Mid-Term Spring-2021

Department of Business Administration

Subject: New Product Development Submission Day:

Thursday
Instructor: Tanzeel A. Rauf Patker Submission Date: 05th 021
Program: MBA Max. Marks: 25 Marks

Please follow the instructions carefully:

1. Write your answers directly on the Black Board (recommended) or

upload word file before the due date on Blackboard.
2. Write your name and registration ID on the first page of your Word
file.
3. Answer scripts can only be uploaded on Blackboard only during the
submission time.
4. To avoid any unforeseen problems, you are advised to follow the
Guide lines communicated by the Faculty Members.
5. Submission of answer copy(ies) will be considered acceptable
through Blackboard only. Therefore, do not submit your document
through email or any other medium.
6. Use 12 pt. font size and Times New Roman font style along with 1-
inch page margins.
7. Follow the requirements of the word limit and the marking criteria
while writing your answers.
8. Provide relevant, original and conceptual answers, as this exam aims
to test your ability to examine, explain, modify or develop concepts
discussed in class.
9. Do not copy answers from the internet or other sources. The plagiarism
of your answers may be checked through Turnitin.
10. Double check your word file before uploading it on BlackBoard to
ensure that you have uploaded the correct file with your answers.
Case: Aquafresh White Trays
This case details how GlaxoSmithKline (GSK) entered into an open
innovation relationship with a small manufacturing company, Oratech LLC,
to get into the teeth whitening market with Aquafresh White Trays. In one
sense, the partnership seems to be a perfect match, a textbook example of
open innovation in action. GSK noted the rapid growth in teeth whitening
products and was experienced in prod- uct marketing, sales, and
distribution. Also aware of the potential in this category, Oratech had
already developed the product, owned patents, and could handle
manufacturing. But the road was not as smooth as expected.

The first successful teeth whitening product was P&G’s Crest Whitestrips,
launched in 2001, followed by several competitors. While the market showed
great interest in these products, there were frequent customer complaints.
Most notably, customers found the first few products difficult to use, foul-
tasting, and messy. This suggested to GSK a market opportunity based on
improved customer value. By offering better teeth whitening properties, and
at the same time delivering a product that was tastier and easier to use, GSK
could capture a share of this mar- ket. GSK was already in the oral care
business with its Aquafresh toothpaste line; GSK management felt that only
a product that offered superior customer value would be worthy of carrying
the Aquafresh name. They also recognized that the most efficient way to
enter this market was with a partner that had the required technology
knowhow.

Oratech, a small private-label manufacturer, was already making a teeth

whit- ening tray and selling it to dentists and other professionals. They too
recognized the growth potential in the consumer market, but needed a
partner who owned the requisite marketing skills and brand equity. Oratech
identified a small number of potential partners and soon chose GSK due to
their marketing and R&D capa- bilities, in addition to competency in
working with regulatory agencies.

Some problems arose in the early going, due to differences in corporate

culture. Oratech was initially surprised by the complexity of development
and regulatory standards, which were second nature to a huge global
corporation like GSK. Per- haps more unexpectedly, the new products
processes employed by the two firms were somewhat different as well, with
Oratech’s version of the process being a little simpler and somewhat more
streamlined, typical of a smaller manufacturing firm.

The partnership went well, taking only about eighteen months to get the
new product ready for launch. GSK ran into some development challenges,
which re- quired that they make some decisions typical of late-phase
product development: Do we sacrifice quality, or slow down time-to-
market? Despite this slight setback, there was really never any doubt at GSK:
The commitment to bring the best- quality product to the consumer, under
the Aquafresh name, was the number-one priority. Oratech managers were
quite impressed with how seriously this commitment was taken by GSK,
who brought in consultants to try to fix the development problems and not
slow down development time too much. Scot Andersen, VP of marketing
and sales at Oratech, said that the “level of sophistication with which GSK
treats its own brands resulted in an improvement in our own processes.”

Aquafresh White Trays were launched in early 2007, beating all sales
forecasts and going on to be a top player in the teeth whitener category.
Executives from both companies agreed that a key factor leading to this
success was open commu- nication throughout the new products process. As
it turned out, if one partner ran into a manufacturing problem, the other was
able to find a solution. A good exam- ple of this was the manufacturing
process for the trays themselves. GSK preferred individual molding of the
trays, but knew that this would run up production time and cost; the
alternative was to vacuum-form and cut them, which led to imperfec- tions
at the edges. With its technical and manufacturing expertise, Oratech figured
out a way to trim the edges, resulting in a desirable finished product. In
turn, Orat- ech was very surprised to see how accessible GSK employees
(and even senior management) were throughout the new products process;
they were not expect- ing such a close relationship given GSK’s size.

