New product Development

Kingston Rumao
Roll no 49
S.y.m.m.s

SUBMITTED TO : SUBBARAO SIR

 Allen & Hamilton survey reported
that seven hundred companies
expected that 31% of their profits
would come from NEW PRODUCTS
ITRODUCTION in the next few years
 How can a company add new
products ?
 Acquisition
• Buy other companies
• Buy selected patents
• Buy a license or franchise from other company
 New product development
• Can develop within its own R&D .
• Can contract the NPD firms to develop

Many Organizations pursue both the above

ways
 What do we mean by new
products?
 Original products
 Improved products
 Modified products
 New brands
 Whether consumer see them as
“NEW”
 What are new products?
Newness to the company and to the market

 New to the world

 New product line
 Addition to existing product line
 Repositioning to new market segments
 Improvements/revisions
 Cost reductions
 Types of new products

20% 10%
New product lines New to the world

26% 26% Additions to existing

product line
Revisions /improvements
to existing products

11% 7%

Cost Reductions Repositioning

Objectives of New Product and Market
Development :
• Maintain position as a product innovator
•Defend a current market share position
•Establish a foothold in a future new
market, Preempt a market segment
•Exploit technology in a new way
•Capitalize on distribution strengths
•Provide a cash generator
•Use excess or off-season capacity
 The New product Dilemma
 The existing products are vulnerable
to changing consumer needs and
tastes, new technology , shortned
product life cycles and increased
domestic and foreign competition.
 Why New products fails ?

 High level executive pushing the idea through,

in spite of negative Market research findings.
 Idea may be good but overestimation of
Market Size
 Product Design Problems
 Product Incorrectly Positioned, Priced or
Advertised
 Costs of Product Development
 Competitive Actions
 Risks in developing new products?
 Texas Instruments lost $660 million before
withdrawing from the home computer business
 RCA lost $575 million on its ill fated videodisc
player.
 Ford lost $350 million on its ill fated EDSEL.
 Du Pont lost on estimated $100 million on its
synthetic leather called CORFAM
 Failure rate for NPD
 40% for consumer products

 20% for industrial

 18% for services

 What is to be done to make new
products successful?
To create successful new products, the
company must:
 Understand it’s customers, markets
and competitors
 Develop products that deliver
superior value to customers.
 Hindrance to successful new
product
 Shortage of important new product
ideas in certain areas
 Fragmented markets
 Social and Government constraints
 Costliness of the NPD
 Faster development time
 Shorter product life cycles.
 Steps in New Product
Development process
 Idea Generation
 Idea Screening
 Concept Development & Testing
 Marketing Strategy Development
 Business Analysis
 Small Batch Prototype Development
 Product Development & Testing
 Test Marketing
 Commercialization / Launch
New Product Development Process
Step 1. Idea Generation

Systematic Search for New Product

Ideas
Internal sources
Customers
Competitors
Distributors
Suppliers
New Product Development Process
Step 2. Idea Screening

 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.
1. Develop
DevelopProduct
ProductIdeas
Ideasinto
into
Alternative
Alternative
Product
ProductConcepts
Concepts

2.
2. Concept
ConceptTesting
Testing--Test
Testthe
the
Product
ProductConcepts
Conceptswith
withGroups
Groups
of
ofTarget
TargetCustomers
Customers

3.
3. Choose
Choosethe
theBest
BestOne
One
New Product Development Process
Step 4. Marketing Strategy Development
Marketing Strategy Statement Formulation

Part
Part One
One -- Overall:
Overall:
Target
Target Market
Market
Planned
Planned Product
Product Positioning
Positioning
Sales
Sales &
& Profit
Profit Goals
Goals
Market
Market Share
Share
Part
Part Two
Two -- Short-Term:
Short-Term:
Product’s
Product’s Planned
Planned Price
Price
Distribution
Distribution
Marketing
Marketing Budget
Budget

Part
Part Three
Three -- Long-Term:
Long-Term:
Sales
Sales &
& Profit
Profit Goals
Goals
Marketing
Marketing Mix
Mix Strategy
Strategy
New Product Development Process
Step 5. Business Analysis
Step 6. Product Development

Business
Business Analysis
Analysis

Review
Review of
of Product
Product Sales,
Sales, Costs,
Costs,
and
and Profits
Profits Projections
Projections to
to See
See ifif
They
They Meet
Meet Company
Company Objectives
Objectives

IfIf No,
No, Eliminate
Eliminate
Product
Product Concept
Concept

IfIf Yes,
Yes, Move
Move to
to
Product
Product Development
Development
New Product Development Process
Step 7. Test Marketing

Standard
Standard Controlled
Test Controlled
Test Market
Market Test
Test Market
Market
Full
Fullmarketing
marketingcampaign
campaign AAfew
fewstores
storesthat
thathave
have
in
in a small numberof
a small number of agreed
agreedto
tocarry
carrynew
new
representative cities.
representative cities. products
productsfor
foraafee.
fee.

