Dr. Close

New Product Development (1) New Product: different or new in ANY way

(Pentium) Various categories of new products- New to world (first introduction of toning

shoes)- New to market- New to category- New to seller- New to producer- Product improvements/repositioning

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New Product StrategiesNew Product Strategies

Developed by H. Igor Ansoff in the form of growth Developed by H. Igor Ansoff in the form of growth vectorsvectors Market penetration – Growth direction through Market penetration – Growth direction through

increase in market share for present marketsincrease in market share for present markets Product development – Creating new products to Product development – Creating new products to

replace existing onesreplace existing ones Market development – Finding new customers for Market development – Finding new customers for

existing productsexisting products Diversification – Developing new products and Diversification – Developing new products and

cultivating new marketscultivating new markets

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New Product StrategiesNew Product Strategies

Organizational Growth StrategiesOrganizational Growth Strategies

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New Product StrategiesNew Product Strategies

Policy-making criteria on new products should Policy-making criteria on new products should specifyspecify Working definition of profit concept acceptable to top Working definition of profit concept acceptable to top

managementmanagement Minimum level or floor of profitsMinimum level or floor of profits Availability and cost of capital to develop a new Availability and cost of capital to develop a new

productproduct Specified time period for recuperating operating Specified time period for recuperating operating

costs and contributing to profitscosts and contributing to profits

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Factors Associated with Factors Associated with New Product SuccessNew Product Success

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The New Product Development The New Product Development ProcessProcess

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Idea GenerationIdea Generation

Every product starts as an ideaEvery product starts as an idea Most ideas do not become productsMost ideas do not become products

Idea generation – Requires recognizing available Idea generation – Requires recognizing available idea sourcesidea sources Least expensive step in new product developmentLeast expensive step in new product development Top-management support – New product development Top-management support – New product development

must focus on meeting customer needsmust focus on meeting customer needs Technology push and market pull research activities Technology push and market pull research activities

play an important role play an important role Out-rotation – Involves placing employees in positions Out-rotation – Involves placing employees in positions

that require direct contact with customers, competitors, that require direct contact with customers, competitors, and other key outside groupsand other key outside groups

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Idea ScreeningIdea Screening

Strategic risk – Risk of not matching the role of a new Strategic risk – Risk of not matching the role of a new product with a specific strategic needproduct with a specific strategic need

Market risk – Risk that a new product won’t meet a Market risk – Risk that a new product won’t meet a market need in a value-added, differentiated waymarket need in a value-added, differentiated way

Internal risk – Risk that a new product won’t be Internal risk – Risk that a new product won’t be developed within the desired time and budgetdeveloped within the desired time and budget

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Idea ScreeningIdea Screening

Strategic alliance – A long-term partnership between Strategic alliance – A long-term partnership between two organizations designed to accomplish strategic two organizations designed to accomplish strategic goals of both partiesgoals of both parties

Potential benefits of strategic alliances includePotential benefits of strategic alliances include Increased access to technology, funding, and Increased access to technology, funding, and

informationinformation Market expansion and greater penetration of current Market expansion and greater penetration of current

marketsmarkets De-escalated competitive rivalriesDe-escalated competitive rivalries

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Project PlanningProject Planning

Analyze the proposal in terms of production, marketing, Analyze the proposal in terms of production, marketing, financial and competitive factorsfinancial and competitive factors

Establish a development budget with preliminary Establish a development budget with preliminary marketing and technical researchmarketing and technical research

Create a “rough form” productCreate a “rough form” product Alternative product features and components specifiedAlternative product features and components specified

Create a project plan with estimated costs, capital Create a project plan with estimated costs, capital requirement, and manpower needsrequirement, and manpower needs

Review the project plan with top managementReview the project plan with top management

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Project PlanningProject Planning

Two better-known methods for creating and managing Two better-known methods for creating and managing project teams includeproject teams include Skunkworks – A project team can work in relative Skunkworks – A project team can work in relative

privacy away from the rest of the organizationprivacy away from the rest of the organization Rugby or relay approach – Groups in different areas of Rugby or relay approach – Groups in different areas of

the company are simultaneously working on the projectthe company are simultaneously working on the project A key component contributing to the success relates A key component contributing to the success relates

to the emphasis placed on creating cross-functional to the emphasis placed on creating cross-functional teams early in the development processteams early in the development process

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Product DevelopmentProduct Development

Upon evaluation, if all expectations are met, consider Upon evaluation, if all expectations are met, consider further research and testingfurther research and testing Produce a finished product and market test itProduce a finished product and market test it