Questions: (05 Marks Each) (Max. 200 in each part)

1. What accounts for the market success of the Aquafresh product?

Keep in mind: As large and knowledgeable as GSK is, both P&G and Colgate
already had similar products on the market, and both could easily defend
themselves against the competitive launch of Aquafresh. More generally,

2. What can be learned from GSK’s perspective, and also from Oratech’s
perspective, about making open innovation work?
Case: The Honda Element
Honda, like most automakers, is an expert in the use of product platforms. This
case takes you through all new products process phases, highlighting how
Honda applied its expertise in product platforms to develop a cost-efficient new
light truck, the Element, that was highly appealing to the targeted market
segment.
The development of the Element began in 1998 with an idea for a new kind
of light truck. At the time, Honda was already producing several lines of light
trucks and SUVs, including the CR-V, Pilot SUV, and Odyssey minivan. At that
time, a new cross-functional team was charged with developing a new light
truck to add to this line, targeting a different customer segment and usage
situation. In particular, the target was Generation Y males (aged 19–29) about to
buy their first car. Gen Y was a potentially lucrative market: It was a sizeable
segment, almost as large as the “baby boom” (individuals born between 1946
and 1964). Also, 52 percent of first-time car buyers were in this demographic. In
the original busi- ness model, Element sales were forecasted to reach about
50,000 units in the first year. This number was based on comparison against CR-
V sales, which reached about 100,000 per year in North America.

Senior salespeople at Honda recognized that several of their cars and light trucks
were popular with young women or with families, but nothing appealed to
young men. Honda also knew that several competitors had SUVs in the $20,000
price range that appealed to this segment. Getting loyalty at an early age has al-
ways been a strategy of automakers, as they expect that customers will trade up
to more expensive or luxurious cars in the line as they become more affluent. For
ex- ample, an Element buyer might trade up to an Accord, then an Odyssey,
through time. Honda was clearly using demographics as a segmentation base
and identifying a segment with very high growth potential.

The original charge of the product team was to develop a compelling new de-
sign that target users would respond to, while keeping the retail price affordable.
Therefore, the first task was to try to understand the core values and beliefs
of this unfamiliar segment. Ethnographic “fly-on-the-wall” research was
conducted at the X-Games, featuring competitions in extreme events such as hot-
dog skiing, snowboarding, and dirt-course motorcycle racing. Researchers with
camcorders watched X-Games participants and spectators before, during, and
after competitions. Later analysis of the videos provided a clear picture of the
young males in the target market: They exhibit strong cohort identification,
support social and environmental causes, are well educated, and tend to be less
career driven than older segments. These observations provided clues to Honda
designers on what features would need to be built in to appeal to this target. For
example, typical users of this age group would need a vehicle that provided
flexibility: it should be able to easily carry sporting equipment, dorm room
furniture, or plenty of friends, and could even serve as sleeping quarters for
weekend trips.

Product planners recognized that the light trucks currently in the line each had a
clear positioning statement. The CR-V was for single, active individuals or small
families; the Pilot was for larger families; and the Odyssey appealed to more
settled families. The Element could fill a gap in the positioning map: the light
truck for the single individual with an unconventional lifestyle.

Designers realized they would have to build flexibility into the Element’s de-
sign. It would need a unique appearance and would also have to provide a fun
driving experience. In all, four design themes were identified for the Element:
adaptability/modularity, authenticity, functionality, and attitude/expression.
These were added to the three design themes that drive development of all
Honda cars: performance, safety, and value, to get the seven design themes
that guided designers and engineers working on the Element.

Several different activities were then conducted simultaneously. Designers

sketched several new versions of a bold new exterior appearance. Meanwhile,
en- gineers worked on building in adaptability, focusing on fold-away seats that
pro- vided plenty of cargo or sleeping space when folded. Side doors were
attached in such as way as to permit easier entry and exit, and the tailgate was
also redesigned in a “clamshell” shape to improve access. A removable moon
roof would allow the user to carry a tall piece of furniture vertically, with the top
part sticking out. Armed with sketches of their progress so far, team members
(both engineers and marketers) visited several universities and met with male
students at frat houses. After obtaining feedback, they made adjustments and
were able to achieve many “quick-turn” improvements.

