Weekdq3

New Product Planning and Development High-Level Chapter Outline I. New Product Strategy II. New Product Planning and Development Process

A. Idea Generation B. Idea Screening C. Project Planning D. Product Development E. Test Marketing F. Commercialization G. The Importance of Time

III. Some Important New Product Decisions A. Quality Level B. Product Features C. Product Design D. Product Safety

IV. Causes of New Product Failure A. Need for Research

Detailed Chapter Outline I. New Product Strategy • Authors C. Merle Crawford and Anthony DiBenedetto have developed a useful definition

of new products based on the following categories. ο New-to-the-world-products—products that are inventions and create a whole new

market. ο New-to-the-firm products—products that take the firm into a category new to it but

not to the world. ο Additions to existing product lines—these are products that extend existing product

lines to current markets such as Bud Light, Apple’s iMac, and Tide’s liquid detergent.

ο Improvements and revisions of existing products—these are current products that are made better. Virtually every product on the market has been improved, often many times.

ο Repositionings—products that are retargeted for a new use or application. ο Cost reductions—these are new products that simply replace existing products in a

line, providing the customer similar performance but at a lower cost. • The best strategy is the one that will maximize company goals. • A second broader approach to the new product question is the one developed by H. Igor

Ansoff in the form of growth vectors. It is shown again in Figure 7.1. • Market penetration denotes a growth direction through the increase in market share for

present product markets.

• Product development refers to creating new products to replace existing ones. • Market development refers to finding new customers for existing products. • Diversification refers to developing new products and cultivating new markets. • Market penetration and market development strategies use present products. A goal of

these types of strategies is to either increase frequency of consumption or increase the number of customers using the firm’s product(s).

• Product development and diversification can be characterized as product mix strategies. • Policy-making criteria on new products should specify:

ο A working definition of the profit concept acceptable to top management ο A minimum level or floor of profits ο The availability and cost of capital to develop a new product ο A specified time period in which the new product must recoup its operating costs and

begin contributing to profits • It is critical that firms do not become solely preoccupied with a short-term focus on

earnings associated with new products. II. New Product Planning and Development Process • Ideally, products that generate a maximum dollar profit with a minimum amount of risk

should be developed and marketed. • After these guidelines are established, a process such as the one shown in Figure 7.2 should

be useful in new product development. A. Idea Generation • Every product starts as an idea. Some estimates indicate that as many as 60 or 70 ideas

are necessary to yield one successful product. • The problem at this stage is to ensure that all new product ideas available to the

company at least have a chance to be heard and evaluated. • Because idea generation is the least costly stage in the new product development

process, it makes sense that an emphasis be placed first on recognizing available sources of new product ideas and then on funneling these ideas to appropriate decision makers for screening.

• Top-management support is critical to providing an atmosphere that stimulates new product activity.

• Both technology push and market pull research activities play an important role in new product ideas and development.

• By taking a broad view of customer needs and wants, basic and applied research (technology push) can lead to ideas that will yield high profits to the firm.

• Marketing, on the other hand, is more responsible for gathering and disseminating information gained from customers and other contacts.

B. Idea Screening • The primary function of the idea screening process is twofold:

o To eliminate ideas for new products that could not be profitably marketed by the firm

o To expand viable ideas into full product concepts • The organization has to consider three categories of risk (and its associated risk

tolerance) in the idea screening phase prior to reaching a decision: o Strategic risk: It involves the risk of not matching the role or purpose of a new

product with a specific strategic need or issue of the organization. o Market risk: It is the risk that a new product won’t meet a market need in a value-

added, differentiated way. o Internal risk: It is the risk that a new product won’t be developed within the

desired time and budget. • In evaluating these risks, firms should not act too hastily in discounting new product

ideas solely because of a lack of resources or expertise. • Instead, firms should consider forming joint or strategic alliances with other firms. • A strategic alliance is a long-term partnership between two organizations designed to

accomplish the strategic goals of both parties. • Potential benefits to be gained from alliances are as follows:

o Increased access to technology, funding, and information o Market expansion and greater penetration of current markets o De-escalated competitive rivalries

C. Project Planning • This stage of the process involves several steps. • It is here that the new product proposal is evaluated further and responsibility for the

project is assigned to a project team. • Various alternatives exist for creating and managing the project teams. • Two of the better-known methods are the establishment of a skunkworks, whereby a

project team can work in relative privacy away from the rest of the organization, and a rugby or relay approach, whereby groups in different areas of the company are simultaneously working on the project.

• The common tie that binds these and other successful approaches together is the degree of interaction that develops among the marketing, engineering, production, and other critical staff.

• A key component contributing to the success of many companies’ product development efforts relates to the emphasis placed on creating cross-functional teams early in the development process.

