NPD for MBA Students

1. If you want something you never had,
do something you have never done.

2. New Product DevelopmentNew Product Development
By Dr. Ranjan Kantha, BhubaneswarBy Dr. Ranjan Kantha, Bhubaneswar

3.  Toyota Qualis: Remember the advertisement
that said ‘a hundred reasons why you should
buy a Toyota Qualis?’
 Those hundred reasons could actually be
paraphrased in one line: It fulfilled an unmet
need, that too very forcefully. There were very
few passenger vehicles in the category that
offered all the conveniences and advantages
that Toyota Qualis offered.
 The hundred reasons were an interesting list to
go through and understand. But just imagine the
sheer velocity of an idea. So powerful, all
encompassing, virtually die cast into the unmet
needs of thousands of users.

4.  Reynolds ballpoint pen: Introduced with a
promise of smooth writing at a time when
ballpoint pens were a prized possession. .
Before the launch of Reynolds, it appeared that
people wasted a lot of time buying a ballpoint
pen and got their pockets stained with ink in the
process.
 Reynolds offered more value for its price,
encouraging to buy a Reynolds and use it. The
blue cap and the white pen shell soon became
ubiquitous in every office, school, and college
across the country.

5.  Shampoo sachet: The now commonly seen
shampoo sachet is a good example. Ever
imagined packing a liquid in a sealed leak-proof
polyethylene bag that is easy to display and
sell?
 The shampoo sachet introduced by Velvette
was a success. So much a success that large
MNCs redrew their plans
 Here is an example of a product priced right with
assured benefits cutting across all segments.
The success of this product lies in its pricing and
the well designed unique response to satisfy an
unmet need.

6. What Is a New Product
?

7. Types of “New” Products
Cost
Reduction
11%
Additions to
Existing Lines
26%
Improvementto
Existing
Products
26%
New Product
Lines
20%
Reposition
7%
New to the
World
10%
ManagementManagement
PerspectivePerspective ConsumerConsumer
PerspectiPerspecti
veve
CriteriaCriteria
::
NewnessNewness
to theto the
companycompany
Criteria:Criteria:
NewnessNewness
toto
customercustomer
/humanity/humanity

8. Six categories of new products:
1. New-to-the-world products - New products that
create an entirely new market.
2. New product lines - New products that allow a
company to enter an established market for the
first time.
3. Additions to existing product lines - New
products that supplement established product
lines (package sizes, flavors, and so on).
4. Improvements and revisions of existing products
- New products that provide improved
performance or greater perceived value and
replace existing products.
5. Repositioning - Existing products that are
targeted to new markets or market segments.
6. Cost reductions - New products that provide
similar performance at lower cost.

9. 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
Strategies for Obtaining New Product Ideas

10. Challenges in New-Product Development
A company can add new products
through acquisition or development.
The acquisition route can take three
forms.
The company can buy other companies,
it can acquire patents from other
companies, or
it can buy a license or franchise from
another company.
Co.s can develop new products
in its own laboratories, or it can contract
with independent researchers or new-
product development firms to develop
specific new products.

11. Product “newness,” as defined by the
degree of consumer learning needed to use
the product

12. Types of NPD Projects
Newness to the market
Newnesstothecompany
High
Low
Low High
7%
10%
26%26%
20%
11%
Cost reductions (e.g. Low-end PC)
New product
lines (e.g. AT&T
Universal Card)
Revisions/improvement to
existing products (e.g. MS Excel ‘00)
Additions to existing
product line
New-to-the-world
(e.g. laser flex printer)
Repositionings

13. The Conflicting Masters of New
Products Management
 Three inputs to the new
products process: the
right quality product, at
the right time, and at the
right cost.
 These conflict with each
other but may have
synergies too.
 Issue: how to optimize
these relationships in a
new product situation.
Quality
Time Cost
Value

14. Breakthrough Innovations that
Changed Our Lives
 Personal Computer
 Microwave Oven
 Digital Photocopier
 Mobile phone
 Fax Machine
 Birth Control Pill
 DVD/VCD
 Communication satellite
 Bar coding
 Integrated Circuit
 Automatic Teller
 Answering Machine
 Touch-Tone Telephone
 Laser Surgery
 Apollo Lunar Spacecraft
 Internet
 Organ Transplanting
 Fiber-Optic Systems
 Disposable Diaper
 MS Software
 GIS

15. What it takes to launch one commercially
successful new product

16. New Products Failure
95 percent in the United States and 90 percent in Europe.
Reasons For failure.
1. ignoring or misinterpreting market
research;
2. overestimating market size;
3. high development costs;
4. poor design;
5. incorrect positioning,
6. ineffective advertising,
7. wrong price;
8. insufficient distribution support;
9. competitors who fight back hard.

