If you want something you never had, do something you have never done.

New Product DevelopmentNew Product DevelopmentBy Dr. Ranjan Kantha, BhubaneswarBy Dr. Ranjan Kantha, Bhubaneswar

Toyota Qualis: Remember the advertisement that said ‘a hundred reasons why you should buy a Toyota Qualis?’

Those hundred reasons could actually be paraphrased in one line: It fulfilled an unmet need, that too very forcefully. There were very few passenger vehicles in the category that offered all the conveniences and advantages that Toyota Qualis offered.

The hundred reasons were an interesting list to go through and understand. But just imagine the sheer velocity of an idea. So powerful, all encompassing, virtually die cast into the unmet needs of thousands of users.

Reynolds ballpoint pen: Introduced with a promise of smooth writing at a time when ballpoint pens were a prized possession. . Before the launch of Reynolds, it appeared that people wasted a lot of time buying a ballpoint pen and got their pockets stained with ink in the process.

Reynolds offered more value for its price, encouraging to buy a Reynolds and use it. The blue cap and the white pen shell soon became ubiquitous in every office, school, and college across the country.

Shampoo sachet: The now commonly seen shampoo sachet is a good example. Ever imagined packing a liquid in a sealed leak-proof polyethylene bag that is easy to display and sell?

The shampoo sachet introduced by Velvette was a success. So much a success that large MNCs redrew their plans

Here is an example of a product priced right with assured benefits cutting across all segments. The success of this product lies in its pricing and the well designed unique response to satisfy an unmet need.

What Is a New Product

?

Types of “New” Products

Cost Reduction

11%

Additions to Existing Lines

26%

Improvementto Existing

Products26%

New Product Lines20%

Reposition7%

New to the World10%

Management Management PerspectivePerspective Consumer Consumer

PerspectiPerspectiveve

CriteriaCriteria::

Newness Newness to the to the companycompany

Criteria:Criteria:

Newness Newness to to customer customer /humanity/humanity

Six categories of new products:1. New-to-the-world products - New products that

create an entirely new market.

2. New product lines - New products that allow a company to enter an established market for the first time.

3. Additions to existing product lines - New products that supplement established product lines (package sizes, flavors, and so on).

4. Improvements and revisions of existing products - New products that provide improved performance or greater perceived value and replace existing products.

5. Repositioning - Existing products that are targeted to new markets or market segments.

6. Cost reductions - New products that provide similar performance at lower cost.

Original Products

ProductImprovements

ProductModifications

NewBrands

AcquiredCompanies

Acquired Patents

AcquiredLicenses

Strategies for Obtaining New Product Ideas

Challenges in New-Product Development

A company can add new products through acquisition or development. The acquisition route can take three forms.

The company can buy other companies, it can acquire patents from other companies, or it can buy a license or franchise from another company.

Co.s can develop new products in its own laboratories, or it can contract with independent researchers or new-product development firms to develop specific new products.

Product “newness,” as defined by the degree of consumer learning needed to use the product

Types of NPD Projects

Newness to the market

New

ness

to th

e co

mpa

ny

High

Low

Low High

7%

10%

26%26%

20%

11%

Cost reductions (e.g. Low-end PC)

New productlines (e.g. AT&T Universal Card)

Revisions/improvement toexisting products (e.g. MS Excel ‘00)

Additions to existingproduct line

New-to-the-world(e.g. laser flex printer)

Repositionings

The Conflicting Masters of New Products Management

Three inputs to the new products process: the right quality product, at the right time, and at the right cost.

These conflict with each other but may have synergies too.

Issue: how to optimize these relationships in a new product situation.

Quality

Time Cost

Value

Breakthrough Innovations that Changed Our Lives Personal Computer Microwave Oven Digital Photocopier Mobile phone Fax Machine Birth Control Pill DVD/VCD Communication satellite Bar coding Integrated Circuit Automatic Teller

Answering Machine Touch-Tone Telephone Laser Surgery Apollo Lunar Spacecraft Internet Organ Transplanting Fiber-Optic Systems Disposable Diaper MS Software GIS

What it takes to launch one commercially successful new product

New Products Failure

95 percent in the United States and 90 percent in Europe.

Reasons For failure.1. ignoring or misinterpreting market

research; 2. overestimating market size; 3. high development costs; 4. poor design; 5. incorrect positioning, 6. ineffective advertising, 7. wrong price; 8. insufficient distribution support; 9. competitors who fight back hard.