D. Product Development • At this juncture, the product idea has been evaluated from the standpoint of engineering,

manufacturing, finance, and marketing. • If it has met all expectations, it is considered a candidate for further research and

testing. • In the laboratory, the product is converted into a finished good and tested. • A development report to management is prepared that spells out in fine detail:

o Results of the studies by the engineering department o Required plan design o Production facilities design o Tooling requirements o Marketing test plan o Financial program survey o Estimated release date

E. Test Marketing • Test-market programs are conducted in line with the general plans for launching the

product. • Test marketing is a controlled experiment in a limited geographical area to test the new

product or in some cases certain aspects of the marketing strategy, such as packaging or advertising.

• The main goal of a test market is to evaluate and adjust, as necessary, the general marketing strategy to be used and the appropriate marketing mix.

• Throughout the test market process, findings are being analyzed and forecasts of volume developed.

• In summary, a well-done test market procedure can reduce the risks that include not only lost marketing and sales dollars but also capital—the expense of installing production lines or building a new factory.

• Upon completion of a successful test market phase, the marketing plan can be finalized and the product prepared for launch.

F. Commercialization • This is the launching step in which the firm commits to introducing the product into the

marketplace. • During this stage, heavy emphasis is placed on the organization structure and

management talent needed to implement the marketing strategy. • Procedures and responsibility for evaluating the success of the new product by

comparison with projections are also finalized. G. The Importance of Time • Time to market can be defined as the elapsed time between product definition and

product availability. • Successful time-based innovations can be attributed to the use of short production runs,

whereby products can be improved on an incremental basis, and the use of cross- functional teams, decentralized work scheduling and monitoring, and a responsive system for gathering and analyzing customer feedback.

• Several U.S. companies, including Procter & Gamble, have taken steps to speed up the new product development cycle by giving managers, at the product class and brand family level, more decision-making powers.

III. Some Important New Product Decisions • In the development of new products, marketers have several important decisions to make

about the characteristics of the product itself. • These include quality level, product features, product design, and product safety levels.

A. Quality Level • Both consumers and organizational buyers consider the level of product quality when

making purchase decisions for both new and existing products. • In designing new products, marketers must consider what criteria potential customers

use to determine their perceptions of quality. • While these will vary by product, Figure 7.3 presents eight general criteria. • An important indicator of a number of the criteria listed in Figure 7.3 is the presence

and extent of a new product warranty. • A warranty is the producer’s statement of what it will do to compensate the buyer if the

product is defective or does not work properly. • A guarantee is an assurance that the product is as represented and will perform

properly. B. Product Features • A product feature is a fact or particular specification about a product. • Effective marketers attempt not only to ask potential customers what they want, but to

learn what these customers are likely to need. • Such marketers may identify a need for new features that target markets have not yet

thought of and may not yet even understand. C. Product Design • Designing new products with both ease of use and aesthetic appeal can be difficult, but

it can clearly differentiate a new product from competitors. • Good design can add great value to a new product.

D. Product Safety • New products must have a reasonable level of safety. • Safety is both an ethical and a practical issue. • Ethically, customers should not be harmed by using a product as intended. • Some products are inherently dangerous and can result in injury to users. • Other products such as patented medicines can harm a small portion of users. • Hopefully, the benefits such products offer outweigh their risks.

IV. Causes of New Product Failure • Many new products with satisfactory potential have failed to make the grade for reasons

related to execution and control problems. What follows is a brief list of some of the more important marketing causes of new product failures after the products have been carefully screened, developed, and marketed. o No competitive point of difference, unexpected reactions from competitors, or both o Poor positioning or product concept not accepted by consumers o Poor quality of product o Nondelivery of promised benefits or products o Too little marketing support o Poor perceived price/quality (value) relationship o Faulty estimates of market potential and other marketing research mistakes o Faulty estimates of production and marketing costs o Improper channels of distribution selected o Rapid change in the market (economy) after the product was introduced

A. Need for Research • Top management has a responsibility to ask certain questions, and the new product

planning team has an obligation to generate answers to these questions based on research that provides marketing, economic, engineering, and production information.

• This need will be more clearly understood if some of the specific questions commonly raised in evaluating product ideas are examined: o What is the anticipated market demand over time? Are the potential applications

for the product restricted? o Can the item be patented? Are there any antitrust problems? o Can the product be sold through present channels and the current sales force?

What number of new salespersons will be needed? What additional sales training will be required?

o At different volume levels, what will be the unit manufacturing costs? o What is the most appropriate package to use in terms of color, material, design,

and so forth? o What is the estimated return on investment? o What is the appropriate pricing strategy?