To get top management support for the Element, the product team invited
Honda executives to San Onofre Surf Beach in California, together with several
Gen Y university students, for a weekend camping trip. The group discussed Gen
Y lifestyle as well as car issues. The team felt that top management would
support the project if they “lived the life” of the target user. It worked. The top
executives were convinced of the value of the Element to the Honda car line, and
the project got approval. A launch date of late 2003 was chosen.

Once the project was approved, stylists updated their sketches, quarter-size clay
models were built, and eventually full-size prototypes were created and submit-
ted to top executives for approval. At the same time, a user group of 30 men in
the target age group, all living near Honda’s Design Center in Torrance,
California, was selected. They also reviewed sketches and prototypes, and
gradually a design that this group found really interesting was finalized.

Here is where Honda’s platform experience was put to use. New car product
development is usually broken down into subsystems. In the case of the
Element, four subsystems were used: exterior, interior, suspension, and power
train. For each, a design strategy was created, and work progressed with
periodic review by top management. The exterior subsystem consists of frame,
bumpers, wind- shield, sunroof, tailgate, and so forth. Many of these
components were specifically designed for the Element target segment, such as
the unique side doors and the clamshell tailgate. The exterior panels were also
designed with extra durability. In short, the Element’s exterior was different
enough from other Honda autos that it had to be designed uniquely, from the
ground up. Similarly, the interior was a unique design. The driving principle
behind the Element’s interior design was the flexibility in cargo storage. The
seats could be easily reconfigured into many different positions, or removed
entirely. It was also expected that sand or mud would likely find its way into the
storage area, so easy cleaning would be required.

The flooring was urethane-coated, and electronics were located above

the floor or put into waterproof barriers. Even waterproof seat fabric
was used.

There was little need to develop a totally unique suspension for the
Element, however. The ride needed to be maneuverable, sporty, and fun,
and the current CR-V suspension would not have delivered the desired
benefits. Honda engineers solved the problem by combining the basic
CR-V chassis with the power steering gearbox used in the CR-V, MDX,
and Pilot, making the Element wider and lower to the ground, and
adding wider tires. Finally, for the power train, they used the existing
2.4 liter VTEC (variable valve timing and emissions control) engine, spe-
cifically adapted for the Element to deliver 160 horsepower at 5,500 RPM
—plenty of power for the target customer. This engine also provided 26
miles per gallon (highway rating) and met all California emission
standards. Since the power train accounts for about 20 to 30 percent of
each car’s cost of goods, Honda has histori- cally invested in excellent
power trains; product teams such as the Element team are actually not
authorized to design new power trains but indeed must work with
Honda’s central Power Train Group. This same engine was used in the
2002 CR-V and Acura RSX, as well as the 2003 Accord. Together with the
Element, four differ- ent products were supported by the same engine,
and any advances made by the Power Train Group benefit all of these
products.

In summer 2003, initial manufacturing runs began and early versions of

the Element were delivered to dealerships. Marketing worked on
finalizing the brand name; “Element” was the favorite of the user panel
and also in research studies with prospective buyers. Communications
had to be carefully chosen, given Gen Y’s notorious aversion to
traditional advertising. Honda selected a more grass-roots approach,
creating buzz in auto enthusiast groups, at auto shows, and at colleges.
Honda sponsored surf events and tailgate parties at universities, highly
unusual for an automaker. More traditional television advertising used a
 lifestyle theme, showing groups of young Gen Y friends going to the
beach or to a party.

The product team’s hard work paid off. The Element was named
Automobile Magazine’s small SUV of the year for 2003, and sales have
been good—2004 sales reached 75,000 cars, substantially above the
forecast. The biggest surprise was that the Element proved popular
across all age groups: 40 percent of Element buyers were in their mid- to
late-30s, and baby boomers also bought the Element in large numbers.
Still, the buyers were mostly (not totally) male, and lived more active
lifestyles than typical Civic buyers. Older buyers seemed to like the fact
that it was clearly a young person’s car.

Requirement: (7.5 Marks Each Part) (Max 250 Words)

Comment on the factors leading to the success of the Element. Include
Honda’s platform strategy as well as any other aspects of the new
product’s process that you feel are relevant. In your answer, try also to
work out what the product in- novation charter (PIC) might have been
for the Element.

1. What tangible benefits resulted from bringing in the voice of the

customer?

2. What could be learned from this case for firms in industries other
than automobile manufacture?