New Products Management 2

NEW PRODUCTS MANAGEMENTMBA- Program

Part 2 Hisham Sharawy

PART THREE

CONCEPT/PROJECTEVALUATION

CHAPTER (8)

The Concept Evaluation System

Evaluate Tasks

• Where should we look for opportunities and how to select in between?

• Is the idea worth screening?

• Should we try to develop it?

• How to develop it? If not, should we continue to try?

• Should we market it? If so, how?

• Re-evaluate.

Product line Considerations

• Any one product being evaluated is not alone.

• Often when we evaluate a new product, we are still thinking about its effect on others and on the corporate strategy.

• Skipping and leaping is so familiar.

• Having hurdles may reduce failure rate but increase costly delays to market.

The Cumulative Expenditure Curve

% of time Spent

% of expenditures (Cumulative)

Early Expenditures

Average

Late Expenditures

Launch

The risk/payoff Matrix

At any single evaluation point in the new product process, you may face one of 4

situations.

Decision is to:

If itwere marketed

AStop the

project now

BContinue to

nextevaluation

A. It would failAABA

B. It would succeedABBB

Generic Risk Strategies

*Avoidance: Eliminate the risky product all together, although an opportunity cost incurred.

*Mitigation: Reduce the risk to an acceptable ,threshold level through redesigning.

*Transfer: Move the responsibility to another firm

*Acceptance: Develop a contingency plan now(active acceptance) or deal with the risks as they come up(passive acceptance)

The Decay curve

A-Slow decay B-Average decay

C-Rapid decay

A

B

C

No. of Ideas

Time LaunchGeneration

Planning and Evaluation System

There are 4 other techniques but less demanding as an evaluation systems for any new product:

• Everything is tentative.• Potholes• The people dimensions• Surrogates.

The A-T-A-R Model

“ Awarness-Traial-Availabilty-Repeat” It’s the last tool we use to design the evaluation

system.

Profit= T. Buying units x %aware x % traial x

% availability x %repeat x Annual

units bought x (Revenue/U –Cost/U)

About A-T-A-R

1. Each factor is subject to estimation.

2. Improvement can simply by changing any.

3. Availability is to be considered when retry.

4. Repeat can be a good measure of satisfaction.

5. The most benefit is to know how the new product could be improved.

6. Gives strength to the managerial decision

CHAPTER (9)

Concept Testing

Concept Testing

Importance of Up-Front Evaluation• The biggest cause of new product failure

is that the intended buyer did not see a need for the item, no purpose, no value, not worth the price.

• The main keys for concepts’ validity are quality, time , cost and some market issues.

The PIC

• PIC itself will eliminate many new product ideas .The firm decides to reject ideas that violate PIC guidelines:

* Ideas required inexistent tech.

* Ideas that firm has no close knowledge about.

* Ideas with innovation (2 much-2 little).

* Ideas wrong on other dimensions.

Initial Reactions

It resists the pushing effect so several provisos apply:

• The idea source doesn’t usually participate

in the initial reaction.

• Two or more persons are involved in rejection decision.

• The initial reaction is mainly based on a pure intuitive sense.

The purposes of Concept testing

1. To identify the very poor concept so it can be eliminated.

2. To estimate ;even roughly; the sales or trial rate that the product would enjoy.

1. To help develop the idea, not just test it.

Considerations in Concept Testing Research• Prepare the concept statement: It states the difference and how the diff-

erence benefits the customer or end-user

* Format * Commercialized Concept * Offering new information * Price

Considerations in Concept Testing Research• Define the respondent group:

The best is to meet any and all persons who will play a role in deciding whether the product will be bought and how it might be improved.

• Select the response mode:

1. The mode of reaching the respondent.

2. If personal, weather to approach individually

or in a group.

Considerations in Concept Testing Research

• Prepare the interviewing sequence:

* 2-3 minuets interviews.

* Explore the current practice of respondent

* Back ground information of respondent

* Interpretation comments about new product

• Variation:

In all previous stages

Analyzing Research Results

Benefit segmentation:

helps the firms to identify unsatisfied segments and concentrate efforts on developing

concepts suited the need of such segments.

Fashion

Comfort

1

3

2

Joint Space Map

Resulted from overlaying the benefit segments onto our perceptual map.

1.Ideal Brand

2.Preference regression

This method relies on numerical input ranking for brands.

Fashion

Comfort

12

3

CHAPTER (10)

The Full Screen

Purposes of Full Screen

• The term “full” means , we have much information as we have before technical work.

• “Scoring model” is used as an arrangement of checklist factors with weights on them.