Key Reasons for Failure• Market too smallMarket too small• Poor fit with company’s Poor fit with company’s strengthsstrengths• No real benefit for No real benefit for customercustomer• Not new/not different Not new/not different product product • Poor competitive Poor competitive positioning positioning • Poor timing of product Poor timing of product introduction introduction

Key Reasons for Failure (cont.)• Lack of coordination across functional areas Lack of coordination across functional areas • Organizational problems (e.g. conflict, Organizational problems (e.g. conflict, communication, top management support)communication, top management support)• Inaccurate forecastsInaccurate forecasts• Inadequate support by channelInadequate support by channel• Market changes in customer tastesMarket changes in customer tastes• Competitive response to new productCompetitive response to new product• Major shifts in technologyMajor shifts in technology

Market UncertaintyMarket Uncertainty• Consumer fear, uncertainty, and doubt (FUD)Consumer fear, uncertainty, and doubt (FUD)

• Customer needs change rapidly and Customer needs change rapidly and unpredictablyunpredictably

• Customer anxiety over the lack of standardsCustomer anxiety over the lack of standards and dominant designand dominant design

• Uncertainty over the pace of adoptionUncertainty over the pace of adoption

• Uncertainty over/inability to forecast market sizeUncertainty over/inability to forecast market size

Technology UncertaintyTechnology Uncertainty• Uncertainty over whether the new innovation Uncertainty over whether the new innovation will function as promisedwill function as promised

• Uncertainty over timetable for NPDUncertainty over timetable for NPD

• Ambiguity over whether the supplier will be able Ambiguity over whether the supplier will be able to fix customer problems with the technologyto fix customer problems with the technology

• Concerns over unanticipated/unintended Concerns over unanticipated/unintended consequencesconsequences

• Concerns over obsolescenceConcerns over obsolescence

Competitive UncertaintyCompetitive Uncertainty

• Uncertainty over who will be future competitors Uncertainty over who will be future competitors

• Uncertainty over competitor’s strategiesUncertainty over competitor’s strategies

• Uncertainty over product form competitionUncertainty over product form competition (competition between product classes vs. (competition between product classes vs. between different brands of the same product)between different brands of the same product)

NPD StrategiesNPD Strategies

• Reactive Strategies:Reactive Strategies: - Defensive strategy- Defensive strategy - Imitative Strategy- Imitative Strategy - Second-but-better Strategy- Second-but-better Strategy - Responsive- Responsive

• Proactive StrategiesProactive Strategies

Reactive Strategies Reactive Strategies • Require concentration on existingRequire concentration on existing products or marketsproducts or markets• Can achieve little protection for Can achieve little protection for innovationinnovation• Are in markets too small to recover Are in markets too small to recover investmentinvestment• Are in danger of being overwhelmed by Are in danger of being overwhelmed by competitive imitationcompetitive imitation• Are in distribution chains dominated Are in distribution chains dominated by another innovatorby another innovator

Proactive Strategies Proactive Strategies • Require rapid sales growthRequire rapid sales growth• Provide high volume or marginProvide high volume or margin• Offer a capability of achieving patent orOffer a capability of achieving patent or Market protectionMarket protection• Supply resources and time necessary toSupply resources and time necessary to develop new productsdevelop new products• Provide reasonable power in the Provide reasonable power in the distribution channeldistribution channel

THE NEW-PRODUCT PLANNING PROCESS

2. PRODUCTSCREENING

3. CONCEPT TESTING

4. BUSINESSANALYSIS

5. PRODUCTDEVELOPMENT

1. IDEAGENERATION

7. COMMERCIALIZATION 6. TESTMARKETING

Marketing information and methods used in the new-product process

Idea Generation & Screening Stage

Idea Generation: An ongoing search for product ideas to

be consistent with target market needs and the organization’s goals

Idea Screening: minimize risk by focusing on ideas with

the highest probability of success

Ideas for new products can be obtained from basic research using a  SWOT analysis (Strengths, Weaknesses, Opportunities &

Threats), Market and consumer trends, company's R&D department, competitors, focus groups, employees, salespeople, corporate

spies, trade shows, or Ethnographic discovery methods (searching for user patterns

and habits) may also be used to get an insight into new product lines or product features.

