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Submitted in partial fulfilment of the requirements For the award of the degree of
Master of Business Administration In Software Enterprise Management
Under the guidance of
Mr. Amit Gupta (ERP Consultant) CDAC, NOIDA
Centre for Development of Advanced Computing, Noida
Affiliated to Guru Gobind Singh Indraprastha University Kashmere Gate, Delhi - 110006
This is to certify that Report entitled “ STRATEGIC PROCESS IN NEW PRODUCT DEVELOPMENT ” which is submitted by me in partial fulfilment of the requirement for the award of degree MBA-(Software Enterprise Management), to GGSIP University, Kashmere Gate, Delhi comprises only my original work and due acknowledgement has been made in the text to all other material used.
Name: Enrolment No: Semester: Date :
Signature of the Student
TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION.................................................................................................... 1 CHAPTER 2: STRATEGIC PROCESS ......................................................................................... 3 CHAPTER 3: PRODUCT LIFE CYCLE STAGES...................................................................... 14 CHAPTER 4: NEW PRODUCT FAILURE ................................................................................. 19 CHAPTER 5: CONCLUSION ...................................................................................................... 21 CHAPTER 6: REFERENCES ....................................................................................................... 23
CHAPTER 1: INTRODUCTION
In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market.
There are two parallel paths involved in the NPD process: One involves the idea generation, product design and detail engineering; The other involves market research and marketing analysis.
Companies typically see new product development as the first stage in generating and commercialising new products within the overall strategic process of product life cycle management used to maintain or grow their market share.
Purpose of this Study
The purpose of the project is to get a deep understanding that what process is adopted by various companies which try to diversify their product lines.
The main scope of the project is to study the various steps and procedures adopted or are included in the strategic process of new product development.
CHAPTER 2: STRATEGIC PROCESS
This step is often called the "fuzzy front end" of the new product development (NPD) process
1. Ideas for new products can be obtained from basic research using :
SWOT analysis (Strengths, Weaknesses, Opportunities & Threats) Market and consumer trends Company's R&D department Competitors Focus groups Employees Salespeople Corporate spies, Trade shows
2. Idea Generation or Brainstorming of new product or service can begin when you have done your OPPORTUNITY analysis to support your ideas in the Idea Screening Phase.
The Fuzzy Front End is also described in literature as "Front End of Innovation", "Phase 0", "Stage 0" or "Pre-Project-Activities".
A universally acceptable definition for Fuzzy Front End or a dominant framework has not been developed so far. Fuzzy Front End generally consists of three tasks: strategic planning, concept generation, and, especially, pre-technical evaluation. These activities are often chaotic, unpredictable, and unstructured. In comparison, the subsequent new product development process is typically structured, predictable, and formal.
The term Fuzzy Front End describes the early stages of NPD as a four step process:
In which ideas are generated Subjected to a preliminary technical and market assessment Merged to coherent product concepts Which are finally judged for their fit with existing product strategies and portfolios
The vital predevelopment activities include:
1. Preliminary market assessment. 2. Technical assessment. 3. Source-of-supply-assessment 4. Market research: market size and segmentation analysis, voice of customer research. 5. Product concept testing 6. Value-to-the customer assessment 7. Product definition 8. Business and financial analysis.
These activities yield vital information to make a Go/No-Go to Development decision.
The object is to eliminate unsound concepts prior to devoting resources to them. The screeners should ask several questions:
Will the customer in the target market benefit from the product? What is the size and growth forecasts of the market segment/target market? What is the current or expected competitive pressure for the product idea? What are the industry sales and market trends the product idea is based on? Is it technically feasible to manufacture the product? Will the product be profitable when manufactured and delivered to the customer at the target price?
Concept Development and Testing
Develop the marketing and engineering details Investigate intellectual property issues and search patent data bases Who is the target market and who is the decision maker in the purchasing process?
What product features must the product incorporate? What benefits will the product provide? How will consumers react to the product? How will the product be produced most cost effectively? Prove feasibility through virtual computer aided rendering, and rapid prototyping What will it cost to produce it?
Testing the Concept by asking a sample of prospective customers what they think of the idea usually via Choice modelling.
Intellectual property (IP) Intellectual property is a term referring to a number of distinct types of legal monopolies
over creations of the mind, both artistic and commercial, and the corresponding fields of law. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; discoveries and inventions; and words, phrases, symbols, and designs. Common types of intellectual property include copyrights, trademarks, patents, industrial design rights and trade secrets in some jurisdictions.
These exclusive rights allow owners of intellectual property to reap monopoly profits. These monopoly profits provide a financial incentive for the creation of intellectual property, and, in case of patents, pay associated research and development costs.
Patent is a set of exclusive rights granted by a state (national government) to an inventor or their assignee for a limited period of time in exchange for a public disclosure of an invention.
The procedure for granting patents, the requirements placed on the patentee, and the extent of the exclusive rights vary widely between countries according to national laws and international agreements. Typically, however, a patent application must include one or more claims defining the invention which must be new, non-obvious, and useful or industrially applicable. In many countries, certain subject areas are excluded from patents, such as business methods and mental acts. The exclusive right granted to a patentee in most countries is the right to prevent others from making, using, selling, or distributing the patented invention without permission.
Choice modelling attempts to model the decision process of an individual or segment in a particular context. Choice modelling may also be used to estimate non-market environmental benefits and costs.
Choice Models are able to predict with great accuracy how individuals would react in a particular situation. Unlike a poll or a survey, predictions are able to be made over large
numbers of scenarios within a context, to the order of many trillions of possible scenarios.
