Unit-12 Organizing For Product Development

1. Unit-12 Organizing For Product Development • The Booz, Allen, Hamilton study of new product introduction suggests that the organizations which encounter the greatest success in new product introductions are the ones that have given the greatest care to organizing for developing those products. • Setting up an organizational form for new product development involves the following related questions: • Who is to be responsible for new product development? • What are the tasks to be accomplished? • How are the tasks to be accomplished?

2. Setting Responsibility for New product Development: Responsibility for developing new product can be set at the corporate level, the divisional level or the operating level. New product development at the corporate level: Involvement of the top management in new product development depends upon the importance that has been assigned to new products in the overall plan.

3. Advantages: • Greater effectiveness and control of innovative activities • Centralized research units • Technical staff well equipped to handle a wider range of problems. • Insulation from the daily pressures and crisis atmosphere-reporting directly to CEO • Disadvantages: • No response to the urgencies of the market place-its isolation from the commotion and turbulence of operations makes the corporate level new product unit responsive to the immediate needs of the market. • Organizational and spatial separation.

4. New product development at the divisional level: Divisional level responsibility for new product development is most likely when operating units have highly differentiated product lines.

5. Advantages: • The new product development effort is set apart from the day-to-day activities of operations. • The job is only an arm’s length away from top management which aids the integrative process and gives direction to the division. • Disadvantages: • Friction between the developmental and functional levels. • New product development is only a part of the firm’s products management.

6. New product development at the operating level: • Responsibility for new product development lodged anywhere below the divisional level becomes associated with operational activity. • There are two options: • assign responsibility for new product development to one of the functional departments, says marketing • Assign it to product manager. • In operating levels the changes occur only in the way an operational unit functions. • New product development in functional department: • The assigning of responsibility for new product development is between marketing and research and development.

7. Chief Executive Division head division division R & D Production Marketing New Product unit

8. Advantage : • In choosing marketing for new product development responsibility is that the marketing people are in a position to have the best view of trends in sales, process, competitive actions, distribution and services - all very important in bringing a new product to commercialization. • New product development in high technology fields is also greatly influences by the components of a marketing program. • Disadvantages: • Marketing personnel may run into difficulty when confronted with new products involving scientific concepts and complicated technologies. Hence many industrial marketers recruit marketing personnel and sales force from among those with engineering and technical backgrounds. • Personnel other than marketing lack market sense and sensitivity to the needs of customers.

9. New product development responsibility of Product Manager: This type of arrangement is usually made when a rapid proliferation of products creates a burden too heavy for the chief marketing executive and his staff. e.g. ITC in case of cigarettes – it expresses a case of extreme decentralization. Such type of organization is called “product management system”. Structural Units for New Product Development: In small companies new product development is often handled by the existing units. But large firms regard new product development as an on-going activity

10. The most common organizational units established specially for new product development are new product departments, new product committees ad hoc committees venture teams and task forces.

11. New Product development • Corporate level • Divisional level • Operational level • New product committee : it is usually at either the corporate or divisional level. • Ad hoc committee: they are specialists needed to manage certain aspects of new product development activity, such as brainstorming, screening, coordinating • Task force: A task force is established to perform both integrative and coordinating functions. • Venture team: it is a small interdisciplinary group which works full-time on a specific mission and discontinued after the conclusion of venture.

12. Function of the New Product development units: Theoretically when different types of structural units participate and share responsibility in new product development, each look after a separate function. But in practice all types take part in the developmental sequence with varying extents of involvement.

13. Unit 13 : Generation, Screening and development of new product ideas Introduction One product idea was developed based on creative insight. Innovation and the new Product development process: Sometimes innovations are by accident or luck such as the vulcanization of the rubber process – discovered when a rubbery mixture was spilled on a hot stove; Necessity, it seems was the mother of invention for the ice cream seller who ran out of paper cups and rolled pancakes into serving cones-the first ice cream cones.

14. The standard new product development process model comprises the following stages: Idea generation, idea screening, concept development, and testing, marketing-strategy development, business analysis, product development, market testing and commercialization. This unit is concerned with only the first three stages: Generation Screening Development of New product ideas.

