The New Product Development Process

1. The New Product Development Process Food Marketing Economics ApEc 4451/5451 Fall 2008 October 30, 2008 Dennis Degeneffe Research Fellow The Food Industry Center

2. Successes • Lunchables • Pizza, Nacho Lunchables • Progresso Soup (National Expansion) • Green Giant Create-A-Meal! • Mc Chicken Sandwich • McDonald’s Biscuits • Louis Rich Carving Board • Kraft Healthy Favorites • Donrus Baseball Cards • Oscar Mayer Light Hot Dogs & Cold Cuts • Oscar Mayer Fat Free Hot Dogs & Cold Cuts • Select Slices • Oscar Mayer Deli Favorites • Gorton’s Fish Filets • Veggie Burgers

3. Lessons • Body Buddies • Protein Plus Cereal • Donut Cereal • Saluto Pizza Reintroduction • Tom’s Potato Chips • McRib Sandwich • McSteak Sandwich • Billy Bologna • International Sausage • Paul Prudhomme’s Cajun Magic Meats • Louis Kemp Sirimi • Veggie Nuggets • Progresso Pasta Favorites

4. Why Introduce New Products? • The Case For Introducing New Products • Growth • Capacity Utilization • Competitive Position • The Case Against Introducing New Products • Difficulty in Identifying a Really New Idea • High Odds of Failure* • High Cost of Failure • “Cannibalization” of existing business. • Therefore the New Product Development Process is a Means of Infusing Creativity and Managing Risk. *The failure rate for new product introduction in the retail grocery industry is 70-80 percent.

5. New Product Development Process • A systematic approach that increases the odds of success. “The Fuzzy Front End” Opportunity Identification Idea Generation Concept Development Concept Screening* Product Development Marketing Plan Development Test Marketing* Commercial-ization Positioning Development *”Stage Gates”

6. Opportunity Identification • Business tracking • A. C. Nielsen • IRI • Usage Data • NET, Menu Census • MRI • Trend data • Yankelovich Monitor • Datamonitor • Everyday life Sources of Information:

7. Datamonitor Mega-Trends • Convenience – Quick meals • Health – 90% of Americans feel improving health is important • Age Complexity – Greater spending power among children/teens • Gender Complexity – Blurring of traditional gender roles • Lifestage Complexity – Empty nesters, boomerang children • Individualism & Customization • Sensory • Comfort • Connectivity

8. 1994 Strategic Insights at Pillsbury • Mom’s life is a hassle • 9-5 job • No time to plan or prepare meals • Fussy kids • Off to soccer practice • Important to get kids to eat vegetables • Kids won’t eat vegetables • Stress & guilt • Opportunity – an easy one dish fully assembled meal that the kids will eat, and adults will enjoy too.

9. End Game

10. Cross Functional New ProductDevelopment Team • Participation from most involved functions of organization. Marketing Research Research & Development Advertising Agency Marketing Team Leader Promotions Finance Sales

11. New Product Development Process “The Fuzzy Front End” Opportunity Identification Idea Generation Concept Development Concept Screening Product Development Marketing Plan Development Test Marketing* Commercial-ization Positioning Development

12. The Fuzzy Front End • Essentially a narrowing down process All Possibilities Principle – The more options you consider the better the odds of a winning new product. Viable Business Propositions

13. Idea Generation • Most often involves a process called “Ideation” • Participants – Cross Functional New Product Development Team • Generate Ideas – Diverge • Brainstorming – 100-200 ideas • Suspend judgment – no yes buts • Encourage creativity - look to the fringes • Identify Opportunity Areas - Converge • Prioritization of ideas • Problem solving to “Lift” ideas • May sketch or prototype ideas • Generate New Product Concepts

14. Ideation Setting

15. Ideas Collected • Doughnut on a stick • Microwave breakfast cereal • Self heating side dish • Bologna slices with clown face • Pizza topping on fish fillets • Vegetables in a Pez dispenser • Dipping frosting • Cracker size cold cuts and cheese

16. Concept Development • Usually the task of Marketing and/or Ad Agency • Can involve conducting “Focus Groups” • Two objectives: • Judge whether the concept fits the opportunity area, and constraints • Refine the concept / Describe the concept: • What it is • What benefit(s) it delivers to the user • Key information – size, varieties, package, price • Determining whether the concept is appealing to consumers is not a primary objective.

