New product development process: An investigation of success and failure in high-technology and non-high-technology firms

NEWPRODUCT

DEVELOPMENTPROCESS:

ANINVESTIGATION OF

SUCCESSANDFAILUREIN

HIGH-TECHNOLOGYANDNON-

HIGH-TECHNOLOGYFIRMS

FAHRI KARAKAYA AND

BULENT KOBU University of Massachusetts-Dartmouth

EXECUTIVE Numerous studies have examined new product success and failure in an

SUMMARY attempt to reduce failure rates. Because they share some common themes,

the previous studies were categorized into the following five groups: (1)

studies focusing on causes of new product successeslfailures; (2) studies

examining new product development processes; (3) studies investigating

new product development strategy and performance relationships: (4)

studies focusing on building models to predict new product performance, and (5) studies focusing on a

single factor relating to new production successlfailure. To fill some of the gaps in earlier studies, and include variables that have not been linked to new

product successlfailure before, 151 companies were surveyed in two industries, the medical instrument

technology and food processing industries. The survey contained questions on the importance of six new

product idea sources: (1) final customers; (2) R&D department: (3) marketing executives; (4) other

executives in the firm; (5) competitors; and (6) free-lance inventors. Seven factors that were proposed to

relate to new product successlfailure were: (I) competition; (2) product performance: (3) marketing: (4)

price competitiveness: (5) product obsolescence: (6) limited number of distributors; and (7) customer

switching costs. In addition, an attempt was made to investigate the effects of technology and following

new product development plans and procedures on new product successlfailure. Survey results indicate that using customers as the sources of new product ideas ranks number one

in terms of importance for businesses in both the medical instrument technology and food processing

industries. Similarly, executives who are in charge of new product development rate poor product

performance as the essential cause of new product failure in the food processing industry, followed by

poor marketing and pricing. In the medical instrument technology industry, however, the most

important cause of new product failure was considered to be customer switching costs followed by poor

Address correspondence to Professor Fahri Karakaya, Department of Marketing, University of Massachu- setts-Dartmouth, North Dartmouth, MA 02747.

The authors would like to thank two anonymous reviewers for their helpful comments.

Journal of Business Venturing 9,49-66 0 1994 Elsevier Science Inc., 655 Avenue of the Americas, New York, NY 10010

0883-9026/94’$6.00

49

50 F. KARAKAYA AND B. KOBU

product performance. This is probably because of the high investments typical for products in the

medical instrument technology industry (i.e.hospital equipment).New product failure rates also differed

between the two industries studied. Companies ffom the food processing industry, on average, had an

almost 8% higher new product failure rate than companies in the medical instrument technology

industry (40.18%vs.32.43%).The level of technology (medical instrument technology-high tech vs.food

processing industry-low tech) may account for the difference in the new product failure rate. Results

also showed that following new product development plans and procedures relates to new product

success in the food processing industry, but not in the medical instrument technology industry.

Using company R&D departments andffee-lance inventors as sources of new product ideas is related

to new product success in both industries investigated. In the food processing industry, price,

competition, customer switching costs, and access to distribution channels influence new product success.

Those firms that consider these variables important have higher new product success rates. Similarly, in

the medical instrument technology industry, customer switching costs, access to distribution channels,

product performance, product obsolescence, and marketing are important influences of new product

success. Thus,firms that consider these variables when entering markets with new products may be more

successful.

It is possible to eliminate some causes of new product failure by entering markets earlier than the

competitors. For example, early market entrants often have advantages over later entrants in selecting

distribution channels. Early market entrants are also likely to create new customer switching costs for

later entrants, however, this may not occur if the product introduced is not a technological

breakthrough. Of course, not every new product introduced can be a technological breakthrough (eg.

many food products), but they can be new, reflecting the definition of new products.

INTRODUCTION New product innovation has become the livelihood of many companies in the last two decades. This is especially true in high-technology industries where technological innovation is a dominant factor for survival. A global over-supply of consumer goods, rapid depletion of natural resources, slow economic growth, and aggressive competition in international markets have created enormous pressures on the new product development process. This pressure has been increasing in conventional manufacturing industries and, more important, in service sectors, which have a 60% share in industrial nations’ economies.

Numerous research efforts in the last two decades on the new product development process and causes of new product success and failure have produced valuable clues to more effective management of new product development strategies and their implementations. However, Cooper (1983) claims that translation of research findings into industrial applications has been somewhat slow. According to Cooper (1983), the reason for this slow reaction might be the lack of significant and tangible managerial guidelines that can help direct new product development processes and strategies.

