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New+product+development+ch+1 11


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stages of product development and other relevent details

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New+product+development+ch+1 11

  1. 1. New Product Management PGDBM/IT/HR/IB Rajat Gera
  2. 2. What Is a New Product?• New-to-the-World Products – Polaroid camera, Sony Walkman, word- processing software• New Category Entries – Hewlett-Packard PCs, Hallmark gift items, Tata Passenger cars (Indica)• Additions to Product Lines – line extensions or flankers• Product Improvements – Wagon-R, Windows 98, plain-paper fax• Repositionings• Cost Reductions
  3. 3. Product Newness
  4. 4. What Is a Successful New Product? Percent of Products that Fail 90 90 80 70 60 50 40 40 30 20 10 10 0 Sometimes Quoted Research Reports Sometimes Claimed in Press Although you may hear much higher percentages, careful studies supported by research evidence suggest that about 40% of new products fail -- somewhat higher for consumer products, somewhat lower for business-to-business products.
  5. 5. The Conflicting Masters of New Products Management• Three inputs to the new Quality products process: the right quality product, at the right time, and at the right cost. Value• These conflict with each other but may have Time Cost synergies too.• Issue: how to optimize these relationships in a new product situation.
  6. 6. New Product Development Imperatives-1Breakthrough Platform Maintenance
  7. 7. A Bubble Diagram at a Hewlett-Packard Division
  8. 8. The Basic New Product Process Phase 1: Opportunity Identification/Selection Phase 2: Concept Generation Phase 3: Concept/Project Evaluation Phase 4: Development Phase 5: Launch
  9. 9. The Impact of Simultaneous Operations on the Product Development Process
  10. 10. Phase 1: Opportunity Identification/SelectionActive and passive generation of new product opportunities as• spinouts of the ongoing business operation.• New product suggestions,• changes in marketing plan,• resource changes,• and new needs/wants in the marketplace. Research, evaluate, validate, and rank them (as opportunities, not specific product concepts). Give major ones a preliminary strategic statement to guide further work on it.
  11. 11. Activities that Feed Strategic Planning for New Products• Ongoing marketing planning (e.g., need to meet new aggressive competitor)• Ongoing corporate planning (e.g., senior management shifts technical resources from basic research to applied product development)• Special opportunity analysis (e.g., a firm has been overlooking a skill in manufacturing process engineering)
  12. 12. Sources of Identified Opportunities• An underutilized resource (a manufacturing process, an operation, a strong franchise)• A new resource (discovery of a new material with many potential uses)• An external mandate (stagnant market combined with competitive threat)• An internal mandate (new products used to close long-term sales gap, senior management desires)
  13. 13. Phase 2: Concept GenerationSelect a high potential/urgency opportunity, and begin customer involvement. Collect available new product concepts that fit the opportunity and generate new ones as well.
  14. 14. Phase 3: Concept/Project EvaluationEvaluate new product concepts (as they begin to come in) on technical, marketing, and financial criteria. Rank them and select the best two or three. Request project proposal authorization when have product definition, team, budget, skeleton of development plan, and final PIC.
  15. 15. Stages of Concept/Project Evaluation• Screening (pretechnical evaluation)• Concept testing• Full screen• Project evaluation (begin preparing product protocol) The first stages of the new products process are sometimes called the fuzzy front end because the product concept is still fuzzy. By the end of the project, most of the fuzz should be removed.
  16. 16. Phase 4: Development(Technical Tasks) Specify the full development process, and its deliverables. Undertake to design prototypes, test and validate prototypes against protocol, design and validate production process for the best prototype, slowly scale up production as necessary for product and market testing.(Marketing Tasks) Prepare strategy, tactics, and launch details for marketing plan, prepare proposed business plan and get approval for it, stipulate product augmentation (service, packaging, branding, etc.) and prepare for it.
  17. 17. Phase 5: LaunchCommercialize the plans and prototypes from development phase, begin distribution and sale of the new product (maybe on a limited basis) and manage the launch program to achieve the goals and objectives set in the PIC (as modified in the final business plan).
