Lesson 5 New Product Development

1. Reviews and summarizes the nature and techniques of new product

development.

NPD as a strategy for Growth

When one considers a variety of different industries, a decline in product innovations is
matched only by a decline in market share. New products are the outputs of the
innovation process, where the new product development (NPD) process is a subprocess
of innovation. Managing innovation concerns the conditions that have to be in place to
ensure that the organisation as a whole is given the opportunity to develop new products.
The actual development of new products is the process of transforming business
opportunities into tangible products.

The development of new products provides an opportunity for growing the business.
NPD is the only one of many options available to a business keen on growth.

One of the clearest ways of identifying the variety of growth options available to a
business is using Ansoff’s (1968) directional policy matrix. This well-known matrix,
shown in Figure 5.1, combines two of the key variables that enable a business to grow: an
increase in market opportunities and an increase in product opportunities. Within this
matrix, new product development is seen as one of four available options. Each of the four
cells considers various combinations of product–market options.

Figure 5.1 Ansoff matrix

Market Penetration
Opportunities are said to exist within a business’s existing markets through increasing
the volume of sales. Increasing the market share of a business’s existing products by
exploiting the full range of marketing-mix activities is the common approach adopted by
many companies. This may include branding decisions. For example, the cereal
manufacturer Kellogg’s has increased the usage of its corn flakes product by promoting
it as a snack to be consumed at times other than at breakfast.

Market Development

Growth opportunities are said to exist for a business’s products through making them
available to new markets. In this instance, the company maintains the security of its
existing products but opts to develop and enter new markets. Market development can
be achieved by opening up new segments. For example, Mercedes decided to enter the
small car market (previously the company had always concentrated on the executive or
luxury segment). Similarly, companies may decide to enter new geographic areas through
exporting.

Product Development
Ansoff proposes that growth opportunities exist through offering new or improved
products to existing markets. This is the subject of this chapter and, as will become clear,
trying to establish when a product is new is sometimes difficult. Nonetheless, virtually all
companies try to ensure that their products are able to compete with the competition by
regularly improving and updating their existing products. This is an ongoing activity for
most companies.

Diversification
It hardly needs to be said that opportunities for growth exist beyond a business’s existing
products and markets. The selection of this option, however, would be significant in that
the business would move into product areas and markets in which it currently does not
operate. The development of the self-adhesive notepads (Post-it Notes) by 3M provided
an opportunity for the company to enter the stationery market, a market of which it had
little knowledge, with a product that was new to the company and the market.

Additional opportunities for diversified growth exist through forward, backward and
horizontal diversification. A manufacturer opening retail outlets is an example of forward
integration. Backward integration is involvement in activities that are inputs to the
business, for example a manufacturer starting to produce components. Horizontal
diversification is buying up competitors.

Classifications of New Products

The following classification identifies the commonly accepted categories of new product
developments.

New-to-the-world products
These represent a small proportion of all new products introduced. They are the first of
their kind and create a new market. They are inventions that usually contain a significant
development in technology, such as a new discovery, or manipulate existing technology
in a very different way, leading to revolutionary new designs, such as Huawei airbuds.

New product lines (new to the firm)

Although not new to the marketplace, these products are new to the particular company.
They provide an opportunity for the company to enter an established market for the first
time. For example, Huawei have all entered the smartphone market to compete with
market leaders Apple and Samsung.

Additions to existing lines (line additions)

This category is a subset of new product lines above. The distinction is that, whilst the
company already has a line of products in this market, the product is significantly
different from the present product offering, but not so different that it is a new line. The
distinction between this category and the former is one of degree. For example, Hewlett
Packard’s colour ink-jet printer was an addition to its established line of ink-jet printers.

Improvements and revisions to existing products

These new products are replacements of existing products in a firm’s product line. For
example, Hewlett-Packard’s ink-jet printer has received numerous modifications over
time and, with each revision, performance and reliability have been improved. Also,
manufacturing cost reductions can be introduced, providing increased added value. This
classification represents a significant proportion of all new product introductions.

Cost reductions
From the firm’s perspective, however, they may be very significant. The ability to offer
similar performance whilst reducing production costs provides enormous added-value
potential. Indeed, frequently it is this category of new product that can produce the
greatest financial rewards for the firm. Improved manufacturing processes and the use
of different materials are key contributing factors.

Repositioning
These new products are, essentially, the discovery of new applications for existing
products. This has as much to do with consumer perception and branding as technical
development. This is, nonetheless, an important category. Following the medical science
discovery that aspirin thins blood, for example, the product has been repositioned from
an analgesic to an over-the-counter remedy for blood clots and one that may help to
prevent strokes and heart attacks.

Reasons for New Product Failure

1. Product offers nothing new or no improved performance
2. Inadequate budget to develop ideas or market the product
3. Poor market research, positioning, misunderstanding consumer needs
4. Lack of top management support
 5. Did not involve customer
6. Exceptional factors, such as government decision (e.g. new law on handgun
control may seriously affect the manufacturer of a new handgun)
7. Market too small, either forecasting error with sales or insufficient demand
8. Poor match with company’s capabilities, company has insufficient experience of
the technology or market
9. Inadequate support from channel (a problem experienced by Dyson)
10. Competitive response was strong and competitors were able to move quickly to
face the challenge of the new product (P&G highlighted weaknesses with
Unilever’s Persil Power)
11. Internal organisational problems, often associated with poor communication
12. Poor return on investment, forcing company to abandon project
13. Unexpected changes in consumer tastes/fashion

References:

1. Benlamri. R. and Sparer M. (2016). Leadership, Innovation and

Entrepreneurship as Driving Forces of the Global Economy. Springer
Proceedings in Business and Economics. ISBN 978-3-319-43434-6 (eBook).
2. Di Benedetto, A. (2014) New Products Management, 11th (International)
edn, McGraw Hill, USA. Urban, G.L.,
3. Leland, Karen T. (2016). The Brand Mapping Strategy. The Entrepreneur Press,
Publisher.
4. Tidd, J. et.al. (2005). Managing Innovation. Third Edition. John Wiley & Sons,
Ltd.
5. Trott, Paul. (2017). Innovation Management and New Product Development.
Sixth edition. Pearson Educational Limited. United Kingdom.