A literature review on new product failures (Crawford 1977) provides surprisingly little evidence for the frequent claim that 80% of all new products fail. Although a continuing new product failure rate (NPFR) of considerable dimensions is obvious, the research findings are distributed over a wide range. In some well known studies, NPF’Rs range from 37-80% (Nielsen 1971; Rosen 1967; Popa 1976; Angelus 1969; Booz, Allen, and Hamilton 1968; Hopkins and Bailey 1971; National Conference Board 1964). Crawford (1977, 1979, 1987) believes that most studies on NPFRs are unreliable and highly exaggerated. He argues that the wide range of NPPRs among research findings is caused by the research methodology employed and the discrepancies in the definition of new product-related concepts, such as the meaning of new product success or failure. Crawford claims that a reasonable NPFR would be in the 3040% range. Another reason for the large discrepancy in success/failure rates is

NEW PRODUCT DEVELOPMENT PROCESS 51

the way in which the research findings have been presented (Cooper 1983). A rapidly changing economic environment and technological improvements may also cause the inconsistencies in research findings. Yet, two studies conducted 17 years apart have identified almost the same set of failure reasons (Hopkins 1981; National Conference Board 1964).

Researchers have used different approaches and tackled different aspects of new product-related problems. For example, some have tried to identify the causes of success or failure whereas others have focused on the new product development process and strategy-performance relationship. Our literature review (Table 1) indicates that the new product studies conducted during the last two decades fall into one of the following five streams of research: (1) causes of new product success or failure; (2) new product development process; (3) new product development strategy-performance relationships; (4) use of models to measure new product performance; (5) single-factor focused new product performance analyses.

LITERATURE REVIEW SUMMARY

Most studies in the first group focused only on the causes of new product success or failure. Each study tried to determine factors related to management policy and new product development process (or internal factors) and their significance on the new product success-failure rates. Despite the differences in methodology, samples, lack of standard terminology, etc., it is interesting to see that some consistencies exist among the findings. But, it seems difficult to determine a general set of rules that can be used as a guideline by the managers in all industrial sectors.

The second group of studies primarily attempted to outline the most effective new product development process and/or compare the pros and cons of having formal and informal new product development procedures. The findings in this group do not seem to converge on a specific type of process. No specific new product development process seems to be significantly superior to others. However, a certain approach in new product development may have a higher chance of success for some products or industries. There is also a change in company attitudes to the new product development process. Some early studies suggested that managers did not rely on new product development processes. However, recent studies indicate that more than two-thirds of the companies surveyed followed formal procedures in developing new products.

The third group of studies, led by Cooper, focuses mostly on the question of new product development strategies and performance relationships. Generally, a certain set of innovation strategies appears to have strong ties to performance measures, such as sales or profits. Being part of an overall company strategy and having a sound financial support and plan is an important attribute of a successful new product development strategy. To increase the reliability of studies, some studies in this group focused on a single industry.

Studies in the fourth group aimed at building mathematical models to predict the likelihood of success or failure of new products. Although only a few of the models claim high validity, in general, most of them are regarded as being useful tools in understanding the factors related to new product success and failure.

Lastly, the researchers in the fifth group followed the strategy of focusing on a specific aspect of new product development and related its significance on performance. Each study in this group attempted to determine the relationships between major factors, such as management policy, degree of innovation, adoption rate, marketing, R&D integration and new product success rate. It is noteworthy that results of single factor-focused studies provide


TABLE 1 Summary of Literature Review on New Product Development Studies

Author(s) and Year Major Fmdings or Focus of Study

Group 1: Studies Focusing on the Causes of New Product SuccessWailure

Yoon (1991)

Zirger and Maidique (1990)

Examined the relationship between market entry price and product’s

user-benefit and entry time. Developed an operational procedure for pricing

imitative new products targeting business in a vibrant, competitive market.

Defined five key factors contributing to new product success in electronics

industry.

Cooper and Kleinschmidt (1987)

Link (1987)

Hopkins (1981)

Cooper (1980)

Identified the most important factors influencing new product success.

Identified the six most important determinants of success/failure.

Focused on causes of new product failure.

Identified 15 most important variables in differentiating between success and

failure.

Kulwik (1977)

Crawford (1977)

Roberts and Burke (1976)

Focused on factors for new product success and failure (European study).

Examined the most common causes of new product failure.

Identified technological and market factors of successful new products (six

products only).

Gerstenfeld (1976) Identified the characteristics of new product development projects in a

European study.

Rothwell (1972) Identified the significant factors determining new product success/failure in

textile machinery industry.