Choice Modelling is believed to be the most accurate and general purpose tool currently available for making probabilistic predictions about human decision making behaviour. In addition Choice modelling is regarded as the most suitable method for estimating consumers’ willingness to pay for quality improvements in multiple dimensions.
Estimate likely selling price based upon competition and customer feedback Estimate sales volume based upon size of market and such tools as the FourtWoodlock equation Estimate profitability and breakeven point
The Fourt-Woodlock equation is a market research tool to describe the total volume of consumer product purchases per year based on households which initially make trial purchases of the product and those households which make a repeat purchase within the first year. Since it includes the effects of initial trial and repeat rates, the equation is useful in new product development.
The Fourt-Woodlock equation itself is
V = (HH * TR * TU) + (HH * TR * MR * RR *RU)
The left-hand-side of the equation is the volume of purchases per unit time (usually taken to be one year). On the right-hand-side, the first parentheses describe trial volume, and the second describes repeat volume.
HH is the total number of households in the geographic area of projection, and TR ("trial rate") is the percentage of those households which will purchase the product for the first time in a given time period. TU ("trial units") is the number of units purchased on this first purchase occasion. MR is "measured repeat," or the percentage of those who tried the product who will purchase it at least one more time within the first year of the product's launch. RR is the repeats per repeater: the number of repeat purchases within that same year. RU is the number of repeat units purchased on each repeat event.
The applied science of product forecasting is used to estimate each term on the righthand-side of this equation. Estimating the trial rate is complex and typically requires sophisticated models to predict, while the number of households is usually well known.
Beta Testing and Market Testing
Produce a physical prototype or mock-up Test the product (and its packaging) in typical usage situations
Conduct focus group customer interviews or introduce at trade show Make adjustments where necessary Produce an initial run of the product and sell it in a test market area to determine customer acceptance
New program initiation Finalize Quality management system Resource estimation Requirement publication Publish technical communications such as data sheets Engineering operations planning Department scheduling Supplier collaboration Logistics plan Resource plan publication Program review and monitoring Contingencies - what-if planning
Launch the product Produce and place advertisements and other promotions Fill the distribution pipeline with product Critical path analysis is most useful at this stage
New Product Pricing
Impact of new product on the entire product portfolio Value Analysis Competition and alternative competitive technologies Differing value segments (price, value, and need) Product Costs (fixed & variable) Forecast of unit volumes, revenue, and profit
These steps may be iterated as needed. Some steps may be eliminated. To reduce the time that the NPD process takes, many companies are completing several steps at the same time (referred to as concurrent engineering). Most industry leaders see new product development as a proactive process where resources are allocated to identify market changes and seize upon new product opportunities before they occur (in contrast to a reactive strategy in which nothing is done until problems occur or the competitor
introduces an innovation). Many industry leaders see new product development as an ongoing process (referred to as continuous development) in which the entire organization is always looking for opportunities.
Because the NPD process typically requires both engineering and marketing expertise, cross-functional teams are a common way of organizing projects. The team is responsible for all aspects of the project, from initial idea generation to final commercialization, and they usually report to senior management (often to a vice president or Program Manager). In those industries where products are technically complex, development research is typically expensive, and product life cycles are relatively short, strategic alliances among several organizations helps to spread the costs, provide access to a wider skill set, and speeds the overall process.
CHAPTER 3: PRODUCT LIFE CYCLE STAGES
The Product Life Cycle (PLC) has Five Stages:
Product Development Introduction Growth Maturity Decline
Product Development Stage
• • • • Begins when the company develops a new-product idea Sales are zero Investment costs are high Profits are negative
• • • Low sales High cost per customer acquired Negative profits
Innovators are targeted Little competition
Marketing Strategies for Introduction Stage
• • • • • Product – Offer a basic product Price – Use cost-plus basis to set Distribution – Build selective distribution Advertising – Build awareness among early adopters and dealers/resellers Sales Promotion – Heavy expenditures to create trial
• • • • • Rapidly rising sales Average cost per customer Rising profits Early adopters are targeted Growing competition
Marketing Strategies for Growth Stage
• • • • • Product – Offer product extensions, service, warranty Price – Penetration pricing Distribution – Build intensive distribution Advertising – Build awareness and interest in the mass market Sales Promotion – Reduce expenditures to take advantage of consumer demand
• • • • • Sales peak Low cost per customer High profits Middle majority are targeted Competition begins to decline
Marketing Strategies for Maturity Stage
• • • • Product – Diversify brand and models Price – Set to match or beat competition Distribution – Build more intensive distribution Advertising – Stress brand differences and benefits
• Sales Promotion – Increase to encourage brand switching
• • • • • Declining sales Low cost per customer Declining profits Laggards are targeted Declining competition
Marketing Strategies for Decline Stage
• • • • • Product – Phase out weak items Price – Cut price Distribution – Use selective distribution: phase out unprofitable outlets Advertising – Reduce to level needed to retain hard-core loyalists Sales Promotion – Reduce to minimal level
CHAPTER 4: NEW PRODUCT FAILURE
Causes of New Product Failures
• • • • • Overestimation of Market Size Product Design Problems Product Incorrectly Positioned, Priced or Advertised Costs of Product Development Competitive Actions
CHAPTER 5: CONCLUSION
To create successful new products, the company must:
understand its customers, markets and competitors Develop products that deliver superior value to customers.
CHAPTER 6: REFERENCES
Marketing management by Philip Kotler
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