New Product Development

XIME

2

Chapter Questions

What challenges does a company face in developing new products and services?

What organizational structures and processes do managers use to manage new-product development?

What are the main stages in developing new products and services?

3

Chapter Questions (cont.)

What is the best way to manage the new-product development process?

What factors affect the rate of diffusion and consumer adoption of newly launched products and services?

4

Categories of New Products

New-to-the-world

Cost reductions

New product lines

Additions

Improvements

Repositionings

5

World’s Most Innovative Companies

Apple

Google

Toyota

General Electric

Microsoft

Procter & Gamble

3M

Walt Disney

IBM

Sony

Wal-Mart

Honda

Starbucks

Target

BMW

Samsung

6

New Products

Companies failing to develop new products are at risk. Existing products are vulnerable to consumer needs/tastes, new technology, shortened PLC.However new products development too is risky.

- TI ($500MM) home computer- Ford ($250MM) on Edsel- Dupont ($100MM) on synthetic leather

70-80% failure rate for FMCG and financial products

7

New Products

8

Finding One Successful New Product

9

New Products

Why new products fail?- high level executive’s pet product- market size overestimated- product not well designed- overpriced- competitors fight back harder

10

New Products

Effective Organizational Arrangements

11

Effective Org Arrangements

Top ManagementEstablish criteria for acceptance

- within 5 years/ market potential of 100cr./ provide 30% return/ achieve market leadership- how to budget given the uncertainty(??)

12

Effective Org Arrangements

3M Model

- Encourages all to become product champions (allows 15% time)

- Create a multi disciplinary venture team- Expects some failure- Hands out Golden step award to each

venture meeting new product standards

13

Effective Org Arrangements

Product Managers- knowledgeable about current markets- likely to be busy with existing products- might lack knowledge to critique new

products

New Product Managers- report to product managers- like product managers, think more about

line extensions/ modifications

14

Effective Org Arrangements

New Product Departments- Large companies- covers R&D, testing & commercialization- access to top management

New Product Venture Teams- dynamic (‘intrapreneurs’)- setup for a specific product, relieved of

normal duties, given a budget and time frame

15

Assessment

Most sophisticated tool is

Stage-Gate System

- divide innovation process into stages- a gate/ check point at the end of each stage- project leader bring a set of deliverables to each

gate- decide go/ kill/ hold/ recycle

16

Stage-Gate System

17

Managing New Product Development Process

18

New Product Development

1. Idea Generation- source could be customers, scientists, employees,

competitors, channel, top mgmt

- customers for most of the industrial products/ also product improvements

- employees (Toyota claims 2MM ideas/yr). Even monetary rewards are provided.

- competitors products and services (reverse engineering?) what customers like and dislike.

- sales representatives. First hand info on market developments and customers.

19

New Product Development

Idea Generation TechniquesAttribute listing:- List attributes of a product and find

ways to improve.

Forced Relationship:- several attributes are combined to create a new product.

Morphological Analysis:- identifying structural dimensions and find novel combinations.

20

New Product Development

Type Medium Transmission

Cart Land Tyre

Chair Water Chain

Bed Snow Rail

Sand Propeller

Need/Problem Identification:- customers - about level of dissatisfaction about any product/ service

Brainstorming:- 8 to 10 people discuss ideas without criticism

21

New Product Development

Lateral MappingGas stations + food

Cafeteria + Internet

Cereal + snacking

Candy + toy

Audio + portable

22

New Product Development

2. Idea Screening

- objective is to drop poor ideas as early as possible

- committee evaluate and group ideas into promising/ marginal /rejects

- Drop Error vs. Go Error

23

New Product Development

2. Concept Dvlpt and Testing

-who will use the product? benefits?

- develop a product positioning map and brand positioning map

- test the concept with appropriate group of target consumers (product or model as close as possible to final product)

24

New Product Development

3. Market Testing

Simulated Test Marketing:-

- 30-40 qualified shoppers

- screen - well known and new product ad

- company note how many buys new and competing brands

- non-buyers are given samples and contacted later

25

New Product Development

3. Market Testing

Controlled Test Marketing:-

- panel of stores

- controls shelf positioning, displays etc.

Allows testing of store promotions, ads. Need not use its sales force.

26

New Product Development

3. Market Testing

Test Marketing:-

- how many cities, which cities, length of test

- more reliable forecast/ test alternative marketing plans (avg. ad+free sample, heavy ad+ door to door sample etc.)

