New Product Development

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Chapter Questions
What challenges does a company face in developing new products and services? What organizational structures and processes do managers use to manage new-product development? What are the main stages in developing new products and services?
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Chapter Questions (cont.)

What is the best way to manage the new-product development process? What factors affect the rate of diffusion and consumer adoption of newly launched products and services?

Categories of New Products

New-to-the-world New product lines Additions Improvements Repositionings Cost reductions
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Worlds Most Innovative Companies

Apple Google Toyota General Electric Microsoft Procter & Gamble 3M Walt Disney IBM Sony Wal-Mart Honda Starbucks Target BMW Samsung
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New Products
Companies failing to develop new products are at risk. Existing products are vulnerable to consumer needs/tastes, new technology, shortened PLC. However new products development too is risky. - TI ($500MM) home computer - Ford ($250MM) on Edsel - Dupont ($100MM) on synthetic leather
70-80% failure rate for FMCG and financial products
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New Products

Finding One Successful New Product

New Products
Why new products fail? - high level executives pet product - market size overestimated - product not well designed - overpriced - competitors fight back harder

New Products

Effective Organizational Arrangements

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Effective Org Arrangements

Top Management
Establish criteria for acceptance - within 5 years/ market potential of 100cr./ provide 30% return/ achieve market leadership - how to budget given the uncertainty(??)

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Effective Org Arrangements

3M Model
- Encourages all to become product champions (allows 15% time) - Create a multi disciplinary venture team - Expects some failure - Hands out Golden step award to each venture meeting new product standards

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Effective Org Arrangements

Product Managers - knowledgeable about current markets - likely to be busy with existing products - might lack knowledge to critique new products New Product Managers - report to product managers - like product managers, think more about line extensions/ modifications
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Effective Org Arrangements

New Product Departments - Large companies - covers R&D, testing & commercialization - access to top management New Product Venture Teams - dynamic (intrapreneurs) - setup for a specific product, relieved of normal duties, given a budget and time frame
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Assessment
Most sophisticated tool is
Stage-Gate System
- divide innovation process into stages - a gate/ check point at the end of each stage - project leader bring a set of deliverables to each gate - decide go/ kill/ hold/ recycle

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Stage-Gate System

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Managing New Product Development Process

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New Product Development

1. Idea Generation
- source could be customers, scientists, employees, competitors, channel, top mgmt - customers for most of the industrial products/ also product improvements - employees (Toyota claims 2MM ideas/yr). Even monetary rewards are provided. - competitors products and services (reverse engineering?) what customers like and dislike. - sales representatives. First hand info on market developments and customers.
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New Product Development

Idea Generation Techniques

Attribute listing:- List attributes of a product and find ways to improve. Forced Relationship:- several attributes are combined to create a new product. Morphological Analysis:- identifying structural dimensions and find novel combinations.

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New Product Development

Type Cart Chair Bed Medium Land Water Snow Sand Transmission Tyre Chain Rail Propeller

Need/Problem Identification:- customers - about level of dissatisfaction about any product/ service Brainstorming:- 8 to 10 people discuss ideas without criticism
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New Product Development

Lateral Mapping
Gas stations + food Cafeteria + Internet Cereal + snacking Candy + toy Audio + portable

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New Product Development 2. Idea Screening

- objective is to drop poor ideas as early as possible - committee evaluate and group ideas into promising/ marginal /rejects - Drop Error vs. Go Error

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New Product Development 2. Concept Dvlpt and Testing

-who will use the product? benefits? - develop a product positioning map and brand positioning map - test the concept with appropriate group of target consumers (product or model as close as possible to final product)
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New Product Development 3. Market Testing Simulated Test Marketing:- 30-40 qualified shoppers - screen - well known and new product ad - company note how many buys new and competing brands - non-buyers are given samples and contacted later

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New Product Development 3. Market Testing Controlled Test Marketing:- panel of stores - controls shelf positioning, displays etc.
Allows testing of store promotions, ads. Need not use its sales force.