  18. 18. The Life Cycle of a Concept
  19. 19. Rate of Use of NPD Steps among PDMA MembersConcept searching 90%Concept screening 76%Concept testing 80%Business analysis 89%Product development (technical) 99%Use testing/market testing 87%
  20. 20. Opportunity Identification and Selection Strategic Planning for New Products
  21. 21. Opportunity Identification and Selection
  22. 22. Opportunity Identification: Finding Greenfield Markets• Find another location or venue. Once McDonald’s had taken up the best locations for traditional fast-food restaurants, it continued its U.S. expansion by placing stores inside Wal-Marts, in sports arenas, and elsewhere. Starbucks Coffee complemented coffee-shop sales by selling its coffee beans and ice creams in supermarkets.• Leverage your firm’s strengths in a new activity center. Nike has recently moved into golf and hockey, and Honeywell is looking into casino opportunities.• Identify a fast-growing need, and adapt your products to that need. Hewlett-Packard followed the need for “total information solutions” that led it to develop computing and communications products for the World Cup and other sporting events.• Find a “new to you” industry: P&G in pharmaceuticals, GE in broadcasting (NBC), Disney in cruises, Rubbermaid in gardening products – either through alliance, acquisition, or internal development.Source: Allan J. Magrath, “Envisioning Greenfield Markets,” Across the Board, May 1998, pp. 26-30.
  23. 23. Why Does a Firm Need a New Products Strategy?• To chart the group’s/team’s direction – What technologies?/what markets?• To set the group’s goals and objectives – Why does it exist?• To tell the group how it will play the game – What are the rules?/constraints? – Any other key information to consider?
  24. 24. Corporate StrengthsNew products in this firm will:• Use our fine furniture designers (Herman Miller)• Gain value by being bottled in our bottling system (Coca- Cola)• Utilize innovative design (Braun)• Be for babies and only babies (Gerber)• Be for all sports, not just shoes (Nike)• Be for all people in computers (IBM)• Proliferate our product lines (Rubbermaid)• Be almost impossible to create (Polaroid)• Use only internal R&D (Bausch & Lomb)• Not threaten P&G (Colgate)
  25. 25. Product Platform PlanningMany firms find that it is not efficient to develop a single product.Platform: product families that share similarities in design, development, or production process.• Car industry: $3 billion price tag on a new car platform is spread out over several models.• Sony: four platforms for Walkman launched 160 product variations.• Boeing: passenger, cargo, short- and long-haul planes made from same platform.• Black & Decker: uses a single electric motor for dozens of consumer power tools.Other Platforms-Brand, Category, SBU, Trade Channel
  26. 26. What is the Product Innovation Charter (PIC)?• It is the new product team’s strategy.• It is for Products (not processes).• It is for Innovation (think of the definition of new product).• It is a Charter (a document specifying the conditions under which a firm will operate).
  27. 27. The Contents of a Product Innovation Charter Background Key ideas from the situation analysis; special forces such as managerial dicta; reasons for preparing a new PIC at this time. Focus At least one clear technology dimension and one clear market dimension. They match and have good potential. Goals-Objectives What the project will accomplish, either short-term as objectives or longer- term as goals. Evaluation measurements. Guidelines Any "rules of the road," requirements imposed by the situation or by upper management. Innovativeness, order of market entry, time/quality/cost, miscellaneous.
  28. 28. A Sample PIC for a Chemical ProductFocus: The XYZ Company is committed to a program of innovation in specialty chemicals, as used in the automobile and other metal finishing businesses, to the extent that we will become the market share leader in that market and will achieve at least 35 percent ROI from that program on a three-year payout basis. We seek recognition as the most technically competent company in metal finishing.Goals-Objectives: These goals will be achieved by building on our current R&D skills and by embellishing them as necessary so as to produce new items that are demonstrably superior technically, in-house, and have only emergency reliance on outside sources. The company is willing to invest funds, as necessary, to achieve these technical breakthroughs.Guidelines: Care will be taken to establish patent-protected positions in these new developments and to increase the safety of customer and company personnel.