Cooper (1975)

Globe et al. (1973)

Rothwell (1972)

Hopkins and Bailey (1971)

Nielsen (1971)

Angelus (1969)

Myers and Marquis (1969)

National Industrial Conference

Board (1964)

Group 2: Studies Examining New Product Development Process

Cooper and Kleinschmidt (1991) Reported the performance results of five leading firms who have implemented

a formal new product development process or “stage gate system.”

Examined factors affecting new product success and identified the most

common causes of new product failure.

Studied the most dominant factors of new product success.

Identified factors discriminating between success and failure (European study).

Studied new product failure rates.

Studied new product failure rates.

Studied causes for new product failures.

Identified common characteristics of successful new products.

Identified factors causing new product failure.

Boag and Rinholm (1989)

Moore (1987)

Shanklin and Ryans (1984);

Hisrich and Peters (1984)

Feldman and Page (1984)

Mint&erg (1983); Martin (1984)

Investigated tbe relationship between new product success and the degree of

formalization in new product development program.

Investigated the use of formal/informal new product development programs.

Outlined new product development process.

Examined tbe use of formal/informal new product development programs.

Focused on informal new product development process and its relationship to

success.

Cooper (1983,1979) Designed a normative new product development process.

Guiltinan and Paul (1982) Outlined a new product development process.


TABLE 1 Summary of Literature Review on New Product Development Studies (continued)

Author(s) and Year Major Findings or Focus of Study

Homgren (1982); Quinn and Examined the benefits of preplanned new product development process. Mueller ( 1982)

Lorsch (1982) Studied the benefits of informal new product development process.

Schroeder ( 1985) Investigated the advantages of preplanned new product development process.

Group 3: Studies Investigating New Product Development Strategy-Performance Relationship

Dougherty (1990) Integrated the work in marketing, organization, and strategy theory in understanding new markets for new products with an empirical analysis. Determined that organizational factors strongly affect the development of a market understanding.

Rinholm and Boag (1987) Studied the relationship between method of new product development process and success.

Grden-Ellson et al. (1986) Examined the relationship between new product development strategy and success in three fmancial institutions.

Meyer and Roberts (1986)

Cooper (1986; 1985; 1984a; 1984b; 1983)

Nystrom and Edvardsson (1978)

Crawford (1980)

Investigated the effectiveness of new product development strategies in ten small technology-based companies.

Examined the relationships between new product innovation strategies and performance.

Investigated strategy-performance relationship in farm machinery industry.

Explored the relationship between new product development strategy and performance.

Group 4: Studies Focusing on Ruilding Models to Predict New Product Performance

Lakshmi-Ratan et al. (1991) Developed an aggregate contextual choice model to estimate demand for new product concepts.

Kendall and French (1991) Discussed the life cycle concept of market potential for new products.

Yoon and Lillien (1985) Developed a conceptual model to identify the new product success factors.

Choffray and Lilhen (1984) Developed a computer model to predict the sales growth of new products.

Urban et al. (1983) Developed a model (ASSESSOR) to forecast sales potential of new products.

Dillon et al. (1979) Developed a model to identify factors associated with new product success.

Group 5: Studies Focusing on a Single Factor Relating to New Product Success/Failure

Sarin and Kapur (1990) Focused on new products and new entrepreneurs by examining five case studies in India.

Abeele and Christiaens (1986)

Gupta et al. (1985)

More (1984)

Lawton and Farasuraman (1980)

Nylen (1979)

Examined company size, new product development strategy, and performance relationships.

Explored R&D and marketing integration and new product success relationship.

Examined the adoption barriers and new product success.

Researched the degree of innovation, sources of new product ideas, and new product success.

Investigated the relationship between management policy and new product success rate.

Townsend (1976) Considered the influence of collaboration between user and producer on new product success.


a clear and possibly more accurate picture of a particular element related to the new product development process. This may be attributed to gathering highly specific data from managers. Although the findings in this group seem to be more sound and probably more reliable, one must keep in mind that each sheds light on only a portion of the whole picture.

RESEARCH FOCUS

Our literature review provides a comprehensive picture of the efforts aimed at investigating new product success/failure-related problems and identifies many useful findings. In the study of 231 new products, Lawton and Parasuraman (1980) found that the source of a new product idea is likely to have a major effect on product success. However, these researchers do not report any statistical significance tests verifying the relationship. In general terms, competition, new product performance, marketing efforts, product price, and product obsolescence have been linked to new product success or failure in many studies. Also, access to distribution channels and customer switching costs, which have been cited as important barriers to market entry (Bain 1956; Porter 1980; Karakaya and Stahl 1991,1989), have not been investigated as factors that might influence the success or failure of new products. The variables mentioned are likely to influence new product success or failure even after successful entry into markets.

