Introduction to Marketing New product Development and Portfolio Analysis
Aim and Learning Objectives
To understand the importance and role of NPD and Portfolio Management techniques
To understand the pros and cons of NPD
To appreciate the NPD process
To understand the various models within Portfolio Management techniques
Different types of new products
Innovative Products - Completely new to the market e.g. CD player, home video
Replacement Products - new to customers but replace existing products
Imitative Products - imitating innovative products Dyson v Hoover
Relaunched Products - product re-launched successfully via a different marketing strategy
New Product Development
Why do we need new products?
To remain competitive
To satisfy the customer
To enter new markets / to grow
However: NPD can be:-
Risky - aprox 90% of new products fail!!
The NPD Process
The first attempt at formulising a theory about product development was done by Booz, Allen and Hamilton in 1968 when they conducted a study and found that it took 58 new product ideas to produce 1 successful product. They repeated the study in 1981 and found that companies had in general found out how to screen products. It now only took 7 new product ideas to produce one successful product .
The Process of New Product Development (NPD)
Concept Development and Testing
Commercialisation and Launch
Monitoring and evaluation
The technique of Portfolio Analysis was pioneered in the USA by the management consultants Boston Consulting Group (BCG). The methods proposed identified the company’s strategic business units (SBU’s) or product groups and represented them on a matrix.
The BCG Matrix Problem Child / Question Mark Star Cash Cow Dog Relative Market Share Market Growth Rate % High Low High Low
The BCG Matrix
Question Marks/Problem Child
Can be problematic. Mkt growth prospects are good, yet low relative market share. Do Mgmt invest?
Have a promising future. Significant investment needed. High Mkt growth & High relative market share
have achieved a high mkt share in a mature mkt. Generate cash which can be invested elsewhere.
have achieved low market share and low growth in market.
The Purpose of Portfolio Analysis
To balance the organisation’s portfolio of products.
To be able to balance the investment of resources efficiently and effectively
To remain competitive and survive
Criticisms of BCG Matrix
Difficult to calculate the stage they are at
Axis too narrow
Ignores external influences
The GE Matrix
General Electric (USA) and McKinsey & Co (Mgmt Consultants) developed a business screen matrix that attempted to overcome some of the criticisms of the BCG Matrix. It is known as the GE Matrix.
The axis are Market Attractiveness (size, growth rate, competitive diversity, social impact, legal impact etc) and Competitive position (Mkt share, Product quality, brand reputation, productive capacity etc)
The GE Matrix Competitive Position Strong Medium Weak High Medium Low Mkt Attractiveness SBU1 SBU2 SBU3 SBU4
Three Strategic Alternatives Strong Medium Weak Competitive Position High Medium Low Mkt Attractiveness Invest/Grow Selectivity Earning Harvest/ Divest
Other Portfolio Models
Other models developed for portfolio analysis exist. Have a look at:
Porter’s industry/market evolution model
AD Little maturity/competitive position matrix
Shell directional policy matrix
NPD is crucial to the success of an organisation
There are different types of new products
The NPD Process helps organisations develop successful organisations
Portfolio Analysis helps organisations balance their range of products