An introduction to New Product Development

(NPD)

New products Development: Managing the new product development process

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New Product Development- Considerations when developing NPD strategy

Learning Objectives1. Examine the key activities of the NPD process2. Explain that a product concept differs significantly from a

product idea or business opportunity3. Recognize that screening is a continuous rather than a

single activity4. Provide an understanding of the role of the knowledge

base on an organization in the new product development process

5. Recognize that the technology intensity of the industry considerably affects the NPD process

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NPD Terminology

The fuzzy front end The messy ‘getting started’ period of new product development processes. It is the front end where the organization formulates a concept of the product to be developed and decides whether or not to invest resources in the future development of an idea

Business OpportunityA possible technical or commercial idea that may eb transformed into a revenue generating product

Product Concept Screening A physical form or a technology plus a clear statement of benefit

SpecificationPrecise details about the product, including features, characteristics and standards

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NPD Terminology

Prototype/PilotA tentative physical product or system procedure, including features and benefits

ProductionThe product produced by the scale up manufacturing process

LaunchThe product actually marketed, in either market test or launch

Co-joint analysisA method for deriving the utility values that consumers attach to varying levels of a products attribute

Commercialization A more descriptive label would be market introduction, the phase when the product is launched and hopefully begins to generate sales revenue

Commercial SuccessThe end product that meets the goals set for it, usually profit

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The activities that need to be managed

Assembling Knowledge• The vast majority of marketing text books fails to

identify the first activity of the NPD process, the assembling of knowledge (Kotler, 2003)

• Organization’s base that creativity and ideas for new products will flow

• Continual accumulation of knowledge an organization that will create new product

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The activities that need to be managed

The generation of business opportunities• Collection of possible business opportunities that could

realistically transform into successful product1. Competitors products and reverse engineering2. Technology3. Unexploited patents4. Customers and vendors5. Senior and top management6. Brainstorming and synectics7. Individuals8. Existing products

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The activities that need to be managed

Turning business opportunities into product concepts

• Form: Physical thing to be crease(or in the case of a service, the sequence of steps by which service will be created)

• Technology: In most cases, there is one clear technology that is at the base of innovation

• Needs: The benefits gained by the customer give the product value

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The activities that need to be managed

The screening of business opportunities• Do we have the necessary commercial

knowledge and experience?• Do we have the technical know-how to develop

the idea further?• Would such a product be suitable for our

business?• Are we sure there will be sufficient demand?

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The activities that need to be managed

Development of product prototypes• Rapid prototyping- Focus on reducing time needed

is a top priority for firm. E.g. FMCG reduced total time to market from 18-24months to 6-9months.

Technical Testing• Closely linked to the development of product

prototypes• An ongoing activity • E.g. Dummies and simulated crashed used in car on

the on going basis

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The activities that need to be managed

Market Testing and Consumer Research• Traditional approach to NPD involved a significant stage

devoted to market testing• Developed products are introduced to a representative

sample of the population to assess the market’s reaction

‘Marketers claim that consumer research techniques are now so sophisticated that full blown test are no longer necessary. Besides,

once they have invested in R&D plus new plant, and created an advertising campaign, they might as well go national immediately.

The fixed cost are so high that you might as well get on with it, says Mark Sherrington of marketing consultancy Added

Value(Management Today, 1995)

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The activities that need to be managed

Market Introduction• Commercialization is not necessarily at this stage where

large sums of money are spent on advertising campaigns or multi-million production plants

• Companies can still withdraw from a project following the results of test marketing

• Launch- Advertising in the right channel is a large part of the cost

• E.g. Microsoft’s new product launch of Soapbox to compete against YouTube was launched entirely web based.

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NPD across different Industries

Classification of new product development activities across different industry

Technological A

ctivities

Mar

ketin

g A

ctiv

ities

Industrial Products

Pharmaceutical Industry

Electronics Industry

White Goods and domestic Appliance Industries

FMCG

Good and Drinks Industries

Balance of Activities

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Organizational Structures and Cross Functional Teams

• Nature of the industry and product being developed will significantly influence the choice of structure

• The organizational structure will considerably affect the way its activities are managed

• E.g. Introduction of concurrent engineering techniques means that companies will need to be less reliant on functional operations

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Organizational Structures and Cross Functional Teams

Teams and project management• Small medium sized organization -New product project teams

are usually comprised of staff from different functions who operate on a ‘part time’ basis. Membership of the project team may be just one of the many roles they perform.

• Large Organization- Where several projects are in progress at any one time, there may be sufficient resources to enable personnel to be wholly concerned with a project

• Ideally to have project team to comprise of people with necessary skills to work together, share ideas and reach compromise

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Organizational Structures and Cross Functional Teams

Functional Structures• NPD is a cross disciplinary process and suffers if it is

segregated by function• Common approach used by large manufacturing companies

to organize by product type with each product having its own functional activities

• Some functions, are centralized across the whole organization to improve efficiency or provide common features

• While many organizations have clearly defined company structures, closer inspection reveal an informal structure that sits on top of formal structure

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Functional Company Organization

Senior Management

Function 1

Product A Product B

Function 2 Function 3

Functional Company Organization

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Functional Company Organization

Senior Management

Product 1

Function 1 Function 2

Product 2

Function 1 Function 2

Product 3

Diversification by product with centralized functions

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Organizational Structures and Cross Functional Teams

Features and benefits of a matrix organizational structure

• Provision of additional channels of communication

• Increase in informal communication channels• Increase in information loads• Increase in diversity for individuals

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Organizational Structures and Cross Functional Teams

Business Team 1

Business Team 2

Business Team 3

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Tutorial

1. Explain why there is not one best organization structure for new product development.

2. What are the way scientists view innovation and the way marketing people view it?

3. ‘New products are a necessary evil.’ From whose viewpoint are they necessary and from whose viewpoint are they evil?