Based on the literature review, an area that has received little attention is technology and its relationship to new product success or failure. Some researchers have examined the technology employed (Cooper 1984b), using technology as a competitive advantage (Ghadar 1982; Porter 1985; Reinganum 1983), and the relationship between strategic focus in new product development activities and new product success in technology-based firms (Meyer and Roberts 1986). However, to the best of our knowledge, there has been no study comparing new product success and the factors that relate to success in distinct industries that represent high and low technology. Level of technology may play an important role in new product success in a world of fast technological changes. From this perspective, we expect this study to fill some gaps and improve our understanding of the new product development phenomenon. Thus, this study has chosen two major objectives: (I) to investigate the effect of technology level on new product success; and (2) to provide an additional view regarding factors that influence new product success or failure.

HYPOTHESES 1

H,: There is no relationship between the sources of new product ideas and new product failure rate.

Hz: There is no relationship between new product failure rate and jkns’ following certain plans or procedures when developing new products.

Hs: There is no association between new product failure rate and the causes of new product failure as perceived by executives.

H4: There is no difference in the importance of new product idea sources among the firms that follow plans at varying degrees such as always, almost, sometimes, or never.

L The hypotheses are stated in null form.


H,: There is no difj’erence in the causes of new product failures among the firms that

follow plans at varying degrees such as always, almost, sometimes, or never.

He.- There is no difference in the importance of new product ideas between the food

processing industry (FPI) and medical instrument technology industry (MIT).

Hf There is no difference in the causes of new product failures between FPI and MIT

industries.

H,: There is no difference in the following of certain plans or procedures between the FPI and MIT industries.

H,: There is no diference in the new product failure rate between the FPI and MIT industries.

METHODOLOGY

Sample The responding firms in this study were selected from two major industries, 79 firms from the medical instrument technology industry (SIC Codes: 3832, 3841, and 3843) and 88 firms from the food processing industry (SIC Codes: 2032 through 2038 that include canned fruits and preserves, pickled fruits and vegetables, and frozen foods). The firms in the first group are classified as high-technology firms by four independent studies (Riche, Hecker, and Burgan 1983; U.S. Department of Commerce 1983; Doody, Munzer and Meisner 1982; Vinson and Harrington 1979). Also, Lawson (1982) ranked 30 industries using the following factors: (1) R&D expenditures as a percent of value-added; (2) R&D personnel as a percent of total employed; and (3) the rate of growth in employment of R&D scientists and engineers. The industries with SIC Codes 383-387 ranked seventh in the first two factors, and third in terms of the rate of growth in employment of R&D scientists and engineers. However, the food processing industry has been ranked as 28th in both R&D expenditures as a percent of value-added and R&D personnel as a percent of total employed. On the factor of rate of growth of the number of R&D personnel employed, Lawson ranked only the first ten industries. The food processing industry did not make the list. Thus, one may safely conclude that this industry is far from being a high-technology industry.

To obtain a representative sample of firms, and to examine the differences between the two industries, 50% of all firms from the two industries were selected. Annual sales for the responding food processing firms ranged from a minimum of $1 million to a maximum of $82 million with average sales of $11.867 million. Firms in medical technology ranged from a minimum of $2 million to a maximum of $561 million, with an average of $109.25 million in sales. Companies in the medical technology industry have much higher annual sales than companies in the food processing industry, which may be because of higher unit prices for medical technology products (e.g., the cost of surgical equipment versus the price of a can of soup).

Procedure First, using the SIC codes for food processing and medical instrument technology industries, 910 firms were selected as the sampling frame from the Million Dollar Directory. Second, using a systematic sampling procedure, every other firm was selected as a potential respondent. Thus, 455 firms were mailed a one-page questionnaire with a cover letter addressed to the director of


new product development. The instrument contained 17 questions. The questions, which were related to the importance of new product idea sources and agreements with the causes of new product failures, were designed on a five-point Likert scale (see Appendix for more information about the questionnaire). One hundred sixty-seven responses were received during a three-week period. In addition, 35 questionnaires were returned due to unknown address, etc. Thus, 39.8% of the firms selected as the sample responded to the study. The respondents were new product development program directors or personnel involved in new product development and introduction. Cronbach’s Alpha coefficients were calculated for the three scales used for each industry individually (see Appendix for information on the scales used). The alpha coefficients were 0.68 and higher in all cases.