17. Key Reasons for Failure
• Market too smallMarket too small
• Poor fit with company’sPoor fit with company’s
strengthsstrengths
• No real benefit forNo real benefit for
customercustomer
• Not new/not differentNot new/not different
productproduct
• Poor competitivePoor competitive
positioningpositioning
• Poor timing of productPoor timing of product
introductionintroduction

18. 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

19. 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

20. 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

21. 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)

22. NPD StrategiesNPD Strategies
• Reactive Strategies:Reactive Strategies:
- Defensive strategy- Defensive strategy
- Imitative Strategy- Imitative Strategy
- Second-but-better Strategy- Second-but-better Strategy
- Responsive- Responsive
• Proactive StrategiesProactive Strategies

23. Reactive StrategiesReactive Strategies
• Require concentration on existingRequire concentration on existing
products or marketsproducts or markets
• Can achieve little protection forCan achieve little protection for
innovationinnovation
• Are in markets too small to recoverAre in markets too small to recover
investmentinvestment
• Are in danger of being overwhelmed byAre in danger of being overwhelmed by
competitive imitationcompetitive imitation
• Are in distribution chains dominatedAre in distribution chains dominated
by another innovatorby another innovator

24. Proactive StrategiesProactive Strategies
• Require rapid sales growthRequire rapid sales growth
• Provide high volume or marginProvide high volume or margin
• Offer a capability of achieving patent orOffer a capability of achieving patent or
Market protectionMarket protection
• Supply resources and time necessary toSupply resources and time necessary to
develop new productsdevelop new products
• Provide reasonable power in theProvide reasonable power in the
distribution channeldistribution channel

25. THE NEW-PRODUCT PLANNING
PROCESS
2. PRODUCT
SCREENING
3. CONCEPT
TESTING
4. BUSINESS
ANALYSIS
5. PRODUCT
DEVELOPMENT
1. IDEA
GENERATION
7. COMMERCIALIZATION
6. TEST
MARKETING

26. Marketing information and methods used in the new-product process

27. Idea Generation & Screening Stage
Idea Generation:
 An ongoing search for product ideas to
be consistent with target market needs
and the organization’s goals
Idea Screening:
 minimize risk by focusing on ideas
with the highest probability of success

28.  Ideas for new products can be obtained from basic
research using a
 SWOT analysis (Strengths, Weaknesses, Opportunities &
Threats),
 Market and consumer trends,
 company's R&D department,
 competitors, focus groups, employees, salespeople, corporate
spies, trade shows, or
 Ethnographic discovery methods (searching for user patterns
and habits) may also be used to get an insight into new product
lines or product features.
 Idea Generation or Brainstorming of new product,
service, or store concepts - idea generation techniques
can begin when you have done your OPPORTUNITY
ANALYSIS to support your ideas in the Idea Screening
Phase

29. Systematic Search for New Product
Ideas
Internal sources
Customers
Competitors
Distributors
Suppliers
Idea Sources

30. Step 1. Idea Generation Techniques
 Brainstorming (1 hr. sessions, no
criticisms, think of ways to vary item)
 Word Association
 Projection
 Attribute Listing
 Forced relationships
 Surveys
 Product analysis

31. Step 2. Idea Screening
Ideas
IdeasIdeas
Ideas
Ideas
Ideas
Ideas
Ideas Ideas
Ideas
Product ideaProduct idea
Process to spot good ideas
and drop poor ones
Criteria
• Market Size
• Product Price
• Development Time & Costs
• Manufacturing Costs
• Rate of Return

33.  The object is to eliminate unsound concepts
prior to devoting resources to them.
 The screeners must ask at least three questions:
 Will the customer in the target market benefit from the
product?
 What is the size and growth forecasts of the market
segment/target market?
 What is the current or expected competitive pressure
for the product idea?
 What are the industry sales and market trends the
product idea is based on?
 Is it technically feasible to manufacture the product?
 Will the product be profitable when manufactured and
delivered to the customer at the target price?

