New Product Development

Development of original products, productimprovements, product modifications, and

newbrands through the firm’s own R & D efforts.

Six categories of new products:

• New-to-the-world products• New product lines• Additions to existing product lines• Improvements and revisions of existing products• Repositioning• Cost reductions

Factors that tend to hinder new-product development• Shortage of important ideas in certain areas• Fragmented markets• Social and governmental constraints• Cost of development• Capital shortages• Faster required development time• Shorter product life cycles

Why

is

NPD

so

DIFFICULT?

Major Stages in New-Product Development

Company EmployeesCompany Employees

CustomersCustomers

CompetitorsCompetitors

DistributorsDistributors

SuppliersSuppliers

• Process to spot good ideas and drop poor ones.

• Develop system to estimate: market size, product price, development time and costs, manufacturing costs, and rate of return.

• Evaluate these findings against set of company criteria for new products.TYPE 1 & 2 ERRORS

Idea Generation Idea Screening

DiamlerChrysler’s Fuel-Cell-Powered Electric Car

The company’s task is to develop

its fuel-cell-powered electric car into

alternative product concepts, find out how attractive each is to customers, and choose the best one.

Concept Development and Testing

• Product Idea: idea for a possible product that the company can see itself offering.

• Product Concept: detailed version of the idea stated in meaningful consumer terms.

• Product Image: the way consumers perceive an actual or potential product.

Marketing Strategy Development

And

Business Analysis

Part One :The Target Market

Planned Product PositioningSales, Market Share, & Profit Goals

Part One :The Target Market

Planned Product PositioningSales, Market Share, & Profit Goals

Part Two Outlines the First-Year’s:Product’s Planned Price

DistributionMarketing Budget

Part Two Outlines the First-Year’s:Product’s Planned Price

DistributionMarketing Budget

Part Three Describes Long-Run:Sales & Profit Goals

Marketing Mix Strategy

Part Three Describes Long-Run:Sales & Profit Goals

Marketing Mix Strategy

Marketing Strategy Development Business Analysis

Involves a review of the sales, costs, and profit projections to assess fit with company objectives.

If yes, move to the product development phase.

• Develop concept into physical product

• Calls for large jump in investment

• Prototypes are made

• Prototype must have correct physical features and convey psychological characteristics

Product Development

TEST MARKETINGProduct and program introduced in more realistic market setting.• Not needed for all products.• Can be expensive and time consuming, but better than making

major marketing mistakes.

Customer TestingA. Alpha testingB. Beta testing

Consumer preference measures

- Paired-comparison- Monadic-rating

Market Testing:Seeks to estimate four variables

– Trial– First repeat– Adoption– Purchase frequency

A. Sales wave researchB. Simulated Test MarketingC. Controlled Test Marketing

How many test cities? Which cities? Length of test? What information? What action to take?

Nokia test-marketed its new N-Gage cell phone/mobile game player

extensively before introducing it worldwide.

Commercialization• Must decide on timing (i.e., when to introduce the

product).• Must decide on where to introduce the product (e.g.,

single location, state, region, nationally, internationally).

• Must develop a market rollout plan.The Consumer-Adoption Process/ Innovation diffusion processInnovation diffusion process

Adopters of new products move through five stagesAwareness Interest Evaluation Trial Adoption

So inspite of ALL this new products fail.

Why?

• Overestimation of market size• Design problems• Incorrectly positioned, priced, or advertised• Pushed despite poor marketing research findings• Development costs• Competition

Defining Product and Brand Failures •The withdrawal of the product from the market for any reason;

•The inability of a product to realize the required market share to sustain its presence in the market;

•The inability of a product to achieve the anticipated life cycle as defined by the organization due to any reason; or,

•The ultimate failure of a product to achieve profitability.

Great Product, Lousy Business

The Concorde supersonic passenger jet: Thought of as a milestone in commercial aviation

Many consider its creation second only to the Apollo moon landing as the greatest feat of 20th century engineering.

Back in 1956, when the British government organized the Supersonic Transport Aircraft Committee to begin work on a passenger jet that could fly at twice the speed of sound.

The commercial logic seemed ironclad.

First flight of Concorde in 1976- The cost of producing the jet had already gone far beyond the original budget- Noise - Cramped interiors were less than luxurious - High fuel costs (1973 oil crisis)

The demand for business travel had flattened hard for them to fill their existing seats They began to slash their fares.

