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New Product Development

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New Product Development

  1. 1. Idea Generation in New Product Development
  2. 2. New Product Development DEFINITIONS PRODUCTS – Anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. It includes physical objects, services, places, organizations, ideas and people.
  3. 3. Why is Product Development Important? ♦ To satisfy consumers (Demand) ♦ To create new jobs (Economy) ♦ To maintain margins (Market share) ♦ To expand the business (Growth)
  4. 4. Original Products Original Products Product Improvements Product Improvements Product Modifications Product Modifications New Brands New Brands Acquired Companies Acquired Companies Acquired Patents Acquired Patents Acquired Licenses Acquired Licenses New-Product Development Strategies Strategies for Obtaining New Product Ideas
  5. 5. New Products Management • Three inputs to the new products process: the right quality product, at the right time, and at the right cost. • Issue: how to optimize these relationships in a new product situation. Quality Time Cost Value
  6. 6. Improving New-Product Success • New product success depends on having a: – Unique superior product (one with higher quality, features, and value in use), & – Well-defined product concept (a defined target market, product requirements, and benefits). • To create successful new products, the company must: – understand its customers, markets and competitors, & – develop products that deliver superior value to customers.
  7. 7. Idea Generation Idea Screening Concept Development and Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization Major Stages in New-Product Development Source: Principles of Marketing 12th edition, Author: Kolter and Armstrong (Prentice Hall)
  8. 8. Customers Competitors Distributors Suppliers Idea Generation is the Systematic Search for New Product Ideas Obtained Internally From Employees and Also From: New Product Development Process Step 1. Idea Generation
  9. 9. New Product Development Process Step 2. Idea Screening • Process to spot good ideas and drop poor ones as soon as possible. • Many companies have systems for rating and screening ideas which estimate: – Market Size – Product Price – Development Time & Costs – Manufacturing Costs – Rate of Return • Then, the idea is evaluated against a set of general company criteria.
  10. 10. 1. Develop New Product Ideas into Alternative Detailed Product Concepts 2. Concept Testing - Test the New Product Concepts with Groups of Target Customers 3. Choose the One That Has the Strongest Appeal to Target Customers New Product Development Process Step 3. Concept Development Product Image is the Way Consumers Perceive an Actual or Potential Product
  11. 11. Part Three Describes Long-Term: Sales & Profit Goals Part Two Describes First-Year: Product’s Planned Price Distribution Marketing Budget Part One Describes Overall: Target Market Planned Product Positioning Sales & Profit Goals Market Share New Product Development Process Step 4. Marketing Strategy
  12. 12. If No, Eliminate Product Concept Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives Business Analysis Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives Step 5. Business Analysis Step 6. Product Development If Yes, Move to Product Development
  13. 13. AdvertisingAdvertising PackagingPackaging ProductProduct Budget LevelsBudget Levels PositioningPositioning DistributionDistributionPricingPricing BrandingBranding Elements that May be Test Marketed by a Company Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings. New Product Development Process Step 7. Test Marketing
  14. 14. StandardStandard Test MarketTest Market Full marketing campaign in a small number of representative cities. ControlledControlled Test MarketTest Market A few stores that have agreed to carry new products for a fee. SimulatedSimulated Test MarketTest Market Test in a simulated shopping environment to a sample of consumers. New Product Development Process Step 7. Test Marketing
  15. 15. When is the Right Time to Introduce Product? When is the Right Time to Introduce Product? Where to Launch a New Product? Where to Launch a New Product? Commercialization is the Introduction of the New Product into the Marketplace. New Product Development Process Step 8. Commercialization
  16. 16. Step 1Step 1 Step 2Step 2 Step 3Step 3 Step 4Step 4 Sequential Speeding Up New Product Development Step1 Step2 Step 3 Step 4 Simultaneous (Team-Based)
  17. 17. Stage-Gate System Initial Screen Second Screen Decision on Business Case Post- Develop- ment Review Pre-Comm- cialization Business Analysis Preliminary Assessment Detailed Investigation (Business Case) Preparation Development Testing & Validation Full Production & Market Launch Gate Gate Gate Gate GateStage Stage Stage Stage Stage
  18. 18. Time Product Develop- ment Introduction Profits Sales Growth Maturity Decline Losses/ Investments ($) Sales and Profits ($) Sales and Profits Over the Product’s Life From Inception to Demise Product Life Cycle
  19. 19. SalesSales CostsCosts ProfitsProfits Marketing ObjectivesMarketing Objectives ProductProduct PricePrice Low salesLow sales High cost per customerHigh cost per customer Negative or lowNegative or low Create product awareness and trialCreate product awareness and trial Offer a basic productOffer a basic product Usually is high; use cost-plus formulaUsually is high; use cost-plus formula DistributionDistribution High distribution expensesHigh distribution expenses AdvertisingAdvertising Build product awareness among early adopters and dealers Build product awareness among early adopters and dealers Summary of Characteristics, Objectives, & Strategies Introduction Stage of the PLC
