New Product Planning and Development

2. New Product Strategy, Market Penetration, Product Development, Market Development, Diversification, Additional Profits, Increased Growth, Cyclical Stability, New Product Planning, New Product Development Process, Out-rotation, Strategic Risk, Market Risk, Internal Risk, Skunkworks, , Rugby or Relay Approach, Cross-functional Teams, Time to market, Warranty, Guarantee, Product Feature Chapter 7 New Product Planning and Development Key Terms

3. Additional Facts About New Products • Many new products are failures, ranging from 33 percent to 90 percent, depending on the industry • Sales of new products potentially provide a large boost to the company’s growth rate • Companies vary widely in the effectiveness of their new product programs • A major obstacle to effectively predicting new product demand is limited vision • Common elements appear in the management practices that distinguish the relative degree of efficiency and success between companies

4. Additional Facts About New Products • Inability to satisfy customer needs can be attributed to three main sources: • Inadequacy of upfront intelligence efforts • Failure on the part of the company to stick close to what the company does best • Inability to provide better value than competing products and technologies

5. New Product Strategies • New-to-the-world products – Products that are new inventions • New category entries – Products that take the firm into a new category, but are not new to the world • Additions to product lines – Products that are line extensions or flankers to the current markets • Product improvements – Current products made better • Repositioning – Products retargeted for new use or application

6. New Product Strategies • Developed by H. Igor Ansoff in the form of growth vectors • Market penetration – Growth direction through increase in market share for present markets • Product development – Creating new products to replace existing ones • Market development – Finding new customers for existing products • Diversification – Developing new products and cultivating new markets

7. New Product Strategies Organizational Growth Strategies

8. New Product Strategies • Policy-making criteria on new products should specify • Working definition of profit concept acceptable to top management • Minimum level or floor of profits • Availability and cost of capital to develop a new product • Specified time period for recuperating operating costs and contributing to profits

9. Factors Associated with New Product Success

10. The New Product Development Process

11. Idea Generation • Every product starts as an idea • Most ideas do not become products • Idea generation – Requires recognizing available idea sources • Least expensive step in new product development • Top-management support – New product development must focus on meeting customer needs • Technology push and market pull research activities play an important role • Out-rotation – Involves placing employees in positions that require direct contact with customers, competitors, and other key outside groups

12. Idea Screening • Strategic risk – Risk of not matching the role of a new product with a specific strategic need • Market risk – Risk that a new product won’t meet a market need in a value-added, differentiated way • Internal risk – Risk that a new product won’t be developed within the desired time and budget

13. Idea Screening • Strategic alliance – A long-term partnership between two organizations designed to accomplish strategic goals of both parties • Potential benefits of strategic alliances include • Increased access to technology, funding, and information • Market expansion and greater penetration of current markets • De-escalated competitive rivalries

14. Project Planning • Analyze the proposal in terms of production, marketing, financial and competitive factors • Establish a development budget with preliminary marketing and technical research • Create a “rough form” product • Alternative product features and components specified • Create a project plan with estimated costs, capital requirement, and manpower needs • Review the project plan with top management

15. Project Planning • Two better-known methods for creating and managing project teams include • Skunkworks – A project team can work in relative privacy away from the rest of the organization • Rugby or relay approach – Groups in different areas of the company are simultaneously working on the project • A key component contributing to the success relates to the emphasis placed on creating cross-functional teams early in the development process

16. Product Development • Upon evaluation, if all expectations are met, consider further research and testing • Produce a finished product and market test it • Development report must spell out in detail • Results of the studies by the engineering department • Required plan design • Production facilities design • Tooling requirements • Marketing test plan • Financial program survey • Estimated release date

17. Measurements of New Product Performance

18. Test Marketing • The main goal is to evaluate and adjust, if necessary, the marketing strategy to be used in the marketing mix • Developers can use interaction with buyers as a foundation for future product development • Throughout the process, findings are being analyzed and forecasts of volume developed • Upon completion of the test market, prepare a final marketing plan in preparation for launch

19. Commercialization • The firm commits to introducing the product into the marketplace • Heavy emphasis is placed on organizational structure and management talent needed to implement the marketing strategy • Follow-up to eliminate bugs in the design, production costs, quality control, and inventory requirements • Procedures and responsibility for evaluating the success of the new product by comparison with projections are also finalized

20. Time to Market • Defined as the elapsed time between product definition and marketplace product availability • Well documented that companies that reach the market first with a new product enjoy both profit and market share advantages • Increasingly, companies are bypassing time-consuming regional test markets, when feasible, in favor of national launches

21. Quality Level • Warranty – Producer’s statement of what it will do to compensate the buyer if the product is defective or does not work properly • To emphasize high quality, organizations generally offer customers more than implied warranties enforced by the courts • Guarantee – An assurance that the product is as represented and will perform properly • Imply to some buyers that the manufacturer is confident of the new products’ quality

22. Some Criteria for Determining Perceptions of Quality

23. New Product Decisions • Product features • Fact or particular specification of the product • Determined by what it is that the customer wants offered • These wants are not created by effective marketers but rather are learned • Product design • Can clearly differentiate a new product from competitors • Good design can add value to the new product • A well-designed product can please a customer without necessarily costing more

24. New Product Decisions • Product safety • Safety is both an ethical and practical issue • Ethically, customers should not be harmed by using the product as intended • When users are harmed by a product, they may stop buying it, tell others about it, or sue the company • Some products are inherently dangerous and can result in injury to users • It may be so expensive to make them safer that buyers cannot afford to buy them

25. Causes of New Product Failure • No competitive point of difference, unexpected reactions from competitors, or both • Poor positioning • Poor quality of product • Nondelivery of promised benefits of product • Too little marketing support • Poor perceived price/quality (value) relationship

26. Causes of New Product Failure • Faulty estimates of market potential and other marketing research mistakes • Faulty estimates of production or marketing costs • Improper channels of distribution selected • Rapid change in the market (economy) after product introduction

27. Research Considerations • What is the anticipated market demand over time? Are the potential applications for the product restricted? • Can the item be patented? Are there any antitrust problems? • Can the product be sold through present channels and the current sales force? What number of new salespersons will be needed? What additional sales training will be required? • At different volume levels, what will be the unit manufacturing costs?

28. Research Considerations • What is the most appropriate package to use in terms of color, material, design, and so forth? • What is the estimated return on investment? • What is the appropriate pricing strategy?