This document provides an overview of new product management. It discusses what constitutes a new product, including new-to-the-world products, new category entries, additions to product lines, and product improvements. It also discusses what makes a product successful. The document then covers the basic new product development process, which includes phases for opportunity identification, concept generation, concept evaluation, development, and launch. It provides details on some of the key activities within each phase.

1. New Product Management
PGDBM/IT/HR/IB
Rajat Gera

3. 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

4. Product Newness

5. 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.

6. 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.

7. New Product Development
Imperatives-1
Breakthrough Platform Maintenance

9. A Bubble Diagram at a Hewlett-Packard
Division

13. 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

15. The Impact of Simultaneous Operations on
the Product Development Process

17. Phase 1: Opportunity
Identification/Selection
Active 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.

18. 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)

19. 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)

20. Phase 2: Concept Generation
Select a high potential/urgency opportunity, and
begin customer involvement. Collect available
new product concepts that fit the opportunity and
generate new ones as well.

21. Phase 3: Concept/Project Evaluation
Evaluate 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.

22. 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.

23. 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.

24. Phase 5: Launch
Commercialize 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).

25. The Life Cycle of a Concept

26. Rate of Use of NPD Steps among
PDMA Members
Concept searching 90%
Concept screening 76%
Concept testing 80%
Business analysis 89%
Product development (technical) 99%
Use testing/market testing 87%

27. Opportunity Identification and
Selection
Strategic Planning for New
Products

28. Opportunity Identification and Selection

29. 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.

30. 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?

31. Corporate Strengths
New 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)

32. Product Platform Planning
Many 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

33. 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).

34. 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.

35. A Sample PIC for a Chemical Product
Focus: 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.

36. 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

37. 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).

38. Strategic Buckets Model for
One SBU in Exxon Chemical
Low Market Newness High Market Newness
Low 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 Management
for New Products, McMaster University, Hamilton, Ontario, Canada, 1997, p. 63.

39. Concept Generation

40. 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.

41. 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.

42. 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.

43. New Product Concepts and the
New Product
C
Need Form
C
C
“C”= Technology New
Concepts Product

44. 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?

45. 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)

46. Methods for Generating Product
Concepts
Two Broad Categories of Methods:
• Gathering Ready-Made Product Concepts
• Using a Managed Process Run by the New
Products Team

47. 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)

48. Problem-Based Concept Generation

49. 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.

50. The Bothersomeness
Technique
List of pet owners' problems: A B AxB
Problem Occurs Problem is
Frequently Bothersome
Need constant feeding 98% 21% .21
Get fleas 78 53 .41
Shed hairs 70 46 .32
Make noise 66 25 .17
Have unwanted babies 44 48 .21

51. 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

52. 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

53. Relevance Tree Form of
Dynamic Leap Scenario

54. 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.

55. 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.

56. Analytical Attribute Analysis

57. 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.

58. 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)

59. A Determinant Gap Map

60. Obtaining Customer Perceptions
Rate each brand you are familiar with on each of the following:
Disagree Agree
1. Attractive design 1..2..3..4..5
2. Stylish 1..2..3..4..5
3. Comfortable to wear 1..2..3..4..5
4. Fashionable 1..2..3..4..5
5. I feel good when I wear it 1..2..3..4..5
6. Is ideal for swimming 1..2..3..4..5
7. Looks like a designer label 1..2..3..4..5
8. Easy to swim in 1..2..3..4..5
9. In style 1..2..3..4..5
10. Great appearance 1..2..3..4..5
11. Comfortable to swim in 1..2..3..4..5
12. This is a desirable label 1..2..3..4..5
13. Gives me the look I like 1..2..3..4..5
14. I like the colors it comes in 1..2..3..4..5
15. Is functional for swimming 1..2..3..4..5

61. 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

62. The AR Perceptual Map
2
Comfort
Aqualine
Gap 1
Islands Molokai
Fashion
-2 2
Splash
Sunflare
Gap 2
-2

63. 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?

64. 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.

65. 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.

66. Conjoint Analysis: Graphical Output
Thickness Spiciness Color
2
UTILITY
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

67. Conjoint Analysis:
Relative Importance of Attributes
0 20 40 60 80 100 %
Spiciness 59.8%
Thickness 34.6%
Color 5.6%

68. Some Qualitative Attribute
Analysis Techniques
• Dimensional Analysis
• Checklists
• Relationships Analysis
– There are many others.

69. 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

70. 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

71. 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

72. Other Methods:
Lateral Search Techniques
• Free association
• Creative stimuli words
• Studying “big winners”
• Use of the ridiculous
• Forced relationships
• Analogy

73. Concept/Project Evaluation

74. The Evaluation System

75. Cumulative Expenditures Curve
% of
expenditures
Many high-tech
products
Many consumer
products
Time Launch

76. 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.

77. Planning the Evaluation
System: Four Concepts
• Rolling Evaluation (tentative nature of new
products process)-Risk management via
acceptance or mitigation)
• Potholes
• People
• Surrogates

78. 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

79. Potholes
Know 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

80. 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).

81. 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?

82. An A-T-A-R Model of Innovation
Diffusion
Profits = Units Sold x Profit Per Unit
Units 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 year
Profit Per Unit = Revenue per unit - cost per unit

83. 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.

84. A-T-A-R Model Application
10 million Number of owners of Walkman-like CD
players
x 40% Percent awareness after one year
x 20% Percent of "aware" owners who will try
product
x 70% Percent availability at electronics retailers
x 20% Percent of triers who will buy a second
unit
x $50 Price per unit minus trade margins and
discounts ($100) minus unit cost at the intended
volume($50)= $5,600,000 Profits

85. Getting the Estimates for
A-T-A-R Model
Item Market Concept Test Product Use Component Market Test
Research Test Testing
Market Units XX X X X
Awareness X X X X
Trial XX X X
Availability X XX
Repeat XX X
Consumption X X X XX
Price/Unit X X X X XX
Cost/Unit X XX
xx: Best source for that
item.
x: Some knowledge gained.

86. Concept Testing

87. 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.

88. 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?

89. 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.”

90. 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).

91. 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

92. Mail Concept Test -- Verbal Description
Here 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 different
2. 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

93. 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.

94. Screening Alternatives
• Judgment/Managerial Opinion
• Concept Test followed by Sales
Forecast
(if only issue is whether consumers will like it)
• Scoring Models

95. A Simple Scoring Model
Values
Factors: 4 Points 3 Points 2 Points 1 Point
Degree of Fun Much Some Little None
Number of People Over 5 4 to 5 2 to 3 Under 2
Affordability Easily Probably Maybe No
Capability Very Good Some Little
Student's Scores: Skiing Boating Hiking
Fun 4 3 4
People 4 4 2
Affordability 2 4 4
Capability 1 4 3
Totals 11 15 13
Answer: Go boating.

96. Source of Scoring Factor
Models

97. 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...

98. 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

99. Alternatives to the Full Screen
• Profile Sheet
• Empirical Model
• Expert Systems
• Analytic Hierarchy Process

100. A Profile Sheet

101. 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 (-)

102. 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.

103. 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.

104. The Life Cycle of Assessment

105. Calculating New Product’s
Required Rate of Return
% Return
Reqd. Rate
of Return
Cost of
Capital
Risk
Avg. Risk Risk on
of Firm Proposed
Product

106. 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
markets
Explanation: the hurdles should reflect a product’s purpose,
or assignment. Example: we might accept a very low
share increase for an item that simply capitalized on our
existing market position.