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Chapter3NewProductDevelopment.ppt

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New Product Development

Chapter 3

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Learning Objectives

Describe the importance of new product development to a firm’s success or failure.

Describe the new product development process, the product life cycle, and different strategies and tradeoffs in product innovation.

Learn different concepts in new product development.

Learn important new product development analysis techniques.

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Development of a
New Pharmaceutical Drug

Developing a new pharmaceutical drug costs between $800 million and $2 billion, and the process often takes more than 10 years.
A pharmaceutical company may test up to 30,000 different drug formulations before one can be approved for use and successfully introduced into the market.
Development of a new drug is a long, difficult, expensive, and high-risk undertaking for a pharmaceutical company.

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What is New Product Development?

New product

a good, a service, or a good/service that was previously not available to customers

New product development

the overall process of strategy, organization, concept generation, product and marketing plan creation and evaluation, and commercialization of a new product (good or service)

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Discussion Starter

Do companies need new products?

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Why New Products Fail

A typical supermarket introduces more than 5,000 new products to its customer base every year. As many as 80% are unsuccessful.
WHY?

Poor market research

Problems or defects

Inferior designs

Poor timing of their introduction

Poor communication to potential customers

Competitors

Ineffective operations, such as supply chain or inventory policy

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Why Firms Develop New Products

The development and introduction of new products can make the difference between a company’s success and its failure to survive.

Source: © Image Source/Corbis

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Sources of Competitive Advantage

Firms innovate and develop new products for unique opportunities for competitive advantages.
Example: The iPod has been instrumental in the survival and emergence of a stronger and more competitive Apple Inc., resulting in market share gain and higher profitability.

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Market Share Gain

New products introduced in the marketplace provide additional “first mover advantages” to the company.
By developing new products, a company can quickly capture a big share of the market before competitive products are introduced. For
Example: Toyota’s successful introduction of the Prius hybrid car prior to its competitors’ development of such a car has allowed the company to establish a dominant position in the emerging market segment of fuel-efficient and environmentally friendly automobiles.

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Higher Profitability

During the early stages, a new product faces less competition than a product in a mature market; therefore, its profitability tends to be higher.
As the market becomes saturated with several competitive products, prices start falling, and profit margins decrease.

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Figure 3.2: Relative Profitability of Early Movers Versus Later Entrants in New Product Markets

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Enhancement of
Corporate Image and Brand Name

The developments of innovative and creative new products is a very powerful source of goodwill and creates a positive corporate image.
Brand equity measures used in marketing show that firms with more successful new product development efforts command higher respect from customers and profitability.

brand equity: the monetary or relative value of a brand perceived in the marketplace by its customers.

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Faster Competitive Response

Having a systematic process for new product development in place can introduce new products quickly after a competitor’s product is launched.
Sony’s Playstation, Microsoft’s X-Box, and Nintendo’s Wii compete fiercely in the video game industry. Each company tries to quickly introduce new products to compete with others.

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Operating Cost and Capacity Utilization

The product development effort is often closely linked with process development.
New products provide the opportunity for enhanced sales as the demand for older products decreases over time.

Source: © Image Source/Corbis

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The New Product
Development Process

NPD Process

A disciplined and definite set of tasks and steps that describe the normal means by which a company repetitively converts embryonic ideas into salable products or service

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Common Elements of New Product Development for Goods and Services

The generation of innovative ideas is very difficult.
The NPD process involves multiple and sometimes overlapping steps.
The NPD process requires participation and input from multifunctional teams.

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Figure 3.5: Tradeoffs in
New Product Development

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Product Life Cycle

Introduction Stage
Growth Stage
Maturity Stage
Decline Stage

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Figure 3.6: Product Life Cycle

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Discussion Starter

What new products/services have changed the way we live?