34. Idea Screening Checklist
Criteria: (A) relative weight x (B) rating
 Corporate personality 1………10 1 …….7
 R + D support +
 Marketing expertise +
 Financial resources +
 Production capabilities +
 Distribution support + ( A x B)
 Patent ability (17 years) +
_________
Total score

35. 1. Develop Product Ideas into
Alternative
Product Concepts
1. Develop Product Ideas into
Alternative
Product Concepts
2. Concept Testing - Test the
Product Concepts with Groups
of Target Customers
2. Concept Testing - Test the
Product Concepts with Groups
of Target Customers
3. Choose the Best One3. Choose the Best One
Step 3.Concept Development Testing

36.  Develop the marketing and engineering details
 Who is the target market and who is the decision
maker in the purchasing process?
 What product features must the product incorporate?
 What benefits will the product provide?
 How will consumers react to the product?
 How will the product be produced most cost
effectively?
 Prove feasibility through virtual computer aided
rendering, and rapid prototyping
 What will it cost to produce it?
 Testing the Concept by asking a sample of
prospective customers what they think of the
idea.

37. 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
If Yes, Move to
Product Development
If Yes, Move to
Product Development
If No, Eliminate
Product Concept
If No, Eliminate
Product Concept
Step5. Business Analysis
Step6. Business Analysis

38.  Estimate likely selling price based upon
competition and customer feedback
 Estimate sales volume based upon size of
market
 Estimate profitability and breakeven point

39. Standard
Test Market
Full marketing campaign
in a small number of
representative cities.
Standard
Test Market
Full marketing campaign
in a small number of
representative cities.
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers.
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee.
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee.
Step 7.Test Marketing

40.  Produce a physical prototype
 Test the product (and its packaging) in
typical usage situations
 Conduct focus group customer interviews
or introduce at trade show
 Make adjustments where necessary
 Produce an initial run of the product and
sell it in a test market area to determine
customer acceptance

41. Technical Implementation
 New program initiation
 Resource estimation
 Requirement publication
 Engineering operations planning
 Department scheduling
 Supplier collaboration
 Logistics plan
 Resource plan publication
 Program review and monitoring
 Contingencies - what-if planning

42. Commercialization
 Must decide on timing (i.e., when to
introduce the product).
 Must decide on where to introduce the
product (e.g., single location, state, region,
nationally, internationally).
 Must develop a market rollout plan.

43.  Launch the product
 Produce and place advertisements and
other promotions
 Fill the distribution pipeline with product
 Critical path analysis is most useful at this
stage

44. New Product Pricing
 Impact of new product on the entire product
portfolio
 Value Analysis (internal & external)
 Competition and alternative competitive
technologies
 Differing value segments (price, value, and
need)
 Product Costs (fixed & variable)
 Forecast of unit volumes, revenue, and profit

45. Product Positioning
There are three positioning alternatives:
 Strengthen a brand’s current position in the
mind of the consumers.
 Search for a new unoccupied position that is
valued by enough consumers and occupy that.
 De-position or re-position the competition.

46. Product attributes
Nokia’s 6600
‘Zoom in
Technical items
BMW
breathable
fresh air filters
Benefits offered
Crest
toothpaste
reduces
cavities.
Users
Johnson & Johnson changing
focus to incorporate adults as
frequent users of their gentle Baby
Shampoo.
Usage occasions
Kit Kat, ‘have a break’.
Activities
Omega, the ‘first
and only watch on
the moon’.
Personalities
Tiger
Woods for
Nike
Cult positioning
Harry Potter boo
Origin
Perrier ‘bottled at
source’.
Positioning strategies

47. Positioned against
competitors
Dell and Compaq versus IBM
Positioned away from competitors
7-Up the number 1 ‘Un-cola
Product class membership
‘I can’t believe it’s not butter’, the vegetable
fat spread, is clearly positioned against
butter.

48.  Features and benefits must be important to the
consumer.
 Must be distinctive from the competition.
 Must deliver superior quality or service.
 Difference must be communicable and visible to
buyers.
 Affordable
 Profitable
Essential criteria to accomplish
a good positioning strategy