  29. 29. PIC Special Guidelines• Degree of Innovativeness – First-to-market – Adaptive product – Imitation (emulation)• Timing – First – Quick second – Slow – Late• Miscellaneous – Avoidance of competition with certain firms – Recognition of weaknesses – Patentability – Product Integrity
  30. 30. Dimensions for Assessing Strategic Fit• Strategic goals (defending current base of products versus extending the base).• Project types (fundamental research, process improvements, or maintenance projects).• Short-term versus long-term projects.• High-risk versus low-risk projects.• Market familiarity (existing markets, extensions of current ones, or totally new ones).• Technology familiarity (existing platforms, extensions of current ones, or totally new ones).• Ease of development.• Geographical markets (North America, Europe, Asia).
  31. 31. Strategic Buckets Model forOne SBU in Exxon Chemical Low Market Newness High Market NewnessLow Product Newness Improvements to Existing Products Additions to Existing Product Lines (35%) (20%)Medium Product Newness Cost Reductions New Product Lines (20%) (15%)High Product Newness Repositioning New-to-the-World Products (6%) (4%)Source: Adapted from Robert G. Cooper, Scott J. Edgett, and Elko J. Kleinschmidt. Portfolio Managementfor New Products, McMaster University, Hamilton, Ontario, Canada, 1997, p. 63.
  32. 32. Concept Generation
  33. 33. Required Inputs to the Creation Process• Form (the physical thing created, or, for a service, the set of steps by which the service will be created)• Technology (the source by which the form is to be attained)• Benefit/Need (benefit to the customer for which the customer sees a need or desire)Technology permits us to develop a form that provides the benefit.
  34. 34. Some Patterns in Concept Generation Customer need firm develops technology produces form Firm develops technology finds match to need in a customer segment produces form (Newton message Pad) Firm envisions form develops technology to product form tests with customer to see what benefits are delivered Note: the innovation process can start with any of the three inputs.
  35. 35. What is a Product Concept?• A product concept is a verbal or prototype statement of what is going to be changed and how the customer stands to gain or lose.• Rule: You need at least two of the three inputs to have a feasible new product concept, and all three to have a new product.
  36. 36. New Product Concepts and the New Product C Need Form C C “C”= Technology NewConcepts Product
  37. 37. The Soft Bubble Gum Example• Benefit: “Consumers want a bubble gum that doesn’t take five minutes to soften up.”• Form: “We should make a softer, more flexible bubble gum.”• Technology: “There’s a new chemical mixing process that prevents drying out of food and keeps it moist.”Why would each of these taken individually not be a product concept?
  38. 38. What a Concept Is and Is Not“Learning needs of computer users can be met by using online systems to let them see training videos on the leading software packages.” (good concept; need and technology clear)“A new way to solve the in-home training/educational needs of PC users.” (need only; actually more like a wish)“Let’s develop a new line of instructional videos.” (technology only, lacking market need and form)
  39. 39. Methods for Generating Product ConceptsTwo Broad Categories of Methods:• Gathering Ready-Made Product Concepts• Using a Managed Process Run by the New Products Team
  40. 40. Best Sources of Ready-Made New Product Concepts• New Products Employees – Technical: R&D, engineering, design – Marketing and manufacturing• End Users – Lead Users• Resellers, Suppliers, Vendors• Competitors• The Invention Industry (investors, etc.)• Miscellaneous (continued)
  41. 41. Problem-Based Concept Generation
  42. 42. Problem Analysis: General Procedure 1. Determine product or activity category for study. 2. Identify heavy users. 3. Gather set of problems associated with product category. – Avoid “omniscient proximity” -- rate importance of benefits and levels of satisfaction. 4. Sort and rank the problems according to severity or importance.