Idea Generation or Brainstorming of new product, service, or store concepts - idea generation techniques can begin when you have done your OPPORTUNITY ANALYSIS to support your ideas in the Idea Screening Phase 

Systematic Search for New Product Ideas

Internal sourcesCustomers CompetitorsDistributorsSuppliers

Idea Sources

Step 1. Idea Generation Techniques

Brainstorming (1 hr. sessions, no criticisms, think of ways to vary item) Word Association Projection Attribute Listing Forced relationships Surveys Product analysis

Step 2. Idea Screening

IdeasIdeasIdeas

Ideas

Idea

sId

eas

IdeasIdeas Ideas

Ideas

Product ideaProduct idea

Process to spot good ideas and drop poor onesCriteria

• Market Size• Product Price• Development Time & Costs• Manufacturing Costs• Rate of Return

The object is to eliminate unsound concepts prior to devoting resources to them.

The screeners must ask at least three questions: Will the customer in the target market benefit from the

product? What is the size and growth forecasts of the market

segment/target market? What is the current or expected competitive pressure

for the product idea? What are the industry sales and market trends the

product idea is based on? Is it technically feasible to manufacture the product? Will the product be profitable when manufactured and

delivered to the customer at the target price?

Idea Screening ChecklistCriteria: (A) relative weight x (B) rating Corporate personality 1………10 1 …….7 R + D support + Marketing expertise + Financial resources + Production capabilities + Distribution support + ( A x B) Patent ability (17 years) +

_________ Total score

1. Develop Product Ideas into Alternative

Product Concepts

2. Concept Testing - Test theProduct Concepts with Groups

of Target Customers

3. Choose the Best One

Step 3.Concept Development Testing

Develop the marketing and engineering details Who is the target market and who is the decision

maker in the purchasing process? What product features must the product incorporate? What benefits will the product provide? How will consumers react to the product? How will the product be produced most cost

effectively? Prove feasibility through virtual computer aided

rendering, and rapid prototyping What will it cost to produce it?

Testing the Concept by asking a sample of prospective customers what they think of the idea.

Business Analysis

Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

If Yes, Move to Product Development

If No, Eliminate Product Concept

Step5. Business Analysis

Step6. Business Analysis

Estimate likely selling price based upon competition and customer feedback

Estimate sales volume based upon size of market

Estimate profitability and breakeven point

StandardTest Market

Full marketing campaignin a small number of representative cities.

SimulatedTest Market

Test in a simulated shopping environment

to a sample of consumers.

Controlled Test Market

A few stores that have agreed to carry newproducts for a fee.

Step 7.Test Marketing

Produce a physical prototype Test the product (and its packaging) in

typical usage situations Conduct focus group customer interviews

or introduce at trade show Make adjustments where necessary Produce an initial run of the product and

sell it in a test market area to determine customer acceptance

Technical Implementation New program initiation Resource estimation Requirement publication Engineering operations planning Department scheduling Supplier collaboration Logistics plan Resource plan publication Program review and monitoring Contingencies - what-if planning

Commercialization

Must decide on timing (i.e., when to introduce the product).

Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally).

Must develop a market rollout plan.

Launch the product Produce and place advertisements and

other promotions Fill the distribution pipeline with product Critical path analysis is most useful at this

stage

New Product Pricing Impact of new product on the entire product

portfolio Value Analysis (internal & external) Competition and alternative competitive

technologies Differing value segments (price, value, and

need) Product Costs (fixed & variable) Forecast of unit volumes, revenue, and profit

Product Positioning

There are three positioning alternatives:

Strengthen a brand’s current position in the mind of the consumers.

Search for a new unoccupied position that is valued by enough consumers and occupy that.

De-position or re-position the competition.

Product attributesNokia’s 6600 ‘Zoom in

Technical itemsBMW breathable fresh air filters

Benefits offeredCrest toothpaste reduces cavities.

UsersJohnson & Johnson changing focus to incorporate adults as frequent users of their gentle Baby Shampoo.

Usage occasionsKit Kat, ‘have a break’.

ActivitiesOmega, the ‘first and only watch on the moon’.

PersonalitiesTiger Woods for Nike

Cult positioningHarry Potter books

OriginPerrier ‘bottled at source’.

Positioning strategies

Positioned against competitors

Dell and Compaq versus IBM

Positioned away from competitors7-Up the number 1 ‘Un-cola

Product class membership‘I can’t believe it’s not butter’, the vegetable fat spread, is clearly positioned against butter.

Features and benefits must be important to the consumer.

Must be distinctive from the competition. Must deliver superior quality or service. Difference must be communicable and visible to

buyers. Affordable Profitable

Essential criteria to accomplish a good positioning strategy