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New Product Development and Product Life-Cycle Strategies

By Chetan Chhabra FB11071 Shuaib khan FB11111

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New Product Development Strategy

New products can be obtained via acquisition or development. New products suffer from high failure rates. Several reasons account for failure.

Discussion Question

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Why do products fail?

See if you can identify the fatal flaw in the brands below and at right.

Ben-Gay Asprin

Buttermilk Shampoo

Fruit of the Loom Laundry Detergent

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Causes of New Product Failures

Overestimation of Market Size Product Design Problems Product Incorrectly Positioned, Priced or Advertised Costs of Product Development Competitive Actions

To create successful new products, the company must:

understand its customers, markets and competitors develop products that deliver superior value to customers.

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New Product Development Process

Idea Generation and Screening Concept Development and Testing Marketing Strategy Business Analysis Product Development Test Marketing Commercialization

New Product Development Process

Step 1. Idea Generation

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Systematic Search for New Product Ideas Internal sources Customers Competitors Distributors Suppliers

New Product Development Process

Step 2. Idea Screening

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Process to spot good ideas and drop poor ones Criteria

Market Size Product Price Development Time & Costs Manufacturing Costs Rate of Return

New Product Development Process

Step 3. Concept Development & Testing
1. Develop Product Ideas into Alternative Product Concepts

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2. Concept Testing - Test the Product Concepts with Groups of Target Customers

3. Choose the Best One

New Product Development Process

Step 4. Marketing Strategy Development Marketing Strategy Statement Formulation
Part One - Overall:
Target Market Planned Product Positioning Sales & Profit Goals Market Share

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Part Two - Short-Term:

Products Planned Price Distribution Marketing Budget

Part Three - Long-Term:

Sales & Profit Goals Marketing Mix Strategy

New Product Development Process

Step 5. Business Analysis Step 6. Product Development
Business Analysis
Review of Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives

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If No, Eliminate Product Concept

If Yes, Move to Product Development

New Product Development Process

Step 7. Test Marketing

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Standard Test Market

Full marketing campaign in a small number of representative cities.

Controlled Test Market

A few stores that have agreed to carry new products for a fee.

Simulated Test Market

Test in a simulated shopping environment to a sample of consumers.

Product Life Cycle

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Sales and Profits ($) Sales

Profits Time Product Development Losses/ Investments ($) Introduction Growth Maturity Decline

Introduction Stage of the PLC

Sales Costs Profits
Marketing Objectives

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Low sales High cost per customer Negative Create product awareness and trial Offer a basic product Use cost-plus Build selective distribution Build product awareness among early adopters and dealers

Product Price Distribution Advertising

Growth Stage of the PLC

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Sales
Costs Profits
Marketing Objectives

Rapidly rising sales

Average cost per customer Rising profits Maximize market share Offer product extensions, service, warranty Price to penetrate market Build intensive distribution Build awareness and interest in the mass market

Product Price Distribution Advertising

Maturity Stage of the PLC

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Sales
Costs Profits
Marketing Objectives

Peak sales
Low cost per customer High profits Maximize profit while defending market share Diversify brand and models Price to match or best competitors Build more intensive distribution Stress brand differences and benefits

Product Price Distribution Advertising

Decline Stage of the PLC

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Sales
Costs Profits
Marketing Objectives

Declining sales
Low cost per customer Declining profits Reduce expenditure and milk the brand Phase out weak items Cut price Go selective: phase out unprofitable outlets Reduce to level needed to retain hard-core loyal customers

Product Price Distribution Advertising

Major Stages in New-Product Development

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3Ms corporate culture encourages, supports, and rewards new product ideas and innovation

Companies do New Product Development so well that they are considered benchmarks of excellent Product Development practices. Two companies which clearly qualify for this honour are Toyota and 3M.

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Almost half of all 3M products are only 5 years old, and its innovation machine continues to roll out an astounding number high quality of new products every year. New product development practices at 3M have been studied and imitated for over a decade. Development methods used by 3M and Toyota may be distilled into to four key practices: Use Entrepreneurial Teams Focus on Business Value Overlap Development Phases Converge on Solutions

3M has a 15% rule:

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All scientists may use 15% of their time working on any project they wish. In addition, the company expects all new product teams to be led by a Product Champion. The champion typically has an entrepreneurial vision of a new product, and recruits scientists to use their 15% time to help develop the vision. New product teams can make great progress on company time with no official approval, and once they have developed their idea far enough, they appeal to the company for funding to bring their venture to market.
A new product development team at 3M is cross-functional, collaborative, autonomous and self-organizing. It deals well with ambiguity, accepts change, takes initiative and assumes risks. If the team is making progress toward a new product, it will be left alone.

Focus on Business Value

3M new product development teams have a wide measure of freedom and extremely challenging goals. But these goals are not cost, schedule and scope. At each review, the key hurdle the team must pass is proving that the proposed product has a good margin potential. One reason why 3M gets hundreds of high margin new products each year is because senior management decision-making focuses teams on this broad strategic goal.

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Overlap Development Phases

At 3M, product development appears to move through a set of phases: concept, feasibility, product and process development, pilot production, scale-up. In fact, with a single crossfunctional team handling the product from start to finish, a new product will be manufactured on a pilot line and test marketed as early as possible. Changes will be made to the product spec, to the manufacturing process and to the product design, based on feedback from the manufacturing line and from customers. The major problem with this approach is that when a pilot product is successful, the team may not be able to scale up fast enough to meet demand. Its a nice problem to have

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CONCLUSION
3M teams would not be expected to know at the beginning of a new product development project exactly what they will commercialize. After all, Art Fry was trying to make a sticky bookmark when he invented Post-it Notes. When there are inventions to be made and markets to be tested, the product development team tries out many ideas, abandoning the ones that fail and pursuing those that work. Failure is not a problem at 3M less than half of new product development projects are expected to succeed. But from an abundance of options comes an large number of innovative products, including a regular stream of blockbuster successes.

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