  43. 43. The Bothersomeness TechniqueList of pet owners problems: A B AxB Problem Occurs Problem is Frequently BothersomeNeed constant feeding 98% 21% .21Get fleas 78 53 .41Shed hairs 70 46 .32Make noise 66 25 .17Have unwanted babies 44 48 .21
  44. 44. Problem Analysis: Sources and Methodologies• Experts• Published Sources• Contacts with Your Business Customers or Consumers – Interviewing – Focus groups – Observation of product in use – Role playing/Product Function analysis
  45. 45. Scenario Analysis• “Extending” vs. “leaping”• Using seed trends for an “extend“ scenario• Techniques: – Follow “trend people”/”trend areas” – “Hot products” – Prediction of technological changeover – Cross-impact analysis
  46. 46. Relevance Tree Form ofDynamic Leap Scenario
  47. 47. Wild Card Events and Their Consequences• No-Carbon Policy: Global warming may cause governments to put high taxes on fossil fuels, shifting demand to alternative sources of energy. This changes the allocation of R&D investment toward alternative energy, possibly causes new “energy-rich” nations to emerge, and ultimately may lead to a cleaner environment for everyone.• Altruism Outbreak: This is the “random acts of kindness” movement – solve social problems rather than leaving it up to the government. Schools and other institutions will revive due to community actions, and perhaps inner cities would be revitalized.• Cold Fusion: If a developing country perfects free energy, it becomes prosperous overnight. It gains further advantages by becoming an energy exporter.
  48. 48. Solving the Problem• Group Creativity Methods/Brainstorming• Principles of Brainstorming: – Deferral of Judgment – Quantity Breeds Quality• Rules for a Brainstorming Session: – No criticism allowed. – Freewheeling -- the wilder the better. – Nothing should slow the session down. – Combination and improvement of ideas.
  49. 49. Analytical Attribute Analysis
  50. 50. What are Analytical Attribute Techniques?• Basic idea: products are made up of attributes -- a future product change must involve one or more of these attributes.• Three types of attributes: features, functions, benefits.• Theoretical sequence: feature permits a function which provides a benefit.
  51. 51. Gap Analysis• Determinant gap map (produced from managerial input/judgment on products)• AR perceptual gap map (based on attribute ratings by customers)• OS perceptual map (based on overall similarities ratings by customers)
  52. 52. A Determinant Gap Map
  53. 53. Obtaining Customer PerceptionsRate each brand you are familiar with on each of the following: Disagree Agree1. Attractive design 1..2..3..4..52. Stylish 1..2..3..4..53. Comfortable to wear 1..2..3..4..54. Fashionable 1..2..3..4..55. I feel good when I wear it 1..2..3..4..56. Is ideal for swimming 1..2..3..4..57. Looks like a designer label 1..2..3..4..58. Easy to swim in 1..2..3..4..59. In style 1..2..3..4..510. Great appearance 1..2..3..4..511. Comfortable to swim in 1..2..3..4..512. This is a desirable label 1..2..3..4..513. Gives me the look I like 1..2..3..4..514. I like the colors it comes in 1..2..3..4..515. Is functional for swimming 1..2..3..4..5
  54. 54. Snake Plot of Perceptions (Three Brands)Ratings 5 4.5 4 Aqualine 3.5 3 Islands 2.5 Sunflare 2 1.5 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Attributes
  55. 55. The AR Perceptual Map 2 Comfort Aqualine Gap 1 Islands Molokai Fashion-2 2 Splash Sunflare Gap 2 -2
  56. 56. Failures of Gap Analysis• Input comes from questions on how brands differ (nuances ignored)• Brands considered as sets of attributes; totalities, interrelationships overlooked; also creations requiring a conceptual leap• Analysis and mapping may be history by the time data are gathered and analyzed• Acceptance of findings by persons turned off by mathematical calculations?
  57. 57. Trade-Off (Conjoint) Analysis• Put the determinant attributes together in combinations or sets.• Respondents rank these sets in order of preference.• Conjoint analysis finds the optimal levels of each attribute.