  20. 20. SalesSales CostsCosts ProfitsProfits Marketing ObjectivesMarketing Objectives ProductProduct PricePrice Rapidly rising salesRapidly rising sales Average cost per customerAverage cost per customer Rising profitsRising profits Maximize market shareMaximize market share Offer new product features, extensions, service, and warranty Offer new product features, extensions, service, and warranty Price to penetrate marketPrice to penetrate market DistributionDistribution Increase number of distribution outletsIncrease number of distribution outlets AdvertisingAdvertising Build awareness and interest in the mass market Build awareness and interest in the mass market Summary of Characteristics, Objectives, & Strategies Growth Stage of the PLC
  21. 21. SalesSales CostsCosts ProfitsProfits Marketing ObjectivesMarketing Objectives ProductProduct PricePrice Peak salesPeak sales Low cost per customerLow cost per customer High profits, then lower profitsHigh profits, then lower profits Maximize profits while defending market share Maximize profits while defending market share Diversify brand and modelsDiversify brand and models Price to match or best competitorsPrice to match or best competitors DistributionDistribution Build more intensive distributionBuild more intensive distribution AdvertisingAdvertising Stress brand differences and benefitsStress brand differences and benefits Summary of Characteristics, Objectives, & Strategies Maturity Stage of the PLC
  22. 22. Maturity Stage of the PLC Company tries to increase consumption of the current product. Changing characteristics such as quality, features, or styles to attract new users. Company tries to improve sales by changing one or more marketing mix elements.
  23. 23. SalesSales CostsCosts ProfitsProfits Marketing ObjectivesMarketing Objectives ProductProduct PricePrice Declining salesDeclining sales Low cost per customerLow cost per customer Declining profitsDeclining profits Reduce expenditure and maintain, reposition, harvest or drop the product Reduce expenditure and maintain, reposition, harvest or drop the product Phase out weak itemsPhase out weak items Cut priceCut price DistributionDistribution Go selective: phase out unprofitable outlets Go selective: phase out unprofitable outlets AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers Reduce to level needed to retain hard-core loyal customers Summary of Characteristics, Objectives, & Strategies Decline Stage of the PLC
  24. 24. Challenges in New Product Development • Failure occurs frequently - Studies have shown that 40%-45% of NPD projects introduced to the market fail • Inefficiencies are pervasive* - Only 59% of products intro’ed were successful - Only 6.6 new product ideas lead to 1 success - More innovative projects took 23.8 mos. • Very expensive - Tens of $millions to several $billions * 1995 PDMA Best Practices Survey
  25. 25. Market UncertaintyMarket Uncertainty • Consumer fear, uncertainty, and doubt (FUD)Consumer fear, uncertainty, and doubt (FUD) • Customer needs change rapidly andCustomer needs change rapidly and unpredictablyunpredictably • Customer anxiety over the lack of standardsCustomer anxiety over the lack of standards and dominant designand dominant design • Uncertainty over the pace of adoptionUncertainty over the pace of adoption • Uncertainty over/inability to forecast market sizeUncertainty over/inability to forecast market size
  26. 26. Technology UncertaintyTechnology Uncertainty • Uncertainty over whether the new innovationUncertainty over whether the new innovation will function as promisedwill function as promised • Uncertainty over timetable for NPDUncertainty over timetable for NPD • Ambiguity over whether the supplier will be ableAmbiguity over whether the supplier will be able to fix customer problems with the technologyto fix customer problems with the technology • Concerns over unanticipated/unintendedConcerns over unanticipated/unintended consequencesconsequences • Concerns over obsolescenceConcerns over obsolescence
  27. 27. Competitive UncertaintyCompetitive Uncertainty • Uncertainty over who will be future competitorsUncertainty over who will be future competitors • Uncertainty over competitor’s strategiesUncertainty over competitor’s strategies • Uncertainty over product form competitionUncertainty over product form competition (competition between product classes vs.(competition between product classes vs. between different brands of the same product)between different brands of the same product)
  28. 28. • Overestimation of Market Size • Product Design Problems • Product Incorrectly Positioned, Priced or Advertised • Costs of Product Development • Competitive Actions • To create successful new products, the company must: – understand it’s customers, markets and competitors – develop products that deliver superior value to customers. Cause of Product Failures
  29. 29. Key Reasons for Failure • Market too smallMarket too small • Poor fit with company’s strengthsPoor fit with company’s strengths • No real benefit for customerNo real benefit for customer • Not new/not different productNot new/not different product • Poor competitive positioningPoor competitive positioning • Poor timing of product introductionPoor timing of product introduction
  30. 30. Key Reasons for Failure (cont.) • Lack of coordination across functional areasLack of coordination across functional areas • Organizational problems (e.g. conflict,Organizational problems (e.g. conflict, communication, top management support)communication, top management support) • Inaccurate forecastsInaccurate forecasts • Inadequate support by channelInadequate support by channel • Market changes in customer tastesMarket changes in customer tastes • Competitive response to new productCompetitive response to new product • Major shifts in technologyMajor shifts in technology

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