ANALYSIS AND RESULTS First, the analyses were performed for each industry individually. Second, the differences between the two industries were examined. The mean responses for each industry are presented in Tables 2 and 3. The mean responses range from a high of 4.70 to a low of 2.24 on a five-point scale. As it can be noted from Table 2, the customers are the most important and free-lance inventors are the least important sources of new product ideas in both medical instrument technology and food processing firms. Similarly, Table 3 shows that poor product performance and customer switching costs are the highest-rated factors causing new product failures in food processing and medical instrument technology firms.

Hypothesis I

The relationship between the sources of new product ideas and fadure rate was analyzed by performing correlation analysis. As the importance placed on the R&D department increases for new product ideas, so does the new product success rate in both industries (see Table 4). A similar relationship is also found between the variable of other executives (not including marketing executives) as the new product idea source and NPFR. Interestingly, there is a negative relationship between failure rate and the importance of free-lance inventors as new product idea sources in both industries. Further statistical analyses, Analysis of Variance (ANOVA) and Duncan Multiple Range Test, were performed to understand the nature of the negative relationship. Significant differences were found among firms that place varying degrees of importance (i.e., extremely important versus not important) on free-lance inventors in the food processing industry (F,,,,-- -6.46, p < 0.01) and in the medical technology industry (F,,,,=12.6, p < 0.01). In the food processing industry, NPFR is higher for firms that employ free-lance inventors as new product idea sources (the NPFR is 54% for those fiis that use free-lance inventors versus 27% for firms that do not use free-lance inventors as new product idea sources). This situation is also the same in the medical technology industry, with the exception that the NPFR is much higher (65% versus 47%).

Hypothesis 2

Correlation analysis investigating the relationship between new product failure rate and firms’ following certain plans or procedures when developing new products showed that there is a statistically significant relationship (r=.26, p=O.Ol) in the food processing industry. However, this relationship was not significant in the medical instrument industry. Interestingly, 74.7% of the respondents in the food processing industry follow some sort of new product


TABLE 2 Mean Response Rates for the Importance of New Product Idea Sources

Sources of New Food Processing Industry Medical Instrument Technology

Product Ideas MeaIl0 S Mean S

Customers 4.17 1.07 4.70 0.65 R&D 3.37 1.26 3.84 0.94 Marketing Executives 3.90 0.90 3.88 0.84 Other Executives 3.22 0.71 3.17 0.83 Competitors 3.70 0.94 3.49 0.82 Free-lance Investors 2.24 1.07 2.87 1.12

~Importance of new product ideas to the firms was measured on a five-point scale ranging from 5 as the most important to 1 as the least important.

development plans or procedures when developing new products. This percentage is 74 for the responding firms in the medical instrument technology industry. Approximately one-third of the firms in both industries do not appear to follow established guidelines or procedures when developing new products. This finding is consistent with an earlier study conducted by Moore (1987).

Further statistical analyses, ANOVA and Duncan’s Multiple Ranges Tests, were performed to see if the failure rate varied among firms that followed new product development plans or procedures at varying degrees such as always, almost always, sometimes, and never. For the food processing firms, the ANOVA test was significant, indicating that differences in failure rates exist (Fs,,,=4.83, p c 0.01). Duncan’s Multiple Range Test also showed that firms following new product development plans or procedures “sometimes” differ from firms that “always,” “almost always,” and “never” follow new product development plans or procedures. The firms that always follow plans or procedures have an average failure rate of 28.8% versus 58.6% for firms sometimes following plans or procedures. Similarly, those firms that follow plans or procedures almost always have a 34% failure rate. These analyses indicate that the fnms who place importance on following plans or procedures are more successful. However, this situation is not true in the medical instrument technology industry. The ANOVA and Duncan’s Multiple Range Tests did not show any significant differences in the failure rates among the firms following new product development plans or procedures at varying degrees.

TABLE 3 Mean Response Rates for Causes of New Product Failure and Failure Rate

Food Processing Industry Medical Instrument Technology

Causes of Failure MeZulO S Mean S

Competitive Activities 3.38 1.11 3.23 1.11 Poor Product Performance 4.18 0.98 3.77 1.17 Poor Marketing 3.98 0.83 3.26 1.20 Pricing 3.84 1.09 3.47 1.07 Product Obsolescence 3.15 1.10 2.78 1.16 Access to Distribution 2.94 1.27 2.71 1.27

Channels

Customer Switching Costs 3.29 1.47 3.99 1.15

Failure Rate! 40.18% 23.8 32.43% 21.7

L1 Responses were measured using a Liiert scale, which ranged from strongly agree to strongly disagree. b Failure rate was measured as tbe average percentage of products that were considered to have failed by the responding firms.