  58. 58. Conjoint Analysis Input: Salsa Example Thickness Spiciness Color Actual Ranking as Ranking* Estimated by Model Regular Mild Red 4 4 Regular Mild Green 3 3 Regular Medium-Hot Red 10 10 Regular Medium-Hot Green 6 8 Regular Extra-Hot Red 15 16 Regular Extra-Hot Green 16 15 Thick Mild Red 2 2 Thick Mild Green 1 1 Thick Medium-Hot Red 8 6 Thick Medium-Hot Green 5 5 Thick Extra-Hot Red 13 13 Thick Extra-Hot Green 11 11 Extra-Thick Mild Red 7 7 Extra-Thick Mild Green 9 9 Extra-Thick Medium-Hot Red 14 14 Extra-Thick Medium-Hot Green 12 12 Extra-Thick Extra-Hot Red 17 18 Extra-Thick Extra-Hot Green 18 17* 1 = most preferred, 18 = least preferred.
  59. 59. Conjoint Analysis: Graphical Output Thickness Spiciness Color 2UTILITY 1 0 -1 -2 Regular Thick Ex-Thick Mild Medium-Hot Ex-Hot Red Green 0.161 0.913 -1.074 1.667 0.105 -1.774 -0.161 0.161
  60. 60. Conjoint Analysis:Relative Importance of Attributes 0 20 40 60 80 100 %Spiciness 59.8%Thickness 34.6%Color 5.6%
  61. 61. Some Qualitative Attribute Analysis Techniques• Dimensional Analysis• Checklists• Relationships Analysis – There are many others.
  62. 62. A Dimensional Attribute List• Weight • Explosiveness• Rust resistance • Flammability• Length • Aroma• Color • Translucence• Water resistance • Buoyancy• Materials • Hangability• Style • Rechargeability• Durability • Flexibility• Shock resistance • Malleability• Heat tolerance • Compressibility
  63. 63. An Idea Stimulator Checklist for Industrial Products• Can we change the physical/chemical properties of the material?• Are each of the functions really necessary?• Can we construct a new model of this?• Can we change the form of power to make it work better?• Can standard components be substituted?• What if the order of the process were changed?• How might it be made more compact?• What if it were heat-treated/hardened/cured/plated?• Who else could use this operation or its output?• Has every step been computerized as much as
  64. 64. Relationships Analysis• Force combinations of dimensions (features, functions, and benefits) together.• Techniques: – Two-dimensional matrix – Multidimensional (morphological) matrix• Two-dimensional example: person/animal insured and event insured against.• Household cleaning products example used six dimensions: – Instrument used, ingredients used, objects cleaned, type of container, substances removed, texture or form of cleaner
  65. 65. Other Methods: Lateral Search Techniques• Free association• Creative stimuli words• Studying “big winners”• Use of the ridiculous• Forced relationships• Analogy
  66. 66. Concept/Project Evaluation
  67. 67. The Evaluation System
  68. 68. Cumulative Expenditures Curve % of expenditures Many high-tech products Many consumer products Time Launch
  69. 69. Risk/Payoff Matrix at Each Evaluation Decision  A B Stop the Project Now Continue to Next Evaluation A. Product would fail if marketed AA BA B. Product would succeed if marketed AB BB• Cells AA and BB are “correct” decisions.• Cells BA and AB are errors, but they have different cost and probability dimensions.
  70. 70. Planning the Evaluation System: Four Concepts• Rolling Evaluation (tentative nature of new products process)-Risk management via acceptance or mitigation)• Potholes• People• Surrogates
  71. 71. Rolling Evaluation (or, "Everything is Tentative")• Project is assessed continuously (rather than a single Go/No Go decision)• Financial analysis also needs to be built up continuously• Not enough data early on for complex financial analyses• Run risk of killing off too many good ideas early• Marketing begins early in the process• Key: new product participants avoid "good/bad" mindsets, avoid premature closure
  72. 72. PotholesKnow what the really damaging problems are for your firm and focus on them when evaluating concepts.Example: Campbell Soup focuses on:• 1. Manufacturing Cost• 2. Taste
  73. 73. People• Proposal may be hard to stop once there is buy-in on the concept.• Need tough demanding hurdles, especially late in new products process.• Personal risk associated with new product development.• Need system that protects developers and offers reassurance (if warranted).