Simulated
Simulated
Test
Test Market
Market
Test
Testin
inaasimulated
simulated
shopping environment
shopping environment
to
toaasample
sampleofof
consumers.
consumers.
 Product
Product Life
Life Cycle
Cycle

Sales and
Profits ($)

Sales

Profits

Time
Product Introduction Growth Maturity Decline
Development

Losses/
Investments ($)
Introduction
Introduction Stage
Stage of
of the
the PLC
PLC

Sales
Sales Low
Low sales
sales
Costs
Costs High
High cost
cost per
per customer
customer
Profits
Profits Negative
Negative
Marketing Create
Create product
product awareness
awareness
Marketing Objectives
Objectives
and
and trial
trial
Product
Product Offer
Offer aa basic
basic product
product
Price
Price Use
Use cost-plus
cost-plus
Distribution
Distribution Build
Build selective
selective distribution
distribution
Advertising
Advertising Build
Build product
product awareness
awareness among
among
early
early adopters
adopters and
and dealers
dealers
Growth
Growth Stage
Stage of
of the
the PLC
PLC

Sales
Sales Rapidly
Rapidly rising
rising sales
sales
Costs
Costs Average
Average cost
cost per
per customer
customer
Profits
Profits Rising
Rising profits
profits
Marketing
Marketing Objectives
Objectives Maximize
Maximize market
market share
share
Product
Product Offer
Offer product
product extensions,
extensions,
service,
service, warranty
warranty
Price
Price Price
Price to
to penetrate
penetrate market
market
Distribution
Distribution Build
Build intensive
intensive distribution
distribution
Advertising
Advertising Build
Build awareness
awareness and
and interest
interest in
in
the
the mass
mass market
market
Maturity
Maturity Stage
Stage of
of the
the PLC
PLC

Sales
Sales Peak
Peak sales
sales
Costs
Costs Low
Low cost
cost per
per customer
customer
Profits
Profits High
High profits
profits
Marketing
Marketing Objectives
Objectives Maximize
Maximize profit
profit while
while defending
defending
market
market share
share
Product
Product Diversify
Diversify brand
brand and
and models
models
Price
Price Price
Price to
to match
match or
or best
best
competitors
competitors
Distribution
Distribution Build
Build more
more intensive
intensive distribution
distribution
Advertising
Advertising Stress
Stress brand
brand differences
differences and
and
benefits
benefits
Decline
Decline Stage
Stage of
of the
the PLC
PLC

Sales
Sales Declining
Declining sales
sales
Costs
Costs Low
Low cost
cost per
per customer
customer
Profits
Profits Declining
Declining profits
profits
Marketing
Marketing Objectives
Objectives Reduce
Reduce expenditure
expenditure and
and milk
milk the
the
brand
brand
Product
Product Phase
Phase out
out weak
weak items
items
Price
Price Cut
Cut price
price
Distribution
Distribution Go
Go selective:
selective: phase
phase out
out
unprofitable
unprofitable outlets
outlets
Advertising
Advertising Reduce
Reduce to
to level
level needed
needed toto retain
retain
hard-core
hard-core loyal
loyal customers
customers
 Market entry strategies.
There are two market entry strategies:

1.Pioneer strategy.

2. Follower strategy.
Pioneer strategy:
Conventional wisdom holds that
although they take the greatest risk
and probably experience more failures
than their more conservative
competitors , successful competitors
are handsomely rewarded. it is
assumed competitive advantages
inherent in being the first to enter a
new product market can be sustained
through the growth stage and into the
maturity stage of the plc, resulting in a
strong share position and substantial
Potential sources of competitive advantages
available to pioneers are:
1.Frist choice of market segments and
position:
The pioneer has the opportunity to develop
a product offering with attributes most
important to the largest segment of
customers or to promote the importance of
attributes that favor its brand. thus
pioneers brand can become a standard of
reference customers use to evaluate other
brands. E.g. EXIDE BATTERIES.
2. The pioneer defines the rule of the
game:
The pioneers action on such variables as
product quality, price, distribution,
warranties, post-sale service, and
promotional appeals and budget sale
standard that subsequent competitors
must meet or beat. if the pioneers set
those standards high enough, it can raise
the cost of entry and perhaps preempt
some potential competitors.
3. Distribution advantages:
The pioneer has the most option in
designing a distribution channel to bring
the new product to the market. the
pioneer is the first in the market and
hence the distribution system can be
increased easily.

E.g. EXIDE BATTERIES.

4. Economies of scale and experience:
Being first means the pioneer can gain
accumulated volume and experience
and thereby lower per unit costs at a
faster rate than followers.
E.G : EXIDE, MARUTI 800
5. High switching costs for early
adopters:
Customers who are early to adopt a
pioneers new product may be reluctant
to change supplies when competitive
products appear. This is more in case of
industrial goods where the cost of
switching is high.Compatiable
equipment and spare parts, investment
in employee training and the risk of
lower product quality or customer
service make it easier for the pioneer to
6. Possibility of positive network effect:
The value of some kinds of goods and
services to an individual customer increases
as greater numbers of other people adopt
the product and the network of users grow
larger.
E.G. eBay.
Follower strategy:
In many cases a firm becomes a follower by
default it is simply beaten to a new product
market by a quicker competitor. The pioneer
shoulder the initial risk while the followers
observe their shortcomings and mistake.
Advantages of follower strategy are as followers:

1.Ability to take advantage of the

pioneers positioning mistakes:
If the pioneer misjudges the preferences
and purchase criteria of the mass-
market segment or attempts to satisfy
two or more segments at once, it is
venerable to the introduction of more
precisely positioned products by a
follower.
E.g.. Titan watches
2. Ability to take advantage of the pioneers
product mistakes:
If the pioneers initial product has technical
limitations or design flaws, the follower can
benefit by overcoming these weaknesses.
E.g.. Compaq capturing commercial PC
market
3. Ability to take advantage of the pioneers
marketing mistakes:
If the pioneer makes any marketing
mistakes in introducing a new entry, it
opens opportunity for later entry.
E.G. Microsoft widows operating system.
4. Ability to take advantage of the latest
technology:
In industries characterized by rapid
technological advances, followers can
possibly introduce products based on a
superior second generation technology and
thereby gain an advantage over the
pioneer.
E.g.. Honda Motors.
5. Ability to advantage of pioneers limited
resources:
Is the pioneer has limited resources for
production facilities or marketing
programs or fails to commit sufficient
resources to its new entry, followers
willing and able to outspend the pioneer
experience few enduring constraints.
E.g.. Lotus Operating System
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