When the Concorde made its first commercial flight on January 21, 1976, it entered a market that had changed drastically from the one which existed 20 years earlier.

The supersonic revolution never happened. Only 16 Concordes were ever sold, all to British Airways and Air France. The other airlines, struggling to make ends meet, cancelled their orders.

On July 25, 2000, an Air France Concorde crashed during takeoff, killing everyone on board and resulting in a temporary grounding of all SSTs.

On September 11, 2001, the attacks on the World Trade Center devastated demand for air travel.

On April 10, 2003, the end came abruptly, as British Airways and Air France simultaneously announced that they would retire their Concorde fleets.

On October 24, 2003 the jet flew for the last time, and a month later many of its parts were auctioned off at Christie’s in Paris.

The Concorde had become just another flashy product that had failed to find a market.

Try, Try Again2005: France and Japan announced ambitious plans to develop a new supersonic jet by 2015.

Why it may be a hit:• Combining France’s experience with the SST + • Japan’s skill at building powerful engines +• Recent advances in lightweight materials and engine efficiency, would allow the plane to carry 300 passengers ( concorde :100) • Surge in business travel especially between Europe or North America and the Far East

The technology and the market, in other words, may finally be ripe for the profitable launch of a supersonic passenger jet.

Final lesson: When it comes to commercial innovation, timing is everything.

Apple iPod (introduced in 2001)

A six months effort by a 35 member team (a record for apple)

Has rapidly become the best selling product in Apple’s portfolio

70% of world share in portable music players

Innovator??

It was not the first hard disk based player in the market.

Creative’s “Nomad Jukebox” had been in the market since September 2000.

- When introduced, iPod had greater storage capacity and was easier to use in comparison to Normad Jukebox

- First iPod : 5GB hard disk: could store 1000 songs (weighed 6.5 ounces)

-Later available in 5Gb ($299); 10 GB ($399) and 20 GB ($ 499) (store digital photographs, contact list, organizer, voice recorder)

-February 2004: lighter slimmer iPod : iPod mini ($ 299) weighed 3.6 ounces . Came with 4GBdisk capable of storing 1000 songs.

iPod mini had 16 times the capacity of a 256 MB flash based player and was priced only about $50 over the flash player’s price

January 2005 : iPod shuffle

Creative

2000

Sony

2004

Samsung Virgin

2004

Archos Dell

2005

Nomad Zen Extra

VAIO Yepp T5V Virgin player

Gmii XS200

DJ Ditty

30 GB MP3 player ($400)

20 GB hard disk and also flash memory varients

128 MB ($120 )

5 GB music player with FM tuner

20 GB ($250)

512 MB($99)

Micro 5GB: $250 (lower than iPod mini)+ 256 mb+ 512 mb+ 1 gb

1 GB($ 249)

20 % more storage + 8 hours continuous playback

Data storage peripherals

FM Tuner

Apple

5GB ($299)

10 GB ($399)

20 GB ($499)

iPod mini4GB($299)

REASONS FOR SUCCESS

• Senced the need for a portable device after the success of iTunes software: enabled users to compile and manage playlists on their computers

• Successful as it was a better alternative to the existing small storage MP3 players

• Leveraged upon the company’s design and software capabilities

• Diverse product range• Continuous innovation:In september 2005: introduced iPod nano replacing its popular

model iPod miniIn October 2005: Unveiled Video iPod and opened online store

to provide contents such as TV shows, short films and music videos fro its product

• iPod used as an effective promotional tool: Citibank ordered iPods in bulk as promotional products for its promotions

iPod mini came to be known as the top motivational electronic product in US (2005)

Issues:

Despite customer appeal, iPod nano faced complaints from users: screen vulnerable to scratches and also risked breakage

In september 2005, a lawsuit was filed that alleged Apple had released the product in spite of being aware of its defects Apple lost a patent battle to Creative Labs over the technology used for making iPods

Creative won the patent that covered the ability of a digital music player to display music using artist, album and track menus.

Friday, 25th August 2006, Business Standard“Apple agrees to shell out $100mn to settle iPod battle”

Paying the amount to Singapore based rival Creative Technology, which had sought to halt US sales of iPod music players

Companies at loggerheads since may 2006.

Settlement ends 5 lawsuits

Deal: •Apple gets to use Creative’s patent filed in 2001•Creative gets to manufacture iPod accessories(Had reported a $118 million loss in 2005)