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Figure 3.7: Multiple Product Life Cycles

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Time-Based Competition

Time-based competition: a broad-based competitive strategy that emphasizes time as the major factor for achieving and maintaining a sustainable competitive advantage
Industry clock speed: a measure of the speed of innovation within an industry

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Radical and Disruptive Innovation

Radical Innovation: a new product, generally containing new technologies, that significantly changes behaviors and consumption patterns in the marketplace
Disruptive Innovation: a new product that is initially introduced at a lower quality level along some established criteria but a much superior quality level along a new dimension

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Table 3.1: Some Examples
of Disruptive New Products

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Blue Ocean Strategy
of New Product Innovation

Blue ocean strategy: a strategy that suggests that companies should innovate not to compete with products from other companies, but to try to make the competitive products irrelevant
A “red ocean” refers to a saturated market in which there is fierce competition, as it is already crowded with people (companies) providing the same type of services or producing the same kind of goods.

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Mass Customization

Mass customization: a process in which individual customers codesign products and services that meet their needs with regard to certain product features.
Customization demands that the recipients of the customized goods transform their needs and desires into a concrete product specification.

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Discussion Starter

How many different types of coffee drinks

can you get at Starbucks or Dunkin’ Donuts?

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Computer-Aided
Design (CAD) and Virtual Reality

CAD: the use of computers to interactively design products and prepare engineering documentation

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Virtual Reality

Virtual reality: a visual form of communication in which images substitute for the real thing but still allow the user to respond interactively

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Design for Production
(Manufacturability) and Rapid Prototyping

Design for manufacturability: the use of a variety of computer-based techniques such as CAD, virtual reality, and CAM to develop products that can be manufactured effectively
Rapid prototyping: A technique for quickly building physical prototypes from the computer-aided design (CAD) data files used to develop three-dimensional drawings while also considering production constraints

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Environmentally Friendly Designs

Green production: techniques that include reducing wastes and emissions during production and assessing the total impact of a good or service on the environment, taking into account every activity associated with the production and supply of that good or service
Environmentally friendly new product design means more than just the features of the goods produced or the service delivered.
Design for disassembly: designing products so that they are easy to take apart once they’re discarded

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Modular Design

Modular design: products designed as independent subproducts that are attached to create a final product

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Concurrent Engineering

The practice of designing products and developing the production process concurrently in an integrated fashion, using a cross-functional team, rather than having them performed sequentially by separate functions

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Product Platforms

Product platforms: a commonly used technique for developing a variety of products based on common structures or basic architectures
Designing new products that can be used as a platform offers many benefits to the company by providing economies of scale.

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Group Technology

Group Technology: an approach in which product parts that have similarities (in shape, usage and/or manufacturing process) are grouped together to achieve a higher level of integration between the product design and manufacturing
Part family: a group of similar parts
Machine cell: the group of machines used to process an individual part family
Cellular manufacturing: the type of manufacturing in which a part family is produced by a machine cell

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Reverse Engineering

The process of discovering the technological principles of a new product through the analysis of is structure, function and operation
Can the apparent similarities between fiercely competing products such as the Honda Accord and Ford Taurus be explained by the use of reverse engineering by one of the competitors?

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Analysis Tools for
New Product Development

The four tools are:

Customer Choice Analysis
Product Reliability Analysis
Product-Complexity Index
Quality Function Deployment

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Customer Choice Analysis

Customer choice analysis: an experimental approach to identify the relative importance of various product features for customer choices
Willingness to pay: define
Desirability: define

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Product Reliability Analysis

An approach for assessing
the overall integrity of a product
based on the configuration of its components

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Product Reliability Analysis

Redundancy: the use of backup components and systems to enhance the reliability of a product
Robust design: a design approach that ensures that small variations in the production process do not adversely affect the quality of the product
Product-complexity index: the critical parameter that a firm needs in order to estimate the design levels and prices for a new product

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Product-Complexity Index

the critical parameter that a firm needs in order to estimate the design levels and prices for a new product

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Quality Function Deployment

A structured approach for systematically integrating customer requirements into every aspect of product development from planning to the production floor

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Table 3.3: The Quality Function Deployment (QFD) Process

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Figure 3.15:The QFD Process

The first QFD matrix, called the House of Quality links the voice of the customer to the product design attributes (voice of the engineer).

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Figure 3.16: The House of Quality