NEW PRODUCT DEVELOPMENT

Prof. Jayashree Vispute

NPD

Concept of NPDFactors contributing to NPDNPD ProcessStages of NPD

NPDNew product means• Original products, • product improvements, • product modifications, • new brands (R & D)

Factors contributing to new product development• Surplus capacity• Changing customer preferences• Technological factors• Government policy• Fighting Competitors

NPD

New Products offer new avenues of growth and secure the viability and sustainability of the firm. The risk gets spread over a large number of products – old one and new ones

COMPANY CAN ADD NEW PRODUCTS BY:

1.Acquisition.

2.New product development – development of products within the company.

ACQUISITION:

1.Company can buy other companies

2.Can acquire patents from other companies

3.Buy license or franchise from another company

NEW PRODUCT DEVELOPMENT

NPD can take 2 routes:1.Develop new products on its own2.Contact independent researchers

or new product development firms to develop specific new products.

NEW PRODUCT DEVELOPMENT

• Most new product development is an improvement on existing products

• Less than 10% of new products are totally new concepts.

SUCCESS RATE OF NEW PRODUCTS

• The success rate of new products is very low – less than 5%. ‘You have to kiss a lot of frogs to find a prince.”

• Product obsolescence is rapid with improvements in technology

• Shorter PLCs

FACTORS THAT HINDER NPD• Shortage of ideas in certain areas• Fragmented markets, so less profits

• Social and government constraints• Cost of development, generate 1 worth

idea

• Capital shortages• Faster required development time• Shorter PLC, rivals are quick to copy

WHY NEW PRODUCTS FAIL?

• Product Failure can be:1.Absolute product failure: financial loss2.Relative product failure: does not reach profit

goals

Reasons for failure:• Lack of strong enough differential advantage• Poor planning• Poor timing.• Excessive enthusiasm

WHY NEW PRODUCTS FAIL?Reasons for failure: Marketing Failures: small size of the potential market. No clear product differentiation, poor positioning

Financial failure: Low return on investment

Timing Failure: Late or too early in the market

Technical Failure: Product did not work, bad design

Organizational failure: Lack of organizational support

Environmental failure: Government regulations, macroeconomic factors

ORGANIZING FOR NPD

1.Sequential product development:- A NPD approach in which one company dept. works to complete its stage of the process before passing the new product along to the next dept. and stage.2. Simultaneous (team based) product development:- An approach to developing NPD in which various company depts. Work closely together, overlapping the steps in the product development process to save time and increase effectiveness.

Marketingstrategy

Business Analysis

Product Development

Test marketing

Commercialization

Idea generation

Ideascreening

ConceptDevelopmentAnd testing

NPD

PRODUCT DEVELOPMENT STAGES• Idea generation• Idea screening• Concept development and testing• Marketing Strategy• Business Analyst• Product development• Test Marketing• Commercialization

I IDEA GENERATION

- Systematic search for new product ideas“ For every 1000 ideas, only100 will have enough commercial promise to merit small scale experiment, only 10 of those will warrant substantial financial commitment, only couple will turn out be a success.”- Common sources of NPD ideas-1. Changing customer needs & trends in consumer

markets.2. Competitors3. R & D scientists4. Laboratories5. Foreign markets & media6. Employees7. Trade channels8. Top management

1.Internal sources:• Formal R&D• Technical experts, marketing executives, scientists,

engineers, manufacturing staff, sales people can form informal groups to discuss and brainstorm NPD ideas.

• Intrapreneurial programs ( encourage employees to think and develop ideas) Have contests, prizes and incentives.

External idea sources:• Watching & listening to customers - questions,

complaints• Surveys• Focus groups• Observation techniques• New products & uses (created ) by consumers

2. Competitors:Watching their ads (unfulfilled gaps)Buying products, understand competitors strategies, analyze sales

3. Distributors & suppliers:Resellers – close to the market( problems & possibilities)Suppliers – new sources, trade magazines, shows & seminars, govt. agencies, consultants, advertising agencies, marketing research firms, university & commercial laboratories, inventors.

• Search for NPD ideas should be systematic/else few new ideas surface and many new sputter and die.

Idea management system:-1.Appoint a senior person to be company’s idea

manager2.Create cross- functional idea management

committee (from all departments)3.Set up a toll free no./ website4.Encourage all company stake holders5.Set up formal recognition programs

(Innovation oriented company culture, large no. of ideas yielded)

II. IDEA SCREENINGIdentifying prospects & defining target markets• Screening NPD ideas in order to spot good

ideas & drop poor ones as soon as possible• Idea generation – large no. of ideas• Idea screening – reduce that no. of ideas to

feasible ideas• Select only those which turn into profitable

products• Detailing on describing product, target

market, competition• Rough estimates of market size, product,

price, development, manufacturing, time and costs.

