NPD

1. PRODUCT DESIGN AND
DEVELOPMENT
15.823 SPRING 2001
GLEN L. URBAN

2. OUTLINE
• NEW PRODUCT DEVELOPMENT PROCESS
• REALLY NEW PRODUCTS --INFORMATION
ACCELERATION
• “LISTENING IN” -- Advisor/Virtual Engineer
• IMPLICATIONS FOR INTERNET
– TESTING CONVENTIONAL PRODUCTS ON THE
INTERNET
– DESIGNING INTERNET PRODUCTS

3. FAILURE
• WHAT IS FAILURE RATE OF
PRODUCTS INTRODUCED TO THE
MARKET?
• WHY FAIL?
• IMPLICATIONS FOR INTERNET
STARTUPS?

4. SUCCESS OF COMMERCIALIZED
NEW PRODUCTS
Unsuccesful
33%
1976 - 1981
Unsuccesful
33%
1963 - 1968
Successful
Met Company
Criteria
65%
Successful
Met Company
Criteria
65%

5. ANA - 1984
• 138 Member Firms
• 43 of 100 Top Advertisers
• 74% Packaged Goods
• 12% Durables
• 12% Industrial
• 9% Services
• Line Extensions 27%
• New Brand/Existing Category 31%
• New Brand/New Category 60%
FAILURE RATE
(Not Meet Business Objectives)

6. 1990’s
(Cooper and Kleinschmidt 1994
• 203 Industrial New Products -- 50% Fail
• 103 Chemicals -- 35% Fail
(21 Firms in N. A./Europe)
Market Success
• Superior Product (Unique, Value, Quality,
Physical Benefits, Visible)
• Market Driven (Market Study, Customer Tests)
• Up Front Homework/Product Definition
• Cross functional Team/Strong Leader

7. Causes of Failure
• Market Too Small
• Not New/Not Different
• Poor Positioning
• Forecasting Error
• Competitive Response
• Change in Customer Tastes
• Poor Repeat/Diffusion
• Low ROI
• Organizational Problems
• Poor Match for Company
• No Real User Benefit
• Little Channel Support
• Poor Timing
• Shift in Technology
• Change in Environment
• Poor Service
• Lack of Coordination
• Poor Quality

8. PERCENT TRANSITION IN STAGES
1968 1981
Idea Generation and Screening to
Business Analysis
21.3 67.7
Business Analysis to Development 55.9 71.2*
Development to Testing 37.8 80.0
Testing to Commercialize 62.2 70.2
Commercialized to Success 60.7 65.3
*i.e. 71.2% of the ideas to enter Business Analysis pass criteria to enter Development phase.
Source: Elrod/Booz, Allen, and Hamilton

9. INTERNET STARTUP
• WHAT IS CHANCE OF SUCCESS?
– IDEA
– BUSINESS PLAN
– LAUNCH
– IPO
• HOW TO MAXIMIZE SUCCESS?
– RESEARCH
– TIMING

10. NEW
MARKET
EXISTING
NEW
EXISTING
PRODUCTS
NEW PRODUCT ARENAS

11. STATE OF THE ART
• PROCESS ENHANCEMENTS
• INFORMATION ACCELERATION
• LISTENING IN
• IMPLICATIONS FOR INTERNET

12. Proven Methods
DESIGN
PRE-MARKET TESTING
TEST-MARKET
LAUNCH AND LIFE CYCLE
MANAGEMENT
OPPORTUNITY
IDENTIFICATION
•Customer Active Paradigm
•Focus Groups / Voice of Customer
•Order of Entry
•Multi-Dimensional Scaling/Conjoint
•QFD
•Lead Users
•Concept/Product Testing
•Laboratory Test-marketing
•Information Acceleration
•Stochastic Models
•Electronic Measurement
•Life Cycle Modeling
•Scanner Data/Brand Management/D.S.S.
New Product Process and Proven Marketing Methods

13. ENHANCEMENT
OPPORTUNITY IDENTIFICATION
DESIGN
TESTING
INTRODUCTION
INNOVATION AND BUSINESS
STRATEGY
•Proactive Budgeting -- 25%
•Technology/Customer/Production/Engineering
•Organization -- Large Scale to Start Up
•“Really New” -- Create Markets
•Needs vs. Desire
•Global Team -- 24 Hour work Day
•CBP Specs Design Sophistication
•Virtual Prototyping
•Platforms and Architecture -- Process Intensive
•Premarket Forecasting -- Risk Management
•Virtual Testing
•Model Response - Specs -- Cost
•Marketing world-wide
•Channel Power/Remote Buying
•Little Protection -- Pioneering Benefits
•Elaborate For Segments
•Rejuvenation Cycle
•Learn from Failure
PROFIT MANAGEMENT