  74. 74. Surrogates• Surrogate questions give clues to the real answer. Real Question Surrogate Question Will they prefer it? Did they keep the prototype product we gave them after the concept test? Will cost be competitive? Does it match our manufacturing skills? Will competition leap in? What did they do last time? Will it sell? Did it do well in field testing?
  75. 75. An A-T-A-R Model of Innovation DiffusionProfits = Units Sold x Profit Per UnitUnits Sold = Number of buying units x % aware of product x % who would try product if they can get it x % to whom product is available x % of triers who become repeat purchasers x Number of units repeaters buy in a yearProfit Per Unit = Revenue per unit - cost per unit
  76. 76. The A-T-A-R Model: Definitions• Buying Unit: Purchase point (person or department/buying center).• Aware: Has heard about the new product with some characteristic that differentiates it.• Available: If the buyer wants to try the product, the effort to find it will be successful (expressed as a percentage).• Trial: Usually means a purchase or consumption of the product.• Repeat: The product is bought at least once more, or (for durables) recommended to others.
  77. 77. A-T-A-R Model Application10 million Number of owners of Walkman-like CD playersx 40% Percent awareness after one yearx 20% Percent of "aware" owners who will try productx 70% Percent availability at electronics retailersx 20% Percent of triers who will buy a second unitx $50 Price per unit minus trade margins and discounts ($100) minus unit cost at the intended volume($50)= $5,600,000 Profits
  78. 78. Getting the Estimates for A-T-A-R ModelItem Market Concept Test Product Use Component Market Test Research Test TestingMarket Units XX X X XAwareness X X X XTrial XX X XAvailability X XXRepeat XX XConsumption X X X XXPrice/Unit X X X X XXCost/Unit X XXxx: Best source for thatitem.x: Some knowledge gained.
  79. 79. Concept Testing
  80. 80. Many Ideas Are Eliminated Before Concept Testing• PIC eliminates most new product ideas even before they are developed into concepts.• Ideas of the following types are excluded: – Ideas requiring technologies the firm does not have. – Ideas to be sold to customers about whom the firm has no close knowledge. – Ideas that offer too much (or too little) innovativeness. – Ideas wrong on other dimensions: not low cost, too close to certain competitors, etc.
  81. 81. Suggested Questions for the Initial Reaction• Market Worth: what is the attractiveness of the new product to the targeted customer population?• Firm Worth: Is the new product project viewed positively by management? Does this new product project enhance the firm’s competencies?• Competitive Insulation: Can the product’s advantage be maintained against competitive retaliation?
  82. 82. What Is a Product Concept Statement?• A statement about anticipated product features (form or technology) that will yield selected benefits relative to other products or problem solutions already available.• Example: “A new electric razor whose screen is so thin it can cut closer than any other electric razor on the market.”
  83. 83. Purposes of Concept Testing• To identify very poor concepts so that they can be eliminated.• To estimate (at least crudely) the sales or trial rate the product would enjoy (buying intentions, early projection of market share).• To help develop the idea (e.g. make tradeoffs among attributes).
  84. 84. Procedure for a Concept Test • Prepare concept statement • Clarify specific purposes • Decide format(s) • Select commercialization • Determine price(s) • Select respondent type(s) • Select response situation • Define the interview • Conduct trial interviews • Interview, tabulate, analyze
  85. 85. Mail Concept Test -- Verbal DescriptionHere is a tasty, sparkling beverage that quenches thirst, refreshes, and makes the mouth tingle with a delightful flavor blend of orange, mint, and lime.It helps adults (and kids too) control weight by reducing the craving for sweets and between-meal snacks. And, best of all, it contains absolutely no calories.Comes in 12-ounce cans or bottles and costs 60 cents each.1. How different, if at all, do you think this diet soft drink would be from other available products now on the market that might be compared with it? Very different ( ) ( ) ( ) ( ) Not at all different2. Assuming you tried the product described above and liked it, about how often do you think you would buy it?More than once a week ( ) ( ) ( ) ( ) ( ) ( ) Would never buy it
  86. 86. Purposes of the Full Screen • To decide whether technical resources should be devoted to the project. – Feasibility of technical accomplishment -- can we do it? – Feasibility of commercial accomplishment -- do we want to do it? • To help manage the process. – Recycle and rework concepts – Rank order good concepts – Track appraisals of failed concepts • To encourage cross-functional communication.
