Weekly Discussion

7-*

New Product Planning and Development

Chapter 7

McGraw-Hill/Irwin

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

7-*

Facts About New Products

• Many new products are failures
• New product sales grow far more rapidly than sales of current products
• Companies vary widely in the effectiveness of their new product programs
• Major obstacle to effectively predicting new product demand is limited vision

7-*

Facts About New Products

• Primary reason found for new product failure is inability on part of selling company to match its offerings to needs of the customer
• This inability can be attributed to:
• Inadequacy of upfront intelligence efforts
• Failure on part of company to stick close to what company does best
• Inability to provide better value than competing products and technologies

7-*

New Product Strategies

• New products can be defined on the basis of following categories
• New-to-the-world products – Products that are inventions and create a whole new market
• New category entries – Products that take the firm into a category new to it but not to the world
• Additions to existing product lines – Products that extend existing product lines to current markets

7-*

New Product Strategies

• Improvements and revisions of existing products – Current products that are made better
• Repositionings – Products that are retargeted for a new use or application
• Cost reductions – Products that replace existing products in a line, providing the customer similar performance but at a lower cost

7-*

Figure 7.1 – Organizational Growth Strategies

7-*

New Product Strategies – Broader Approach

• 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

7-*

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 to develop a new product
• Specified time period in which the new product must recoup its operating costs and begin contributing to profits

7-*

Figure 7.2 – The New Product Development Process

7-*

• Stage of the new product development process at which the goal is to ensure that all new product ideas considered by the organization have the opportunity to be heard and evaluated because the success of the process will depend greatly on the quality of the ideas generated

Idea generation

7-*

Idea Generation

• Ideas are the raw materials for product development
• The whole planning process depends on the quality of the idea generation and screening process
• Top-management support is critical to providing an atmosphere that stimulates new product activity

7-*

Idea Generation

• Technology push and market pull research activities play an important role
• Firms use out-rotation, outsider involvement, and rewards to foster cooperation between design engineers and marketers
• Out-rotation involves placing employees in positions that require direct contact with customers, competitors, and other key outside groups

7-*

• Evaluation of an idea based on strategic risk, market risk, and internal risk for the purpose of eliminating ideas that could not be profitably marketed and expanding viable ideas into full product concepts

Idea screening

7-*

Idea Screening – Three Categories of Risks

• Strategic risk – No match between the role of a new product with a specific 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
• In evaluating these risks, firms should consider forming joint or strategic alliances

7-*

Idea Screening – 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

7-*

• Stage of the new product development process at which the idea is evaluated further and responsibility for the project is assigned to a project team

Project planning

7-*

Project Planning

• Idea is evaluated in terms of production, marketing, financial, and competitive factors
• Development budget is established, and preliminary marketing and technical research is undertaken
• Product is designed in a rough form
• Alternative product features and component specifications are outlined
• Project plan is written up

7-*

Project Planning

• Schedule is included
• Project proposal is given to top management for a go or no-go decision
• Two alternatives for creating and managing project teams:
• Skunkworks: Team members work in relative privacy, away from the rest of the organization
• Rugby or relay approach: Groups in different areas of the organization work simultaneously on the project

7-*

Project Planning

• Cross-functional team is a key component that contributes to the success of a company’s product development efforts
• Cross-functional teams: Members from different departments come together to jointly establish new product development goals and priorities and to develop schedules

7-*

• Stage of the new product development process at which the product idea has met all expectations and is considered a candidate for further research and testing

Product development

7-*

Product Development

• Development report to management is prepared that spells out:
• Results of the studies by the engineering department
• Required plan design
• Production facilities design
• Tooling requirements
• Marketing test plan
• Financial program survey
• Estimated release date

7-*

• Stage of new product development process at which the product is no longer a company secret
• Controlled experiment in a limited geographical area to test the new product as well as elements of the marketing mix

Test marketing

7-*

Test Marketing

• Evaluates and adjusts the general marketing strategy to be used and the appropriate marketing mix
• Helps producers explore issues related to the next generation of product development
• Helps analyze findings and develop volume forecasts
• Reduces risks
• Helps finalize marketing plan and prepare for a product launch

7-*

• Stage of the new product development process that involves the actual launch of the product and the implementation of the marketing strategy

Commercialization

7-*

• Elapsed time between product definition and marketplace product availability

Time to market

7-*

General Criteria for Determining Perceptions of Quality

• Performance
• Features
• Reliability
• Conformance
• Durability
• Serviceability
• Aesthetics
• Overall evaluation

7-*

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

7-*

New Product Decisions – Product Features

• Fact or particular specification about a product
• Marketers select new product features by determining what it is that the customer wants their products to offer

7-*

New Product Decisions – Product Design

• Good design adds great value to a new product
• Well-designed product pleases customers without necessarily costing more to make

7-*

New Product Decisions – Product Safety

• Is an ethical and practical issue
• Ethically, customers should not be harmed by using the product as intended
• Practical issue is that when users get harmed by a product, they may:
• Stop buying
• Tell others about their experience
• Sue the company that made or sold it

7-*

Causes of New Product Failure

• No competitive point of difference, unexpected reactions from competitors, or both
• Poor positioning
• Poor quality of product
• Nondelivery of promised benefits of product
• Too little marketing support
• Poor perceived price/quality (value) relationship

7-*

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 (economy) after product introduction

7-*

Specific Questions Commonly Raised in Evaluating Product Ideas

• What is the anticipated market demand over time? Are the potential applications for the product restricted?
• Can the item be patented? Are there any antitrust problems?

7-*

Specific Questions Commonly Raised in Evaluating Product Ideas

• Can the product be sold through present channels and the current sales force? What number of new salespersons will be needed? What additional training will be required?
• At different volume levels, what will be the unit manufacturing costs?

7-*

Need for Research

• What is the most appropriate package to use in terms of color, material, design, and so forth?
• What is the estimated return on investment?
• What is the appropriate pricing strategy?