• Idea evaluation against a set of criteria( use of product, best fit with company objective, resources, value, advertising, distribution)

III. CONCEPT DEVELOPMENT & TESTING:

Ideas must be refined into testable product concepts.A product idea is a possible product the company might offer to the market.A product concept is an elaborate version of the idea expressed in consumer terms.An image of the way the product is perceived.-

1.Concept Development:- To develop a product into alternative product concepts- Find attractiveness of each concept- Choose best one.e.g. i. Daimler Chrysler-Fuel cell powered electric carConcept I: Moderately priced, subcompact designed, second family car, ideal for running errands & visiting friendsConcept II: Medium cost sporty, appealing to young people.Concept III: In expensive, subcompact ‘green’ car for practical transportation & low pollution.Concept IV: High end SUV appealing to those loving space despite (lament) poor gas mileage.

e.g. ii Leading soft drink manufacturerConcept I: Fresh fruit juice for children and adolescents as a health supplement at breakfastConcept II: Fresh bottled fruit juice for the young as a fun thirst quenching, refreshing, nutritious, health drink any time.Concept III: Fresh bottled mango juice for young & grown ups as fun, thirst quencher beverage.Concept IV: Fresh bottled mango juice for the adults as a health supplement.All of these help define product category, segment for positioning purposes.

b. Concept testing: - Testing new product concepts with a group of target customers to find out if the concept has strong customer appeal.- For some, a word/picture description may be sufficient.- But a more concrete physical presentation increases reliability of the test.- “Virtual Reality”- After exposure to concept asking for reaction by answering a questionnaire.- Projection of figures to full population in target group to estimate sales volumei. By polls, ii. Web testing.

IV MARKETING STRATEGY DEVELOPMENT- Designing an initial marketing strategy for a new product based on product concept( Daimler Concept III)Three parts……..1.Describe target market; plan product

positioning; sales; market share; profit goals for first few years.

[ Younger, well educated, moderate to high income individuals, couples, small families, more economical to operate, fun to drive, less polluting, recharged regularly,aim-1,00,000 cars in 1st year; loss$15 mn; 2nd year-sales1,20,000 cars, profit $ 25 mn]

b. Outline product’s planned price, distribution, marketing budget for 1st year.[ 3 colors-red, white, blue, optional a/c n power-drive features; retail price-$ 20,000, 15%list price to dealers, dealers selling more than 10 cars per month, discount of 5% on each car sold; advertising budget of $50mn split 50-50 between national media campaign & local advertising-fun spirit & low emissions, 1st year-$1,00,000 on market research]

c. Describe planned long – run sales, profit goals, marketing mix strategy.[ 3% long run share of total auto market, after tax ROI of 15% high product quality in beginning, improved, improved over time, price raising in 2nd & 3rd years, advertising budget-10% increase each year, market research reduced to $ 60,000/yr.]

V. BUSINESS ANALYSIS

- Reviewing sales, costs, profit projections to find out satisfaction of company objectives.- Business attractiveness of the proposal.- Sales estimation-sales history of similar products, surveys of market opinion (minimum and maximum to assess level of risk)- Expected costs and profits.- Estimation of demand in target market at different price levels.- Sales forecast based on demand estimation and competitive analysis.- Costs, break even price, sales volume.

VI PRODUCT DEVELOPMENT: - Developing the product concept into a physical product in order to ensure that a product idea can be turned into a workable product.- R&D & engineering develop product concept into a physical product.- Large jump in investment.- Shows whether idea can be turned into a workable product.- R&D tests & develops 1 or more physical versions of product concept.- “Prototype”- Required functional features, intended psychological characteristics.

VII. TEST MARKETING- Testing product and marketing program in more realistic market settings.- Gives marketer experience with marketing product before going to great expense of full introduction.- Allows testing entire marketing program ( positioning, advertising, distribution, pricing , branding, packaging, budgeting value)- Costs can be high.- Takes time giving scope to competition.- If the costs are low and the company is confident about new product there may be no test marketing.- Lot of test marketing – when introducing a new product, when big investment is involved, when management is not sure of product/marketing program.

MAJOR METHODS OF MARKET TESTING

• Sales- Wave Research• Simulated Test Marketing• Controlled Test Marketing• Test Markets

SALES- WAVE RESEARCH

• Consumers who try the product initially are re offered the product – couple of times.

• Can be implemented quickly, with no advertising and packaging support.

SIMULATED TEST MARKETS

- Showing promotions to a sample of consumers- Giving consumers small amount of money, invitation, real/laboratory store – where money can be kept/items can be bought.- Noting new product/competing brands bought.- Provide a measure of trial and commercial effectiveness.- Reasons for purchase/non-purchase may be asked by interviewing.- Keep new product out of competitors view.

CONTROLLED TEST MARKETS

Company manages a panel of stores by paying a fee.Research team arranges the product to be available in participating stores. - Direct mail promotions can even be tested.- Detailed scanner information on each consumer purchase (combined with consumer demographic and TV viewing information)- Behavior scanner, in store behaviour can be tested.• Exposes product to competitor’s

scrutiny.

TEST MARKETS- Small no. of representative test cities - Conduct full marketing campaigns- Use store audits, consumer and distributor surveys to gauge product performance.- Results will help forecast national sales and profits, potential problems, fine tune a market program.- Drawbacksi costly, ii long time, iii competitors can monitor test market results by lowering prices, increasing promotion

STANDARD TEST MARKETS

• How many test cities• Which test cities• Length of test • What information to collect• What action to take

VIII COMMERCIALIZATION

- Introducing a new product into the market.- test marketing-final decision.- highest costs.- build/rent manufacturing facility.- deciding ‘introduction timing’.- where to launch the NPD.