  87. 87. Screening Alternatives• Judgment/Managerial Opinion• Concept Test followed by Sales Forecast (if only issue is whether consumers will like it)• Scoring Models
  88. 88. A Simple Scoring Model ValuesFactors: 4 Points 3 Points 2 Points 1 PointDegree of Fun Much Some Little NoneNumber of People Over 5 4 to 5 2 to 3 Under 2Affordability Easily Probably Maybe NoCapability Very Good Some LittleStudents Scores: Skiing Boating HikingFun 4 3 4People 4 4 2Affordability 2 4 4Capability 1 4 3 Totals 11 15 13 Answer: Go boating.
  89. 89. Source of Scoring Factor Models
  90. 90. A Scoring Model for Full Screen Note: this model only shows a few sample screening factors. Factor Score (1-5) Weight Weighted Score Technical Accomplishment: Technical task difficulty Research skills required Rate of technological change Design superiority assurance Manufacturing equipment... Commercial Accomplishment: Market volatility Probable market share Sales force requirements Competition to be faced Degree of unmet need...
  91. 91. The Scorers• Scoring Team: Major Functions (marketing, technical, operations, finance) New Products Managers Staff Specialists (IT, distribution, procurement, PR, HR)• Problems with Scorers: May be always optimistic/pessimistic May be "moody" (alternately optimistic and pessimistic) May always score neutral May be less reliable or accurate May be easily swayed by the group May be erratic
  92. 92. Alternatives to the Full Screen• Profile Sheet• Empirical Model• Expert Systems• Analytic Hierarchy Process
  93. 93. A Profile Sheet
  94. 94. Empirical Screening Model(This example is based on Project NewProd database.)Eight Significant Factors• Product superiority• Overall firm/resource compatibility• Market need, growth, and size• Economic advantage of product to end user• Technological resource compatibility• Product scope (mass vs. narrow specialty)• Market competitiveness (-)• Newness to the firm (-)
  95. 95. Why Financial Analysis for New Products is Difficult• Target users don’t • Biased internal know. attitudes.• If they know they • Poor accounting. might not tell us. • Rushing products to• Poor execution of market. market research. • Basing forecasts on• Market dynamics. history.• Uncertainties about • Technology marketing support. revolutions.
  96. 96. Handling Problems in Financial Analysis• Improve your existing new products process.• Use the life cycle concept of financial analysis.• Reduce dependence on poor forecasts. – Forecast what you know. – Approve situations, not numbers (recall Campbell Soup example) – Commit to low-cost development and marketing. – Be prepared to handle the risks. – Don’t use one standard format for financial analysis.
  97. 97. The Life Cycle of Assessment
  98. 98. Calculating New Product’s Required Rate of Return % ReturnReqd. Rateof ReturnCost ofCapital Risk Avg. Risk Risk on of Firm Proposed Product
  99. 99. Hurdle Rates on Returns and Other Measures Hurdle Rate Product Strategic Role or Purpose Sales Return on Market Share Investment Increase A Combat competitive entry $3,000,000 10% 0 Points B Establish foothold in new $2,000,000 17% 15 Points market C Capitalize on existing $1,000,000 12% 1 Point marketsExplanation: the hurdles should reflect a product’s purpose,or assignment. Example: we might accept a very lowshare increase for an item that simply capitalized on ourexisting market position.