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  • For competitors being idea generators: Always find the soft underbelly, the mirror weakness—sprinters vs. marathoners. IBM was a B2B marketer; Compaq operated like a retail marketer;Dell identified the soft underbelly—cost of change is high—60 days vs. less than a week. Starbucks turned commodity market of coffee by taking advantage of the emotional aspects. Body shop focuses on utilitarian aspects as opposed to emotional aspects of cosmetic marketing.
  • Marketing objective Gain Awareness Stress differentiation Maintain brand loyalty Harvesting, deletion Competition None Growing Many Reduced Product One More versions Full product line Best sellers Price Skimming or penetration Gain share, deal Defend share, profit Stay profitable Promotion Inform, educate Stress competitive differences Reminder oriented Minimal promotion Place (distribution) Limited More outlets Maximum outlets Fewer outlets Continuous : no new behaviors must be learned (“new and improved”) Dynamically continuous : some learning (Electric toothbrush, cd player) Discontinuous innovation : extensive learning (computers) NOTE: Link to product diffusion. Consumer’s attitudes and needs change Competition changes Various target markets at diff stages Sales changes over the 4 stages

Chapter 1 Chapter 1 Presentation Transcript

  • MANAGING THE NEW PRODUCT DEVELOPMENT PROCESS Rajshree Agarwal
  • Agenda
    • What are the objectives of the new product development process?
    • What are the different stages in new product development?
    • What are some ways to increase the efficiency of the NPD process?
    • How might NPD differ over the different stages of the industry life-cycle?
  • Some dismal facts…
    • Despite the intense attention paid to innovation, failure rates are still very high.
    • More than 95% of new product development projects fail to earn an economic return.
  • The objectives of NPD
    • Maximize fit with customer requirements
      • Value proposition should be clear
        • Better features or lower costs
    • Minimize development cycle time
      • First mover advantages
      • Reduced costs and risk of preemption
    • Controlling development costs
      • To make profits, costs of development cannot exceed potential revenues!
      • Higher margins
  • The NPD Process 3. Business Analysis 1. Idea Generation 2. Idea Screening 4. Development 5. Test marketing 6. Commercialization
  • Where do ideas come from?
    • Employees
    • Customers (users)
    • Suppliers
    • Competitors/Complementors
    • Ideas often evolve due to interaction among the above groups
  • NPD Process 3. Business Analysis 1. Idea Generation 2. Idea Screening 4. Development 5. Test marketing 6. Commercialization Employees, customers, suppliers, competitors
  • NPD Process 3. Business Analysis 1. Idea Generation 2. Idea Screening 4. Development 5. Test marketing 6. Commercialization Many -- employees, customers, suppliers, distributors, competitors Reduce # quickly
  • Back to decision making under uncertainty
    • At early stages of idea development, significant uncertainty about potential success
    • Use of both qualitative and quantitative methods are important
      • Qualitative methods may help yield insights, while quantitative methods validate
    • Strategic, Financial, and Customer focus
      • All three need to be examined
  • NPD Process 3. Business Analysis 1. Idea Generation 2. Idea Screening 4. Development 5. Test marketing 6. Commercialization Many -- employees, customers, suppliers, distributors, competitors Reduce # quickly S/F/C criteria; decision making under uncertainty
  • Sequential versus Party Parallel Development Processes
    • Before mid-1990s, most US companies used sequential NPD process; now many use partly parallel process.
    • Partly parallel process shortens overall development time, and enables closer coordination between stages.
    • In some situations, however, a parallel development process can increase risks.
  • Real options—use of stage gate process
    • Utilize tough go/kill decision points in the development process help filter out bad projects.
  • NPD Process 3. Business Analysis 1. Idea Generation 2. Idea Screening 4. Development 5. Test marketing 6. Commercialization Many -- employees, customers, suppliers, distributors, competitors Reduce # quickly S/F/C criteria; decision making under uncertainty Processes for reducing costs
  • Test Marketing Standard Test Market +Costs +Brand Equity -Jamming -Duplication Introduction in a small market supported by a full-fledged marketing campaign
  • NPD Process 3. Business Analysis 1. Idea Generation 2. Idea Screening 4. Development 5. Test marketing 6. Commercialization Many -- employees, customers, suppliers, distributors, competitors Reduce # quickly S/F/C criteria; decision making under uncertainty Processes for reducing costs Experiment with small numbers Launch new product!!
  • Product Life Cycles Time Dollars Introduction Growth Maturity Decline Industry Sales Industry Profits 0
  • Introduction Stage of the PLC Sales Costs Profits Innovtn Objectives Product vs process Price Low sales High cost per customer Negative or low Build product awareness & stimulate trial – primary demand Offer a basic product; mainly product Usually is high Distribution High distribution expenses Promotion Build product awareness among early adopters thro’ mass-media Summary of Characteristics, Objectives, & Strategies
  • Growth Stage of the PLC Sales Costs Profits Innovtn Objectives Product vs. process Price Rapidly rising sales Decreasing cost per customer relative to intro stage Rising profits - Highest Maximize sales Both product and process Lower price (relative to intro stage) Distribution Increase number of distribution outlets Promotion Mass market advertising & word of mouth from adopters in the intro stage. Summary of Characteristics, Objectives, & Strategies
  • Maturity Stage of the PLC Sales Costs Profits Innovtn Objectives Product vs. process Price Peak sales (growth slows, levels off) Low cost per customer Decreasing profits Defending market share Diversify brand (many line extensions); More usage; More uses Lower price to match or best competitors Distribution Build more intensive distribution Promotion Stress brand differences and benefits; Sales promotions Summary of Characteristics, Objectives, & Strategies
  • Some misconceptions about product life cycles
    • At the level of the category and not the brand – Cell phones not CINGULAR wireless.
    • Different products go through the stages differently.
    • Timing of stages may vary substantially.
  • Tools for Measuring New Product Development Performance
    • Measuring performance of NPD process can help company improve its innovation strategy and process.
      • Measures of NPD performance can help management:
        • identify which projects met their goals and why,
        • benchmark the organization’s performance compared to that of competitors, or to the organization’s own prior performance,
        • improve resource allocation and employee compensation, and
        • refine future innovation strategies
      • Important to use multiple measures to provide fair representation
  • Some yardsticks of overall innovation performance
      • What is the firm’s return on innovation?
        • ratio of the firm’s total profits from new products to total costs (including R&D costs, the costs of retooling and staffing production facilities, and initial commercialization and marketing costs.) 
      • What is the percentage of projects that achieve their sales goals?
      • What percentage of revenues are generated by products developed within the last five years?
      • What is the firm’s ratio of successful projects to its total project portfolio?
  • Key Takeaways
    • New product development is risky, but can provide high returns
      • Not engaging in NPD will surely result in failure
    • Managing the various stages of the NPD process is critical
    • NPD projects should be cognizant of the industry life cycle
    • NPD initiatives should be evaluated using multiple yardsticks