TABLE 4 Correlations of New Product Failure Rate and Importance Placed on the Sources of New Product Ideas

Sources of New Product Ideas

Customers R&D Marketing Executives Other Executives

Competitors

Free-lance Inventors

Food Processing Industry

.125

.645O -.llO

.1806

.069

-.w

Medical Instrument Technology

.124

.538= -.129

.007

.069

-.622“

“p < 0.01, one tailed significance. bp < 0.05, one tailed significance.

Hypothesis 3

The association between NPFR and its causes were examined using correlation analysis (Table 5). For the food processing industry, four variables are related to NPFRs. These four variables are: (1) customer switching costs (r=.48, p c 0.01); (2) price (r=.42, p c 0.01); (3) access to distribution channels (r=.34, p c 0.01); (4) competitive activities (r-.27, p c 0.01). Similarly, for the medical instrument technology industry: (1) customer switching costs (r-.37, p c 0.01); (2) poor marketing (r-.36, p < 0.01); (3) access to distribution channels (r-.34, p ~0.01); (4) product obsolescence (r=.33, p < 0.01); and (5) poor product performance (r=.29, p c 0.01) were related to new product failures.

Hypothesis 4

In the food processing industry, the importance of the new product idea sources vary for two sources only. ANOVA showed that the R&D department and marketing executives as sources of new product ideas are significantly different for fiis following plans at varying degrees (F3,s1=3.00, p < 0.05 and F3,s2- -2.62, p c 0.05 respectively). Duncan’s Multiple Range Tests also showed that the R&D department as a source of new product ideas is different between firms that always follow plans and firms that follow plans almost always or sometimes. From the mean response ratings, R&D appears to be more important to those firms that always follow plans. The importance of marketing executives is different between firms that never follow plans and firms that follow plans always or to some degree. Again, the mean response rates indicate that marketing executives as new product idea sources are most important for firms that always follow new product development plans. For the free-lance-inventors variable as the new product idea source, the ANOVA is only significant at a=.12 level (F3,,,=2.22, p < 0.12). However, Duncan’s Multiple Range Tests showed that this variable differs between two groups of firms, those that never use plans or procedures and those that use plans and procedures sometimes. Free-k&e inventors as the new product idea sources appear to be more important for companies that sometimes use plans or procedures than for firms that never use plans or procedures (mean ratings: 2.58 vs. 1.25).

For the medical instrument technology industry, based on Duncan’s Multiple Range Tests, only one variable, importance placed on other executives (non-marketing executives) as the new product idea source, is different between the two groups. This variable is more important to firms always using new product development plans or procedures than to firms that never use new product development plans or procedures (mean ratings: 3.4 vs. 2.0). Although this finding is consistent with previous research (Boag and Rinholm 1989; Cooper


TABLE 5 Correlations Between New Product Failure Rate and the Causes of New Product Failure as Perceived by Executives.

Causes of New Product Medical Instrument Failure Food Processing Industry Technology

Competition -.27 -.OS Poor Product Performance -.Ol -.2Y Poor Marketing .09 -.36” Price -.42O .05 Product Obsolescence .03 -.330 Access to Distribution .34” -.340

Channels Customer Switching Costs -48” -.37”

“p < 0.01, one tailed significance.

and Kleinschmidt 1991), it should be noted that the ANOVA was only significant at a=.10 (F’3,72=2.14,p ~0.10).

Hypothesis 5

For the food processing industry, the importance of three variables as causes of new product failures differ significantly among firms that follow new product development plans or procedures at varying degrees such as always, almost always, sometimes, and never. These variables are product performance (F s,s6=2.21,p c 0.09), product price (F,,sS=2.73,p <0.05), and access to distribution channels (Fs s4- -2.57, p < 0.06). The importance of price as a cause of new product failure differs between firms that never follow new product development plans or procedures and those that do. The firms that never follow plans or procedures in new product development rate price as being unimportant in causing new product failure. As indicated earlier in hypothesis two, there is a statistically significant relationship between following new product development plans or procedures and new product success in the food processing industry. The importance of product performance and access to distribution channels variables as causes of new product failure also differs significantly between firms that always follow new product development plans or procedures and firms that sometimes follow plans or procedures.