17. Focus Group

18. Concept Testing • Produce a Concept Board • Conduct a survey • Nationally representative sample of consumers • Internet, Mail Panel, other • Show concept • Ask buying intent, uniqueness, value, etc. • Analyze the results • Compare scores to benchmarks, norms • Forecast “Trial” • If trial forecast demonstrates that enough people would be interested in trying the product if available, the concept qualifies for development – It clears the first hurtle.

19. Example - Concept “Board” Introducing Kraft Easy Mac Now your children can prepare Kraft Macaroni & Cheese themselves. New Kraft Easy Mac is microwavable and can be prepared in one easy step – just place the package in the microwave for one minute, an stir. Kraft Easy Mac is the same great Mac & Cheese you grew up with, but now it is in a frozen form that makes it accessible to anyone in your family any time. One 8 ounce package costs $1.59

20. Volume Forecast from Concept Test • Step One – Forecast Trial • Uses Trial Forecast Model • Scores from previously tested concepts, and their resulting in-market volume • Proprietary Models • Step Two – Performa Volume Estimation • Profit & Loss Analysis – Can concept (if successfully developed) meet corporate hurtles?

21. Volume Forecast from Concept Test • Plugs in trial model, and assumptions for category purchase dynamics Input Assumptions based on Category Averages Forecast

22. New Product Development Process “The Fuzzy Front End” Opportunity Identification Idea Generation Concept Development Concept Screening Product Development Marketing Plan Development Test Marketing* Commercial-ization Positioning Development

23. Product Development • Early Stages – Broad design parameters • Produce early prototypes • Show to consumers • Get reactions • Refine design • Fine Tuning – Finalizing formulas • Vary formulations on key ingredients • Conduct product testing among consumers • Experimental designs offer most powerful learning • Optimize formulations, packages

24. Positioning Development • Develop positioning • Target • Benefit(s) • Frame of Reference • Support • Develop communications strategies • Media strategy • Copy strategy • Refine copy • Qualitative research – “Communications Check” • Produce rough ads • Conduct copy test • May be another “Stage Gate”

25. New Product Development Process “The Fuzzy Front End” Opportunity Identification Idea Generation Concept Development Concept Screening Product Development Marketing Plan Development Test Marketing* Commercial-ization Positioning Development

26. Marketing Plan • Starts with Positioning • Target • Benefit(s) • Frame of Reference • Support • Sales Plan – Who will sell it, where will it be sold? • Advertising Media Plan – How will we advertise it? • Promotion Plan – Consumer promotion (coupons), Trade promotion (on-sale) • Production Plan – How will we make it? • Plants • Lines • Financial Plan – How do we make the profit necessary to satisfy our share holders? • Fixed Costs - Capital investment, overhead • Variable Costs – Cost to produce – ingredients, packaging, distribution • Breakeven/Targeted Return on Investment

27. Test Market • Two Stages: • Simulated Test Market • Live Test Market • Simulated Test Market (STM) • Similar to Concept Test but with product • Provide samples to consumers who are concept interested • Measure both trial potential, and reaction to product. • Reaction to product is used to forecast repeat rate. • Volume is forecasted on basis of both the trial forecast, and the repeat forecast. • Second hurtle • Suppliers – BASES, ASSESSOR

28. Live Test Market • To measure actual sales volume • Two different types: • Controlled – BehaviorScan (Eau Claire) • Conventional – Isolated Markets, thru normal channels. • Track sales rate, trial, repeat. • Compare to goals. • Investigate gaps vs. goals.

29. War Stories • Oscar Mayer Deli Select – Package blew up in shipping to test market. • Oscar Mayer Select Slices – Package did not have shelf visibility in a real store. • Green Giant Veggie Nuggets – Trial was among the wrong consumers (seniors). • Lunchables w/drink box – BASES estimate was wrong, quickly went out of stock.

30. Commercialization • National expansion of product. • Can involve significant capital investment • Brick & Mortar • Equipment • Can involve distribution costs • Slotting fees other promotion • Sales incentives – insure selling it is a priority • Essential to “flank” product quickly – build product into a “Platform” • Maintain volume growth • Prevent competitive incursion

31. Flanking Example - Lunchables

32. Some Key Points • New Product Development Process is used by most companies to reduce the risk of failure, and produce new winning products. • It really starts with an opportunity identification step. • The first stages – the “Fuzzy Front End” is based on considering a lot of alternatives. • Business analysis occurs throughout the process – “Stage Gates” are built in: • At the concept test stage – to justify development costs • At the test market stage – to justify going to market. • The Marketing Plan includes a comprehensive set of plans that involve Sales, Finance, Promotions, Advertising and Production.