Development report must spell out in detailDevelopment report must spell out in detail Results of the studies by the engineering departmentResults of the studies by the engineering department Required plan designRequired plan design Production facilities designProduction facilities design Tooling requirementsTooling requirements Marketing test planMarketing test plan Financial program surveyFinancial program survey Estimated release dateEstimated release date

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Measurements of New Product Measurements of New Product PerformancePerformance

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Test MarketingTest Marketing

The main goal is to evaluate and adjust, if necessary, The main goal is to evaluate and adjust, if necessary, the marketing strategy to be used in the marketing the marketing strategy to be used in the marketing mixmix

Developers can use interaction with buyers as a Developers can use interaction with buyers as a foundation for future product developmentfoundation for future product development

Throughout the process, findings are being analyzed Throughout the process, findings are being analyzed and forecasts of volume developedand forecasts of volume developed

Upon completion of the test market, prepare a final Upon completion of the test market, prepare a final marketing plan in preparation for launchmarketing plan in preparation for launch

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CommercializationCommercialization

The firm commits to introducing the product into the The firm commits to introducing the product into the marketplacemarketplace

Heavy emphasis is placed on organizational structure Heavy emphasis is placed on organizational structure and management talent needed to implement the and management talent needed to implement the marketing strategymarketing strategy

Follow-up to eliminate bugs in the design, production Follow-up to eliminate bugs in the design, production costs, quality control, and inventory requirementscosts, quality control, and inventory requirements

Procedures and responsibility for evaluating the Procedures and responsibility for evaluating the success of the new product by comparison with success of the new product by comparison with projections are also finalizedprojections are also finalized

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Time to MarketTime to Market

Defined as the elapsed time between product Defined as the elapsed time between product definition and marketplace product availabilitydefinition and marketplace product availability

Well documented that companies that reach the Well documented that companies that reach the market first with a new product enjoy both profit and market first with a new product enjoy both profit and market share advantagesmarket share advantages

Increasingly, companies are bypassing time-Increasingly, companies are bypassing time-consuming regional test markets, when feasible, in consuming regional test markets, when feasible, in favor of national launchesfavor of national launches

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Quality LevelQuality Level

Warranty – Producer’s statement of what it will do to Warranty – Producer’s statement of what it will do to compensate the buyer if the product is defective or compensate the buyer if the product is defective or does not work properlydoes not work properly To emphasize high quality, organizations generally offer To emphasize high quality, organizations generally offer

customers more than implied warranties enforced by customers more than implied warranties enforced by the courtsthe courts

Guarantee – An assurance that the product is as Guarantee – An assurance that the product is as represented and will perform properlyrepresented and will perform properly Imply to some buyers that the manufacturer is confident Imply to some buyers that the manufacturer is confident

of the new products’ qualityof the new products’ quality

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Some Criteria for Determining Some Criteria for Determining Perceptions of QualityPerceptions of Quality

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New Product DecisionsNew Product Decisions

Product featuresProduct features Fact or particular specification of the productFact or particular specification of the product Determined by what it is that the customer wants Determined by what it is that the customer wants

offeredoffered These wants are not created by effective marketers but These wants are not created by effective marketers but

rather are learnedrather are learned Product designProduct design

Can clearly differentiate a new product from competitorsCan clearly differentiate a new product from competitors Good design can add value to the new productGood design can add value to the new product A well-designed product can please a customer without A well-designed product can please a customer without

necessarily costing morenecessarily costing more

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New Product DecisionsNew Product Decisions

Product safetyProduct safety Safety is both an ethical and practical issueSafety is both an ethical and practical issue Ethically, customers should not be harmed by using the Ethically, customers should not be harmed by using the

product as intendedproduct as intended When users are harmed by a product, they may stop When users are harmed by a product, they may stop

buying it, tell others about it, or sue the companybuying it, tell others about it, or sue the company

Some products are inherently dangerous and can Some products are inherently dangerous and can result in injury to usersresult in injury to users It may be so expensive to make them safer that buyers It may be so expensive to make them safer that buyers

cannot afford to buy themcannot afford to buy them

How to Have New Product Failure New product failure (70-80% of brands) How to fail:

Offer no unique benefit (Pepsi’s clear soda vs. Secret’s clear deodorant) or non-delivery of promised benefits

Race to market (Ford Pinto, Ford school bus, Netscape)

Give little thought to promotion (Chevy NoVa) Poor positioning (example?) Give little thought to competition (Wal-mart’s

impact) Skip research or conduct sloppy research Try just one new product (top consumer goods

companies average trying 75 new products a year)

Historic product failures