would be an example of this type of project.
• Fundamentally new products: These projects involve radically different product or
production technologies and may help to address new and unfamiliar markets. Such
projects inherently involve more risk; however, the long-term success of the enterprise
may depend on what is learned through these important projects. The first digital copier
Xerox developed is an example of this type of project.
The Process

EXHIBIT 4-3 The product planning process. These activities address a portfolio of product development
projects, resulting in a product plan and, for each selected project, a mission statement.
Exhibit 4-3 illustrates the steps in the product planning process. First, multiple opportunities
are prioritized and a set of promising projects is selected. Resources are allocated to these
projects and they are scheduled. These planning activities focus on a portfolio of
opportunities and potential projects and are sometimes referred to as portfolio
management, aggregate product planning, product line planning, or product management.
Once projects have been selected and resources allocated, a mission statement is developed
for each project. The formulation of a product plan and the development of a mission
statement therefore precede the actual product development process.
The Importance of Latent Needs

Latent needs are those not yet widely recognized by most customers, and not yet
fulfilled by existing products. The needs exist, and if fulfilled, would result in greater
customer satisfaction, yet they remain largely unknown.
For instance, prior to the year 2000, mobile telephones did not contain cameras. Most
consumers did not know that they wanted to be able to take photographs with their
telephones; however, that need was real, and became a differentiating feature of
telephones that fulfilled it. The ability to recognize latent needs is therefore a critical
capability in product development, giving firms the ability to create products
that surprise and delight customers. of course, once latent needs are revealed through
successful products that fulfill them, they become widely adopted and become “must
haves.” By 2010, essentially all mobile computing devices could take photographs.
The Process of Identifying Customer Needs

Identifying customer needs is itself a process, for which we present a five-step method.
We believe that a little structure goes a long way in facilitating effective product
development practices, and we hope and expect that this method will be viewed by those
who employ it not as a rigid process but rather as a starting point for continuous
improvement and refinement. The five steps are:

1. Gather raw data from customers.

2. Interpret the raw data in terms of customer needs.
3. Organize the needs into a hierarchy of primary, secondary, and (if necessary) tertiary
needs.
4. Establish the relative importance of the needs.
5. Reflect on the results and the process.
In this chapter, we treat each of the five steps in turn and illustrate key points with the
thermostat example. We chose the thermostat because it is simple enough that the
method is not hidden by the complexity of the example; however, note that the same
method, with minor adaptation, has been successfully applied to many kinds of products
ranging from kitchen utensils costing less than $10 to machine tools costing hundreds of
thousands of dollars.
Before beginning the development project, the firm typically specifies a particular market
opportunity and lays out the broad constraints and objectives for the project. This
information is frequently formalized as a mission statement (also sometimes called a
charter or a design brief). The mission statement specifies which direction to go in but
generally does not specify a precise destination or a particular way to proceed. The mission
statement is the result of the product planning activities described in Chapter 4, Product
Planning. The mission statement for a thermostat is shown in Exhibit 5-3.
EXHIBIT 5-3 Mission statement for the thermostat
Step 1: Gather Raw Data from Customers
Consistent with our basic philosophy of creating a high-quality information channel
directly from the customer, gathering data involves contact with customers and
experience with the use environment of the product. Three methods are commonly
used:

1. Interviews: One or more development team members discusses needs with a single
customer. Interviews are usually conducted in the customer’s environment and typically
last one to two hours.
2. Focus groups: A moderator facilitates a two-hour discussion with a group of 8 to 12
customers. Focus groups are typically conducted in a special room equipped with a
transparent mirror allowing several members of the development team to observe the
group. In most cases, the moderator is a professional market researcher, but a member of
the development team sometimes moderates. The proceedings are usually video
recorded. Participants are usually paid a modest fee ($50 to $100 each) for their
attendance. The total cost of a focus group, including rental of the room, participant fees,
video recording, and refreshments, is about $5,000. In most U.S. cities, firms that recruit
participants, moderate focus groups, and/ or rent facilities are listed in directories and
search engines under “Market Research.”
3. Observing the product in use: Watching customers use an existing product or perform
a task for which a new product is intended can reveal important details about customer
needs. For example, watching a consumer replace an existing thermostat may reveal a
mismatch in shapes between the new and old products causing unsightly discontinuities
in the wall surface. Observation may be completely passive, without any direct interaction
with the customer, or may involve working side by side with a customer, allowing
members of the development team to develop firsthand experience using the product.
Ideally, team members.

observe the product in the actual use environment. Procter & Gamble, for example,
observes thousands of customers every year in their homes or workplaces to better
understand their needs. For some products, such as do-it-yourself tools, actually using the
products is simple and natural; for others, such as surgical instruments, the team may
have to use the products on surrogate tasks (e.g., cutting fruit instead of human tissue
when developing a new scalpel).
Step 2: Interpret Raw Data in Terms of Customer Needs

Customer needs are expressed as written statements and are the result of interpreting the
need underlying the raw data gathered from the customers. Each statement or observation
(as listed in the second column of the data template) may be translated into any number of
customer needs. Griffin and Hauser found that multiple analysts may translate the same
interview notes into different needs, so it is useful to have more than one team member
conducting the translation process. The first two guidelines are fundamental and are critical
to effective translation; the remaining three guidelines ensure consistency of phrasing and
style across all need’s statements. Exhibit 5-7 provides examples to illustrate each guideline.
EXHIBIT 5-7 Examples illustrating the guidelines for writing needs statements
• Express the need in terms of what the product has to do, not in terms of how it might
do it. Customers often express their preferences by describing a solution concept or an
implementation approach; however, the needs statement should be expressed in terms
independent of a particular technological solution.

