New Product Development

1. New Product Development Min Ding Pennsylvania State University

2. Topics • What tradeoffs/factors determine the optimal NPD strategy • Contrast development strategies between digital and non-digital products • Impact of internet on NPD for non-digital products

3. Key Strategies in NPD • Try many different approaches at the same time • Launch a product fast with imperfect profile • Do things in parallel • Use customer feedbacks (understand customer needs) before and during the NPD process (instead of waiting until test market)

4. 1. Try many different approaches at the same time • Tradeoff between

5. Funnel: Business Opportunity $ Tunnel I: Business Opportunity $ Tunnel II: Business Opportunity $ NPD Pipelines Structures

6. Three Critical Drivers • cost • probability of survival • magnitude of the business opportunity (dependency on time to market and quality of the product)

7. An example: Decision Tree for Three Stage NPDSource: Ding and Eliashberg, 2000 Stage 3 Stage 2 Stage 1 Stage 0 Expected (Phase I) (Phase II) (Phase III) Launch Profit s1 s11 E0(s11) n1=n1* s2n1* s2 s1=0 0 n2=n2* s3n2* s11 E0(s11) s1 s2<n1* n1=s2 s3 n3=n3* s1=0 0 s1 s11 E0(s11) s2n1* n1=n1* s3<n2* Ln3* s2 s1=0 0 n2=s3 s11 E0(s11) s1 s2<n1* n1=s2 s1=0 0 L s11 E0(s11) s1 s2n1* n1=n1* s2 consider all available leads (L) s1=0 0 n2=n2* L<n3* s11 E0(s11) s1 s3n2* s2<n1* n1=s2 s3 s1=0 0 n3=L s11 E0(s11) s1 n1=n1* s2n1* s3<n2* s2 s1=0 0 n2=s3 s1 s11 E0(s11) s2<n1* n1=s2 s1=0 0

8. 2. Launch a product fast with imperfect profile • Tradeoff between

9. 3. Do things in parallel • Tradeoff between

10. 4. Use customer feedbacks before and during the NPD process • Tradeoff between

11. What’s the big deal about internet NPD? • There should be no such notion of old vs. new ways of NPD. The NPD decision rules (tradeoffs) are still the same. • The NPD strategies are different simply because the parameter values of the three prior discussed tradeoffs are significantly different.

12. Contrast development strategies between digital and non-digital products Try different approaches at the same time

13. Contrast development strategies between digital and non-digital products Launch a product with imperfect profile

14. Contrast development strategies between digital and non-digital products Do Things in Parallel

15. Contrast development strategies between digital and non-digital products Use Customer Feedbacks

16. Impact of internet on non-digital product development Let’s go back and revisit the four decision rules

17. Information Acceleration SystemsSource:Urban, Weinberg, and Hauser, 1996. • Place consumers in a virtual buying environment • IA systems simulate the information that’s available to consumers when they make a purchase decision • Virtual showroom visits • Advertising (TV, magazines, newspapers) • Review articles and consumer-oriented reports • Word of mouth • Are these virtual environments realistic enough to accurately measure behavior? • Early evidence is positive, but mixed Can we use similar approach to simulate new product for customers?

18. Summary • Key NPD strategies and the tradeoffs involved in each; • Be able to differentiate NPD strategies between digital and non-digital NPD; Sample final question: Propose the best product development strategies for each of the following two cases: • an e-commerce site for our class project • A best selling book for undergraduates