15. Generation of New product ideas: • A creative approach is needed for the creative process. • Creativity v/s innovation • Sources of New product ideas:

16. Methods of generating new product ideas:

17. Attribute Analysis: • By decomposing existing products into combinations of specific parts, qualities or attributes. Attribute listing seeks to modify one or more of these to improve the whole product. • e.g. company planning to bring out a toothpaste, it may want to know a package of optimum level and combination of various attributes and benefits: • Whitening of teeth • Breath freshening • Decay prevention • Taste • Price

18. Osborn has suggested that useful ideas can be stimulated by putting the following questions to an object and its attributes: Put to other uses? Adapt? Magnify? Reduce? Substitute? Rearrange? Reserve? Combine?

19. Heuristic ideation Technique (HIT) In attribute analysis, alternative combination may practically run into millions. This may make the analysis very difficult, if not impossible. For example, in the household cleaning agent, product ingredients is one of the many dimension. Benefit – structure analysis: Benefit-structure analysis proposed by Myers…,this analysis begins with 25 to 50 in-depth individual or group interviews wherein the respondents are asked to recall all occasions when a product class was used.

20. Brainstorming: Brainstorming is a rather popular creative technique with a long track-record. It was first developed by Alex F. Osborn in 1938 and gained acceptance by the business world in the 1950s. Osborn feels that creativity is fostered in an informal meeting where participants are free to express any and all ideas they concoct. Criticism is ruled out until the end of the meeting as this inhibits people from contributing ideas that might prove useful to others. To ensure creativity the following ground rules are suggested: Do not permit evaluation of ideas Encourage participants to think ‘far out’ Put emphasis on creating a large quantity of ideas Encourage participants to modify or build upon ideas of others

21. Focus Groups: It relies on the spontaneous interaction of the group and the members of the group are consumers. Focus group interviews can be thought of as brainstorming with consumers/potential consumers. Screening of New Product ideas: Screening is essentially an elimination technique. If the purpose of ideas generation is to have a large number of ideas. The purpose of screening is to reduce this number to profitably viable few. Criteria for Screening New Product ideas: Screening criteria are established as evaluative standards in new product development. They make arbitrary decisions less likely. They provide a unity of purpose. They provide a perspective for new product planners.

22. “Must have” criteria • Fill a perceived need with a sufficiently defined group of heavy users for the product. • Have a unique product characteristics that offer distinctive benefits to the user. • Have a sufficient trading profit contribution. E.g. 20% to 50% in case of grocery products. • Be saleable in large, expanding territories. • “Would like” criteria • Be compatible with and able to carry the company’s brand name. • Provide the basis for a continuing business • Lend itself to mass media advertising

23. Preliminary Screening: • Preliminary screening is the first, rather rough, attempt to judge the value of a new product idea. • e.g. in case of consumer goods company the following statements can serve as primary criteria to screen new product ideas: • The item should be in a field of activity in which the corporation is engaged. • The item should be capable of being produced on the type and kind of equipment that the corporation normally operates. • The potential market for the product should be at least Rs.- • Return on investment after taxes must reach a minimum level of…. • Product profile ratings – Ranked Data • This technique basically calls for the ideas to be evaluated in terms of a number of key characteristics. • One type of such a rating system is the simple ordinal measure wherein each characteristic is scored on a five-point scale,. • e.g. each idea can be rated on ten different criteria from very good (A) to Very Poor(E).

24. Product profiles – summated Data • This method of screening new product ideas is very much like that of ranked data but there are some modifications: • The ratings are in terms of numerical values. Scores by different people are averaged. • Each criterion is given a weight in accordance with its supposed importance to the success of a new product. • Scores and weights are multiplied and their products added to obtain a single overall rating for an idea. • The overall rating is described as follows: • n • R = ∑ WiSi • i=1 • R is overall rating, Wi is weight of the ith criterion • Si is score of the idea on the ith criterion, • n is number of ideas used in screening

25. Development of New product ideas: • In the process of new product development, screened ideas need to be converted into product concepts. • “ A product concept is an elaborated version of the idea expressed in meaningful consumer terms”, says Philip Kotler. • e.g. Cadbury India, gets the idea of producing a powder to add to milk to increase its nutritional level and taste. • Who is to use this product? ( infants, children, teenagers, etc) • What primary benefit should be built into this product? • ( taste, nutrition, energy) • What is the primary occasion for this drink? ( breakfast, midmorning, lunch, etc) • The concept emerge: • A tasty midday snack drink for children. • An instant breakfast drink for adults. • A health supplement for elderly people at night.