The same variables: product performance, product price, and access to distribution channels, also differ among firms that follow new product development plans or procedures in the medical instrument technology industry. In addition, the importance of marketing as a cause of new product failure differs between firms that always follow new product development plans or procedures and the firms that almost always follow plans or procedures. Poor marketing appears to be a more important cause of new product failure for firms that almost always follow new product development plans or procedures, This finding strengthens the relationship between firms’ following new product development plans or procedures and the new product failure rate.

Hypotheses 6

The differences between food processing and medical instrument technology industries, in terms of the importance placed on the sources of new product ideas, were tested by using t-tests. Three of the six variables tested vary significantly between the two industries.


Customers, R&D, and free-lance investors as sources of new product ideas appear to be more important to the firms in medical instrument technology than to the firms in food processing. The means and the t-statistics for the six idea sources are shown in Table 6.

Hypothesis 7

The t-tests comparing the differences,in the causes of new product failures between the two categories of firms showed that five of the seven variables significantly differ (Table 7). Poor product performance, poor marketing, price, and product obsolescence seem to be more critical in causing product failure in the food processing firms. However, customer switching costs are more important in causing failures in the medical instrument technology firms.

Hypothesis 8

This hypothesis examining the difference between food processing and medical instrument technology industries in terms of following certain plans or procedures was tested by performing t-tests. The analysis indicated that there is no statistically significant difference between the two industries (t-1.01, d.f.=163, p ~0.31) with respect to following certain plans and procedures when developing new products.

Hypothesis 9

T-tests were conducted to investigate the difference in the NPFR between the two industries and showed that the failure rates statistically differ (t=2.14, d.f.=156, p c 0.05). Interestingly, the failure rate for the food processing industry is higher than the failure rate for medical instrument manufacturers (40.18% vs. 32.43% see Table 3). These failure rates are consistent with earlier studies (see Crawford 1987) that a reasonable failure rate would be in the 30-40% range.

DISCUSSION AND CONCLUSIONS As indicated in the literature review section, the reasons for new product failures are many and they vary from study to study, due to different samples and measurement techniques. However, based on the literature review and the results of this study, it is possible to group the causes of new product failure into two major categories: (1) new product development process (e.g., following new product development plans or procedures); and (2) environmental factors.

This study found a relationship between following new product development plans or procedures and new product failure rates in the food processing industry, which is consistent with earlier studies (Cooper and Kleinschmidt 1987; Crawford 1977; Davis 1988; Guiltinan and Paul 1982; Horngren 1982; Quinn and Mueller 1982; Rothwell 1972; Schroeder 1985). It appears that poor planning and the absence of new product development programs with certain guidelines to follow, or failure to follow such guidelines when they exist, are major causes of new product failure in the food processing industry. However, this relationship was not true in the medical instrument technology industry, in which the products are highly technical in nature. Therefore, following new product plans and procedures may not be an important contributor to success in high-tech industries.

Cooper (1985, 1986) suggests that there is a relationship between innovation strategies and new product failure rates. In addition to following new product plans or procedures, creating new


TABLE 6 Comparison of New Product Idea Source Importance Between Food Processing and Medical Instrument Technology Industries

Mean

Sources of New Product Ideas Food Processine

Medical Instrument Tecbnoloev t-value

Customers 4.17 4.70 -3.78”

R&D 3.37 3.84 -2.65” Marketing Executives 3.90 3.88 0.10 Other Executives 3.22 3.17 0.43 Competitors 3.70 3.49 1.51

Free-lance Inventors 2.24 2.87 -3.64O

“p < 0.01, two tailed, independent-sample f-tests.

product ideas, screening them, developing models or prototypes, forecasting demand, and market testing are parts of new product development strategies. One of the preceding variables, the sources of new product ideas, was tested in this study. The importance of two of the new product idea sources, the R&D department and non-marketing executives, were related to new product success rate in the food processing firms. This situation was only true for the importance of ideas coming from R&D departments in the medical instrument technology firms.

The environmental factors that influence new product success or failure can be characterized into two groups. These are competitor-generated strategic activities and non- competitor-generated activities. The first group of activities usually include price, access to distribution channels, product differentiation, and customer switching costs. These variables are termed as barriers to market entry by Karakaya and Stahl (1991,1989) and Porter (1980). In addition to limiting market entry, these variables influence the performance of firms once they enter markets. Two of these variables, access to distribution channels and customer switching costs, were tested in this study and were found to relate to new product success in both industries. Therefore, it is important to consider these barriers before entering markets. If an entering firm cannot deal with these barriers, it is better to stay out of the market. Of course, the timing of market entry is crucial in dealing with competitor-generated activities. For example, early market entrants or pioneering firms face only a few market entry barriers (Karakaya and Stahl 1989) and have advantages over the late entrants (Abel and Hammond 1979; Bond and Lean 1977; Dahymple and Parsons 1980; Day 1981; Flaherty 1984; Porter