• Express the need as specifically as the raw data. Needs can be expressed at many
different levels of detail. To avoid loss of information, express the need at the same level of
detail as the raw data.

• Use positive, not negative, phrasing. Subsequent translation of a need into a product
specification is easier if the need is expressed as a positive statement. This is not a rigid
guideline, because sometimes positive phrasing is difficult and awkward. For example, one
of the needs statements in Exhibit 5-6 is “The thermostat does not require replacing
batteries.” This need is more naturally expressed in a negative form.
EXHIBIT 5-6 Customer data template filled in with sample customer statements and interpreted needs. (Note that
this template represents a partial list from a single interview. A typical interview session may elicit more than 50
customer statements and interpreted needs.)
Express the need as an attribute of the product. Wording needs as statements about the
product ensures consistency and facilitates subsequent translation into product
specifications. Not all needs can be cleanly expressed as attributes of the product, however,
and in most of these cases the needs can be expressed as attributes of the user of the
product.
Avoid the words must and should. The words must and should imply a level of importance
for the need. Rather than casually assigning a binary importance rating (must versus should)
to the needs at this point, we recommend deferring the assessment of the importance of
each need until step 4.

The list of customer needs is the superset of all the needs elicited from all the interviewed
customers in the target market. Some needs may not be technologically realizable.
Step 3: Organize the Needs into a Hierarchy

The result of steps 1 and 2 is generally a list of 50 to 300 needs statements. Such a large
number of detailed needs is awkward to work with and difficult to summarize for use in
subsequent development activities. The goal of step 3 is to organize these needs into a
useful hierarchical list. The list will typically consist of a set of primary needs, each one of
which will be further characterized by a set of secondary needs. In cases of very complex
products, the secondary needs may be broken down into tertiary needs as well. The
primary needs are the most general needs, while the secondary and tertiary needs express
needs in more detail.

The procedure for organizing the needs into a hierarchical list is intuitive, and many teams
can successfully complete the task without detailed instructions. For completeness, we
provide a step-by-step procedure here. This activity is best performed on a wall or a large
table by a small group of team members.
1. Print or write each needs statement on a separate card or self-stick note. A print macro
can be easily written to print the needs statements directly from the data template. A nice
feature of this approach is that the need can be printed in a large font in the center of the card
and then the original customer statement and other relevant information can be printed in a
small font at the bottom of the card for easy reference. Four cards can be cut from a standard
printed sheet.

2. Eliminate redundant statements. Those cards expressing redundant needs statements

can be stapled together and treated as a single card. Be careful to consolidate only those
statements that are identical in meaning.

3. Group the cards according to the similarity of the needs they express. At this point, the
team should attempt to create groups of roughly three to seven cards that express similar
needs. The logic by which groups are created deserves special attention.
 4. For each group, choose a label. The label is itself a statement of need that generalizes
all of the needs in the group. It can be selected from one of the needs in the group, or
the team can write a new needs statement.
5. Consider creating supergroups consisting of two to five groups. If there are fewer than 20
groups, then a two-level hierarchy is probably sufficient to organize the data. In this case, the
group labels are primary needs and the group members are secondary needs; however, if
there are more than 20 groups, the team may consider creating supergroups, and therefore
a third level in the hierarchy.
Step 4: Establish the Relative Importance of the Needs

The hierarchical list alone does not provide any information on the relative importance
that customers place on different needs. Yet the development team will have to make
trade-offs and allocate resources in designing the product. A sense of the relative
importance of the various needs is essential to making these trade-offs correctly. Step 4
in the needs process establishes the relative importance of the customer needs
identified in steps 1 through 3. The outcome of this step is a numerical importance
weighting for a subset of the needs. There are two basic approaches to the task: (1)
relying on the consensus of the team members based on their experience with
customers, or (2) basing the importance assessment on further customer surveys. The
obvious trade-off between the two approaches is cost and speed versus accuracy: the
team can make an educated assessment of the relative importance of the needs in one
meeting, while a customer survey generally takes a week or more. In most cases we
believe the customer survey is important and worth the time required to complete it.
Other development tasks, such as concept generation and analysis of competitive
products, can begin before the relative importance surveys are complete.
Step 5: Reflect on the Results and the Process

The final step in the method is to reflect on the results and the process. While the process
of identifying customer needs can be usefully structured, it is not an exact science. The team
must challenge its results to verify that they are consistent with the knowledge and intuition
the team has developed through many hours of interaction with customers. Some questions
to ask include:
• Have we interacted with all of the important types of customers in our target market?
• Are we able to see beyond needs related only to existing products to capture the latent
needs of our target customers?
• Are there areas of inquiry we should pursue in follow-up interviews or surveys?
• Which of the customers we spoke to would be good participants in our ongoing
development efforts?
• What do we know now that we didn’t know when we started? Are we surprised by any of
the needs?
• Did we involve everyone within our own organization who needs to deeply understand
customer needs?
• How might we improve the process in future efforts?
The important needs are an excellent reminder of the critical few needs that must be
addressed for a great product, and the latent needs provide insights that can drive the
creative process of generating product concepts.