Many companies skip to save time/ launch in 25% of country

27XIME

Behavior Scan  (IRI) 

Household panels  in five markets 

Panelists shop with an ID card presented at check-out (or scan products at

home with hand-held scanner)

Tracks each household’s purchases item by item, over time

Behavior Scan (IRI)

28XIME

Test commercial  aired to  one group of households 

-Evaluate effectiveness  of advertising

-Alternatively, test new products, promotions (coupons,etc.), in-store variables

Behavior Scan (IRI)

2929

Only “Split Cable” Advertising Testing System

Invisibly deliver different TV commercials

Broadcast Ad

IRI Cut-In

Ad

To distinct household groupsin the same city

30XIME

Commercialization

Commercialization

31XIME

Will face largest cost- Size of plant (build smaller than forecast –

Quaker oats)

- Marketing – may have to spend $20-$80MM for ads and promo in first year

Commercialization

32XIME

Elements of Cost

- Market Potential

- local reputation

- cost of filling pipeline

- cost of media

- influence of area on other area

- competitive penetration

Commercialization

33XIME

WhenFirst Entry:- enjoys first mover

advantage/ must debugged thoroughly

Parallel Entry:- Entry coincides with competitors

Late entry:- Delay the launch. Educate the market. Reveal fault. Assess size of market

Commercialization

34XIME

WhereSingle locality/ region/ several regions/

national market/ international market

-few companies got confidence or resources to launch national

- planned roll out (impact of internet??)

- most companies design for domestic market

- competitive presence influence regional choice

Commercialization

35XIME

WhomTarget distn and promotion to best prospect

- Early adopters

- Heavy users

- Opinion leaders

Aim is to generate strong sales as soon as possible

Who really use the product?

-microwave oven (popcorn)

- PC (cd rom)

Commercialization

36XIME

How (market strategy)Develop an action plan

Sequence and coordinate

Commercialization

37XIME

FLAW 1 The company can’t support fast growth.THE LESSON Have a plan to ramp up quickly if the product takes off

MOSQUITO MAGNET:- In 2000 American Biophysics launched Mosquito Magnet, which uses carbon dioxide to lure mosquitoes into a trap.

Expanded manufacturing from its low volume Rhode Island facility to a mass production plant in China, quality dropped.

Commercialization

38XIME

FLAW 2 The product falls short of claims and gets bashed.THE LESSON Delay your launch until the product is really ready.

MICROSOFT WINDOWS VISTA:- In 2007 Microsoft launched Windows Vista. Allotted $500 million for marketing and predicted that 50% of users would run the premium edition within two years.

But the software had so many compatibility and performance problems that even Microsoft’s most loyal customers revolted.

Commercialization

39XIME

FLAW 3 The new item exists in “product limbo.”THE LESSON Test the product to make sure its differences will sway buyers.

COCA-COLA C2 For its biggest launch since Diet Coke, Coca-Cola identified a new market:20- to 40-year-old men who liked the taste of Coke (but not its calories and carbs) and liked the no-calorie aspect of Diet Coke (but not its taste or feminine image). C2, which had half the calories and carbs and all the taste of original Coke, was introduced in 2004 with a $50 million advertising campaign. C2 failed.

A year later it launched Coke Zero, a no-calorie, full-flavor product that can be found on shelves—and in men’s hands—today.

Commercialization

40XIME

FLAW 4 The product defines a new category and requires substantial consumer education—but doesn’t get it.THE LESSON If consumers can’t quickly grasp how to use your product, it’s toast.

FEBREZE SCENTSTORIES In 2004 P&G launched a scent “player” that looked like a CD player and emitted scents (contained on $5.99 discs with names like “Relaxing in the Hammock”) every 30 minutes.

Commercialization

41XIME

FLAW 5 The product is revolutionary, but there’s no market for it.THE LESSON Don’t gloss over the basic questions “Who will buy this and at what price?”

SEGWAY News of a secret new product codenamed Ginger created by the renowned inventor Dean Kamen leaked to the press nearly 12 months before the product’s release. Kamen, it was said, was coming up with nothing less than an alternative to the automobile.

At $5,000, instead of selling 10,000 machines a week,as Kamen had predicted, the Segway sold about 24,000 in its first five years.

Commercialization

42XIME

Case of Sunil – the techie

Idea to rollout- case of a PGDM alumnus

43XIME

Case of Sunil – the techie

Customer feedback

Collate and analyze

automatically

Analysis/ statistical

engine

Reports and insight On

Cloud

Idea

44XIME

Case of Sunil – the techie

Background Worked for 1 year/ started with a mobile store/ switched to market research

Idea Provide a cloud based solution which analyze and provide customer response real time.

Concept development1

Restaurants. Customers will sent an SMS as soon as they pay and replies will be analyzed daily and provide feedback.

Bottlenecks No database. Need loyalty card. Could get some business in providing and tracking loyalty cards.

45XIME

Case of Sunil – the techie

Concept Development2

Airlines. Found traction with an interested senior executive.

Product development&

testing

Signed up with other batchmates and a software consultant. Stress test through telecom company.

Disaster The airline executive was transferred.

46XIME

Case of Sunil – the techie

Concept development3

Relationship with placement firms and found an opportunity. Converted the idea into fast response. Targeted US markets.

Concept testing

Need feedbacks from potential users. Offered $50 redeemable Amazon coupon for response. Many didn’t redeem

Product development

Same team. But got them to talk to potential users

Roll out Rolled out with one user although opportunity existed for few others

47XIME

Thank You