TABLE 7 Comparison of New Product Failure Causes Between Food Processing and Medical Instrument Technology Industries

Mean

Causes of Failure Food Processing

Competitive Activities 3.38 Poor Product Performance 4.18 Poor Marketing 3.98 Pricing 3.84 Product Obsolescence 3.15 Access to Distribution Channels 2.94 Customer Switching Costs 3.29

“p -c 0.01, two tailed, independent-sample f-tests. bp c 0.05, two tailed, independent-sample t-tests.

Medical Instrument Technology

3.23 3.77 3.26 3.47 2.78 2.71 3.99

t-value

0.81 2.45O 4.31” 2.126 2.076 1.15

-3.35’


1985; Robinson and Fomell 1985; Schmalensee 1982; Smiley and Ravid 1983; Yelle 1979). The level of technology, which was a major part of this study, also has an impact on new product success. As indicated earlier, NPFR is higher in the food processing industry, which is considered to be a low-tech industry. This may be due to the large number of new food products introduced and the intensive competition that exists in this industry. However, it is possible for the firms in the medical instrument technology industry (high-tech industry) to introduce fewer, but more innovative, products.

MANAGERIAL IMPLICATIONS

As indicated earlier, following new product development plans or procedures is very important to new product success in the food processing industry, in which non high-tech products are developed and marketed. Interestingly, this variable does not appear to be of any significance in the medical instrument technology industry. Therefore, following new product development plans and procedures may not be important for high-tech firms.

In the food processing industry, price, competition, customer switching costs, access to distribution channels, and R&D as the source of new product ideas influence new product success. Those firms that consider these variables important have higher new product success rates. Similarly, in the medical instrument technology, customer switching costs, access to distribution channels, product performance, product obsolescence, and marketing are important influences of new product success. Thus, firms that consider these variables when entering markets with new products should be more successful.

It is possible to eliminate some of the causes of new product failure by entering markets earlier than the competitors. For example, early market entrants often have advantages over later entrants in selecting distribution channels. Similarly, early market entrants may still face customer switching costs if the new products are not technological breakthroughs. However, they are also likely to create new customer switching costs for later entrants. While it is not a rule of thumb, early market entrants with technologically breakthrough new products do well. Of course, not every product introduced can be a technological breakthrough (e.g., many food products), but they can be new, reflecting the definition of new products.

LIMITATIONS AND FUTURE RESEARCH

As shown in the literature review, there are many variables that influence new product success or failure. Only a handful could be tested in this study in terms of their importance and their differences in high- and low-tech industries. Furthermore, as an exploratory study, only two industries were selected in this research. Although the medical technology industry has been rated as a high-technology industry by five separate studies, it is possible for some of the firms in the food processing industry to be high-technology firms also. This may be true mainly because of the technology employed in the production process of some food products. An extension of this study to other high- and low-technology industries would make the results more meaningful. It is suggested that future studies be much broader, including more variables and more industries. In addition to the variables considered in this research, future studies should further examine the role, effectiveness, and content of product development plans and procedures. In this study, only the effect of following product development plans and procedures on new product success was tested and compared between the two industries.


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APPENDIX The survey used in the study consists of 17 questions in five groups:

1.

2. 3. 4. 5.

6.

Sources of new product ideas which included the following: a) Final Customers; b) R&D Department; c) Marketing Executives; d) Other Executives in the Firm; e) Competitors; f) Free-lance Inventors. Taking a new product off the market due to its poor performance. Following new product development plans or procedures. Abandoning a new product idea at development stage. Causes of new product failure: a) Competition; b) Product Performance; c) Marketing; d) Price Competitiveness; e) Product Obsolescence; f) Limited number of distributors; g) Customers’ resistance to switch from presently used products. Success rate of new products.

Items in group one required respondents to indicate the degree of importance at five levels, ranging from extremely important to not important at all, for each factor in the group. Items in group two required the respondents to indicate the frequency of usage at four levels ranging from always to never. Items three and four required yes or no responses. Item five asked respondents to indicate the degree of agreement ranging from strongly agree to strongly disagree with each factor as a cause of new product failure in their firms. The last item in the questionnaire asked the respondents to assign percentages in terms of new product success rate in their firms.

Documents

New product development process: An investigation of success and failure in high-technology and non-high-technology firms