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New Product Development 3. Market Testing Test Marketing:- how many cities, which cities, length of test - more reliable forecast/ test alternative marketing plans (avg. ad+free sample, heavy ad+ door to door sample etc.) Many companies skip to save time/ launch in 25% of country

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Behavior Scan (IRI)

Behavior Scan (IRI)

Household panels in five markets Panelists shop with an ID card presented at check-out (or scan products at home with hand-held scanner) Tracks each households purchases item by item, over time

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Behavior Scan (IRI)

Test commercial aired to one group of households -Evaluate effectiveness of advertising -Alternatively, test new products, promotions (coupons,etc.), in-store variables

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Only Split Cable Advertising Testing System

Invisibly deliver different TV commercials Broadcast Ad To distinct household groups in the same city

IRI Cut-In Ad

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Commercialization

Commercialization

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Commercialization

Will face largest cost

- Size of plant (build smaller than forecast Quaker oats) - Marketing may have to spend $20$80MM for ads and promo in first year

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Commercialization Elements of Cost - Market Potential - local reputation - cost of filling pipeline - cost of media - influence of area on other area - competitive penetration

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Commercialization

When
First Entry:- enjoys first mover advantage/ must debugged thoroughly Parallel Entry:- Entry coincides with competitors Late entry:- Delay the launch. Educate the market. Reveal fault. Assess size of market

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Commercialization Where
Single locality/ region/ several regions/ national market/ international market -few companies got confidence or resources to launch national - planned roll out (impact of internet??) - most companies design for domestic market - competitive presence influence regional choice

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Commercialization Whom
Target distn and promotion to best prospect - Early adopters - Heavy users - Opinion leaders Aim is to generate strong sales as soon as possible Who really use the product? -microwave oven (popcorn) - PC (cd rom)
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Commercialization How (market strategy)

Develop an action plan Sequence and coordinate

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Commercialization
FLAW 1 The company cant support fast growth. THE LESSON Have a plan to ramp up quickly if the product takes off
MOSQUITO MAGNET:- In 2000 American Biophysics launched Mosquito Magnet, which uses carbon dioxide to lure mosquitoes into a trap. Expanded manufacturing from its low volume Rhode Island facility to a mass production plant in China, quality dropped.

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Commercialization

FLAW 2 The product falls short of claims and gets bashed. THE LESSON Delay your launch until the product is really ready.
MICROSOFT WINDOWS VISTA:- In 2007 Microsoft launched Windows Vista. Allotted $500 million for marketing and predicted that 50% of users would run the premium edition within two years. But the software had so many compatibility and performance problems that even Microsofts most loyal customers revolted.

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Commercialization
FLAW 3 The new item exists in product limbo. THE LESSON Test the product to make sure its differences will sway buyers.
COCA-COLA C2 For its biggest launch since Diet Coke, Coca-Cola identified a new market: 20- to 40-year-old men who liked the taste of Coke (but not its calories and carbs) and liked the no-calorie aspect of Diet Coke (but not its taste or feminine image). C2, which had half the calories and carbs and all the taste of original Coke, was introduced in 2004 with a $50 million advertising campaign. C2 failed. A year later it launched Coke Zero, a no-calorie, full-flavor product that can be found on shelvesand in mens handstoday.

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Commercialization
FLAW 4 The product defines a new category and requires substantial consumer educationbut doesnt get it. THE LESSON If consumers cant quickly grasp how to use your product, its toast.
FEBREZE SCENTSTORIES In 2004 P&G launched a scent player that looked like a CD player and emitted scents (contained on $5.99 discs with names like Relaxing in the Hammock) every 30 minutes.

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Commercialization
FLAW 5 The product is revolutionary, but theres no market for it. THE LESSON Dont gloss over the basic questions Who will buy this and at what price?
SEGWAY News of a secret new product codenamed Ginger created by the renowned inventor Dean Kamen leaked to the press nearly 12 months before the products release. Kamen, it was said, was coming up with nothing less than an alternative to the automobile. At $5,000, instead of selling 10,000 machines a week, as Kamen had predicted, the Segway sold about 24,000 in its first five years.

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Case of Sunil the techie

Idea to rollout
- case of a PGDM alumnus

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Case of Sunil the techie

Idea
Customer feedback Collate and analyze automatically Analysis/ statistical engine

Reports and insight

On Cloud

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Case of Sunil the techie

Background Idea Worked for 1 year/ started with a mobile store/ switched to market research Provide a cloud based solution which analyze and provide customer response real time. Restaurants. Customers will sent an SMS as soon as they pay and replies will be analyzed daily and provide feedback.

Concept development1

Bottlenecks No database. Need loyalty card. Could get some business in providing and tracking loyalty cards.

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Case of Sunil the techie

Concept Development2

Airlines. Found traction with an interested senior executive.

Product Signed up with other batchmates and a software development& consultant. Stress test through telecom company. testing

Disaster The airline executive was transferred.

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Case of Sunil the techie

Concept development3

Relationship with placement firms and found an opportunity. Converted the idea into fast response. Targeted US markets.

Concept Need feedbacks from potential users. Offered $50 testing redeemable Amazon coupon for response. Many didnt redeem Product Same team. But got them to talk to potential users development Roll out Rolled out with one user although opportunity existed for few others

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Thank You
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