• Purposes: * It helps decide whether it should go forward with the concept or quit. * It helps managing the process by sorting the concepts and identifying the best ones. * It encourages cross functional communication

The Screening Procedures

• What’s being evaluated

Scoring

Unusual Factors

The scorers

The weighting

Profile Sheet

See the book

Analytic Hierarchy Process

it is a method to derive ratio scales from paired comparisons. The input can be obtained from

actual measurement such as price, weight etc., or from subjective opinion such as satisfaction

feelings and preference.

Special Aspects

Champions: are those who are able to push the wheel and overcome the resistance to change.

Expert systems: are some technological knowledge based systems in scoring models ,shows that management sometimes misuse scoring models due to either faulty factor selecting /weighting or

because the cutoff score was too high.

CHAPTER (11)

Sales Forecasting and Financial Analysis

New Product Sales Forecasting• The first (and perhaps most common) method

of forecasting new product depletions is historical review. If a company has introduced similar new products into similar markets in the past.

• A second method of forecasting new product success is the test market. The new product is developed and introduced into one or more test markets.

New Product Sales Forecasting• A third method of forecasting is before-after retail

simulation. A sample of target audience consumers is presented with simulations showing the in-store retail environment and a realistic display of all the major brands in the category.

• A fourth technique for forecasting new product sales is the "normative" approach. A database of historical norms for new products is assembled (trial rates, repeat purchase rates, purchase cycles, and so on) by product category.

New Product Sales Forecasting

• The last method is the traditional awareness-trial-repeat purchase model. We might refer to these as the orthodox, legacy systems of new product forecasting.

MS= T x R x AW x AV

%of buyers try

at least the product once

Share of who purchase among those who tried %

Awareness

%AvailabilityMarket Share

Diffusion of Innovation

It refers to the process by which an innovation is spread within a market, over time and

over categories of adaptors.

Bass model: is a commonly used diffusion model for durable goods to estimate the sales s(t) of the product class at some future time t.

s(t)= pm x (q-p)Y(t) x (q/m)(Y(t))(Y(t)) Initial trial probability No. of potential

buyers

Diffusion rate parameter

Total no of

purchase by time

(t)

Problems with sales forecasting

• Information uncertainty.• Competitors are doing as we do.• Lack in self trust about expecting

achievements.• Fast actions against some

disappointments.• Internal attitudes may be biased.• New products don’t have history

Action to handle forecasting Problems

• Improve the new product process currently in use.• Use the life cycle concept of financial analysis.• Reduce dependence on poor forecasts. * Forecast nothing if you don’t know. * Approve situations, not numbers (fishermen not the quantity of fish) * Commit to low cost development and marketing strategies. * Go with sound forecasts but prepare to handle the risks. * Use different methods of financial analysis depending on situation. * Improve current financial forecasting methods.

Return to the PIC

• Sometimes depending on financial analysis only maybe unsuccessful or preferred.

• Some combinations of financial and strategic considerations:

* Management interest * Customer interest

* Profitability & impact * Technical feasibility• The screening criteria used by a firm whose

identity was not revealed:

* Probability of technical success * NPV

* Strategic importance of a project * IRR

CHAPTER (12)

Product Protocol

Product Protocol

Most firms are doing part of the tasks, a few of all of it, waiting for the activity to gel. We may call the activity protocol preparation ,

and the output is a product protocol.

A protocol is a signed agreement between negotiating parties.

The Role of Protocol

The Protocol Purposes

1. To specify what each department will deliver to the final product that the customer buys.

2. It’s the same role of the of the participants in NPD. It communicates essentials to all of the players, helps lead them into integrated actions, helps direct outcomes that are consistent with the full screen and financials and gives all players their targets to shoot.

3. The 3rd is relating to time through the process or cycle time.

4. If protocol was done right , it gives requirements by words that can usually be measured and then, development can be controlled.

“Without protocol, you’ve no idea where/when to end up.”

Protocol Specific Contents

1. Target Market 2. Product positioning3. Product attributes4. Competitive comparison5. Timing6. Finance requirement7. Marketing req.8. Production req.9. Corporate strategy req.

VOC

“ Complete set of customer wants and needs, expressed in the customer’s own language,

organized the way customer think about, uses, and interact with the product and prioritized by customer in terms of both

importance and performance.”

QFD

It describes a technique, allows the VOC to become a deliver of all later steps in the

new product process

Stages of QFD

HOQ To

Parts deployment To

Process Planning To

Production Plann- To

Customer Attributes

Eng. Characteristics

Parts characteristics

Process operations

Eng. Characteristics

Parts characteristics

Process operations

Production requirements

Outcomes of QFD• Encourage the cross functional promoting

dialogs and the developers to see the benefits of targeting the customer need.

• Concentrate on only some of the engineering characteristics.

• Organize the engineering characteristics into groups and designate responsibility for those specific functional areas, good team selection.

• Do a cost benefit analysis on each stage