26. Elaborated version of each concept can be presented to sample consumers. • Then, the consumers can be asked some questions. • Respondents answers to the questions can lead to the concept’s communicability and believability , • The need level • The gap level • Perceived value • And the purchase intention • A Summary of these answers can tell if the concept has a strong and broad enough appeal.

27. Unit – 14 Economic Analysis – Evaluation of New Product ideas / Concepts • Introduction • Product managers are involved directly or indirectly in the preparation and presentation of investment proposals for new facilities new markets, new products or new projects. • what are the financial calculations required to make the case? • Essentially, the product manger needs to present a financial logic that demonstrates a financial return at least as attractive as other identified opportunities before the top management.

28. Purpose of economic analysis • Economic analysis is only a continuation of the evaluative process that began when the new product idea was first generated. • Once the product concept is developed, economic analysis can evaluate the business attractiveness of the proposal. • Market potential: • The starting point for any economic analysis should be an estimate of total market potential. • It is not a projection of actual sales. • Rather, it is the maximum quantity an entire industry can sell if its marketing effort is the utmost. • e.g. the market potential for baby food logically should be ‘total number of infants’ multiplied by (some estimated) number of feedings. • In case of industrial products firms rather than people become the relevant units of estimation.

29. Market demand • Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program” • The ratio of company to industry sales gives a company’s market share. • Estimating market demand involves two steps: • Projecting industry sales and • Projecting company sales • Estimating sales: • A firm needs to estimate the minimum and maximum of sales to determine if the sales will be profitable. • Sales can accrue from one-time purchase of a product, infrequent purchases of a product or frequent purchases of a product.

30. Estimating first-time sales: Bass has used an epidemic equation to forecast sales of appliances when they were first introduced, including room air-conditioners, refrigerators, etc. Estimating replacement sales: The estimate of replacement sales begins with an idea of products life or survival age. Practically, replacement sales are difficult to estimate before the product is actually in use. That is why marketers prefer estimates of first-time sales for launching a new product. Estimating Repeat sales: Both the first-time sales as well as repeat sales are to be estimated for a frequently purchased new product.

31. Sales forecasting methodologies Sales forecast for new products can be made using different techniques. The output of the most new products forecasting systems is sales or share of market. Forecasting via judgmental estimates: Sales force judgment is also used – sales people, sales manager, or even dealers can be asked to make forecasts for their respective market areas, and these forecasts can be totaled,

32. Forecasting via Awareness-trial-repeat purchase Say for example a market consists of 3 millions customers. The purchasing rate per customer is 15 units per year. Also the firm has the following data from controlled sales test: Awareness = 40% of customers Trial = 30% of those who are aware Repeat purchase = 60% of those who tried. The method suggests that the awareness trial and repeat data can be multiplied by the total market availability to get a forecast of sales.

33. Forecasting via mathematical models • Intent-to-buy percentages • Rank order preference data • Estimating costs, sales and profits: • The next required estimates, after the sales forecasts will be the expected costs and profits of the new product project. • Sales revenue • Costs of goods sold • Gross margin • Development costs • Marketing costs • Allocated overhead • Gross contribution • Supplementary contribution • Net contribution

34. Break – even analysis: The break-even analysis, in which the marketer estimates how many units of the product the firm will have to sell to break-even (no profit, no-loss) with the given price and cost structure. Return on investment: Return-on-investment (ROI) analysis involves four considerations: amount of return, duration, timing and risk. The most common methods of assessing return on investments are Payback: it is mainly concerned with how long it will take the firm to get back its initial investment. Rate of return, and Discounted cash flow: the discount method of handling cash inflow accounts for the time value of money. Economic analysis summary form: e.g. table 1