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Chapter 7 New Product Planning and Development
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New Products
Inventions that create a whole new market
New-to-the-world products
Take the firm into a category new to it but not to the world
New category entries
Extend existing product lines to current markets
Additions to existing product lines
Current products made better
Improvements and revisions of existing products
Retarget products for a new use or application
Repositionings
Replace existing products with similar performance but lower cost
Cost reductions
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Figure 7.1 - Organizational Growth Strategies
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New Product Strategies
Market penetration
Denotes a growth direction through the increase in market share of present products in present markets
Product development
Seeks to create new products to replace existing ones
Market development
Seeks to find new customers for existing products
Diversification
Seeks to develop new products and cultivate new customers
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New Product Strategies
Policy-making criteria on new products should specify:
Working definition of profit concept acceptable to top management
Minimum level or floor of profits
Availability and cost of capital
Specified time period in which the new product must recoup its operating costs and begin contributing to profits
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Figure 7.2 - The New Product Development Process
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Idea Generation
All new product ideas considered by the organization should have the opportunity to be heard and evaluated
Ideas are the raw materials for product development
Top-management support is critical to providing an atmosphere that stimulates new product activity
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Idea Generation
Technology push and market pull research activities play an important role
To foster cooperation between design engineers and marketers, firms use:
Out-rotation
Outsider involvement
Rewards
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Idea Screening
Purpose is to:
Eliminate ideas that can not be profitably marketed
Expand viable ideas into full product concepts
Evaluation of an idea based risk
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Categories of Risks
Strategic risk
No match between the role of a new product with a strategic need of the organization
Market risk
New product won’t meet a market need in a value-added, differentiated way
Internal risk
New product won’t be developed within the desired time and budget
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Strategic Alliance
Long-term partnership between two organizations designed to accomplish strategic goals of both parties
Potential benefits
Increased access to technology, funding, and information
Market expansion and greater penetration of current markets
De-escalated competitive rivalries
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Project Planning
Idea is evaluated further and responsibility for the project is assigned to a project team
Evaluation is done in terms of production, marketing, financial, and competitive factors
Development budget is established
Preliminary marketing and technical research is undertaken
Product is designed in a rough form
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Project Planning
Alternative product features and component specifications are outlined
Project plan is written up and scheduled
Project proposal is given to top management for a go or no-go decision
Alternatives for creating and managing teams
Skunkworks: Team members work in relative privacy, away from the rest of the organization
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Project Planning
Rugby or relay approach: Groups in different areas of the organization work simultaneously on the project
Cross-functional teams: Members from different departments come together to jointly establish new product development goals and priorities and to develop schedules
Key component contributing to the success of a company’s product development efforts
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Product Development
Post meeting expectations, product idea is considered for further research and testing
Development report to management contains:
Results of the studies by the engineering department
Required plan design and estimated release date
Production facilities design
Tooling requirements and marketing test plan
Financial program survey
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Test Marketing
Management submits the product candidate for customer approval
Controlled experiment in a limited geographical area
Tests the new product as well as elements of the marketing mix
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Goals of Test Marketing
Evaluate and adjust the general marketing strategy and the appropriate marketing mix
Help producers explore issues related to the next generation of product development
Help analyse findings and develop volume forecasts, and reduce risks
Help finalize marketing plan and prepare for a product launch
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Commercialization and Importance of Time
Commercialization - Launch of the product and implementation of the marketing strategy
Emphasis is given to:
Organization structure and management talent
Bugs in the design and inventory requirements
Production costs and quality control
Importance of time
Time to market: Elapsed time between product definition and marketplace product availability
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New Product Decisions
Quality level
Warranty: Statement of the producer of what it will do to compensate the buyer if the product is defective or does not perform properly
Guarantee: Assurance by the producer that the product is as represented and will perform properly
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Figure 7.3 - Some Criteria for Determining Perceptions of Quality
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New Product Decisions
Product features: Fact or particular specification about a product
New product features are determining by what customer wants the products to offer
Product design
Good design adds great value to a new product
Well-designed product pleases customers without necessarily costing more
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Product Safety
Ethical and practical issue
Ethical issue - Customers should not be harmed by using the product as intended
Practical issue - When users get harmed by a product, they may:
Stop buying
Tell others about their experience
Sue the company that made or sold it
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Causes of New Product Failure
No competitive point of difference
Unexpected reactions from competitors
Poor positioning
Poor quality of product
Nondelivery of promised benefits of product
Too little marketing support
Poor perceived price/quality relationship
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Causes of New Product Failure
Faulty estimates of market potential & other marketing research mistakes
Faulty estimates of production and marketing costs
Improper channels of distribution selected
Rapid change in the market after product introduction
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Need for Research
Top management has a responsibility to ask questions
New product planning team has an obligation to generate answers to these questions
Research should provide:
Marketing information
Economic information
Engineering information
Production information
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