New Product Development Strategy

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New Product Development
The Development of original products, product improvements, and new brands through the firm’s own R&D effort

New Product Development Strategy

Categories of New Products
New-to-the-world New product lines Additions Improvements Repositionings Cost reductions

The World’s Most Innovative Companies
Apple Google Toyota General Electric Microsoft Procter & Gamble 3M Walt Disney IBM Sony Wal-Mart Honda Starbucks Target BMW Samsung



Factors That Limit New Product Development
Shortage of ideas Fragmented markets Social and governmental constraints Cost of development Capital shortages Faster required development time Shorter product life cycles

Key Steps in New Product Development

Major Stages in New-product Development

Idea Generation
Idea generation is a continuous, systematic search for new product opportunities. It involves delineating sources of new ideas and methods for generating them.

Methods for Generating Ideas
Dimensional Analysis lists all of the physical
characteristics of a product type. Having obtained such a list, creativity can be triggered by asking questions such as: "Why is the product this way?“, "How could the product be changed?" or "'What would happen if one or more of the characteristics were removed?"

Problem Analysis is a need-assessment technique designed to develop an inventory of consumer problems in a particular product or service category and to serve as a basis for new product or service ideas.



Benefit Structure Analysis determines what specific benefits and characteristics are desired by consumers within a particular product or service category and identifies perceived deficiencies in what is currently provided.

Scenario Analysis identifies opportunities by capitalizing on projected future environments and associated consumer needs.

Other Sources
Competitors are a good source of newproduct ideas Distributors and suppliers Customers – but do not rely too much on them

Idea Management System
Appoint experienced manager Cross-functional team Toll-free number Encourage all stake holders to contribute A formal recognition process

What is a Venture Team?
A venture team is a cross-functional group charged with developing a specific product or business; intrapreneurs are relieved of other duties and provided a budget and time frame.

Criteria for Staffing Venture Teams
Desired team leadership style Desired level of leader expertise Team member skills and expertise Level of interest in concept Potential for personal reward Diversity of team members



Product / Idea Screening
After the firm identifies potential products, it must screen them. In product screening, poor, unsuitable, or otherwise unattractive ideas are weeded out from further actions.
• Today, many companies use a new-product screening checklist for preliminary evaluation. • In it, firms list the new-product attributes considered most important and compare each idea with those attributes. • The checklist is standardized and allows ideas to be compared.

Concept Testing
Concept testing presents the consumer with a proposed product and measures attitudes and intentions at this early stage of development.

Concept testing is a quick and inexpensive way of measuring consumer enthusiasm. It asks potential consumers to react to a picture, written statement, or oral description of a product. This enables a firm to determine initial attitudes prior to expensive, time-consuming prototype development.

Marketing Strategy Development Designing an initial marketing strategy for a new product based on product concept
The target market, product positioning, and sales, share, and profit goals for the first few years. Product price, distribution, and marketing budget for the first year. Long-run sales and profit goals and the marketing mix strategy.



Business & Financial Analysis
A review of sales, costs, and profit projections for a new product to find out whether these factors satisfy the company’s objectives

Business and financial analysis for the remaining product concepts is much more detailed than product screening.

• Factors considered in business analysis stage : • • • • • Demand projections Cost projections Competition Required investment Profitability

Product Development
Product development converts a product idea into a physical form and identifies a basic marketing strategy.

Test Marketing
It involves product construction, packaging, branding, product positioning, and usage testing.
Test marketing involves placing a product for sale in one or more selected areas and observing its actual performance under the proposed marketing plan.



The purpose is to evaluate the product and pretest marketing efforts in a real setting prior to a fullscale introduction.

Rather than inquire about intentions, test marketing allows actual consumer behavior to be observed. The firm can also learn about competitive reactions and the response of channel members.

Test Market Decisions
How many test cities? Which cities? Length of test? What information to collect? What action to take?

Criteria for Choosing Rollout Markets
Market potential Company’s local reputation Cost of filling pipeline Cost of communication media

Standard Test Marketing
Tested in small number of representative cities Results used to forecast national sales, profits, potential problems and fine tune marketing program They can be time taking and expensive Competitors can monitor, prepare defenses & also pre-empt

Controlled Test Markets
• Research Firms have a panel of stores & shoppers in each market • The firms control the marketing environment within the store • Details of purchases are analyzed • This method provides a cheaper & quicker solution • May not be representative



Simulated Test Markets
• Sample customers are shown ads & promotions of various products including the one being tested • Given money to purchase or retain in a lab store • Reasons are verified followed by phone interview • This method is
quick and inexpensive keeps competition at bay My not be representative

After testing is completed, the firm is ready to introduce the product to its full target market. This is commercialization and corresponds to the introductory stage of the product life cycle.

Commercialization involves implementing a total marketing plan and full production.

Key Success Factors in New Product Development

An investigation of new product practices in 700 firms by Booz-Allen & Hamilton identified the existence of common characteristics in companies that were successful at product innovation

1. Operating Philosophy
Successful companies are more committed to growth through new products developed internally.



2. Organizational Structure
They are more likely to have had a formal new product process in place for a longer period of time than unsuccessful companies. They are more likely to have a strategic plan that includes a certain portion of company growth from new products. Successful companies are more likely to house the new product organization in R&D or engineering and are more likely to allow the marketing and R&D functions to have greater influence on the new product process.

3. The Experience Effect
Experience in introducing new products enables companies to improve new product performance.

New product development costs conform to the experience curve: The more you do something, the more efficient you become at doing it. This experience advantage stems from the acquisition of a knowledge of the market and of the steps required to develop a new product.

4. Management Style
Successful companies appear not only to select a management style appropriate to immediate new product development needs but also to revise and tailor that approach to changing new product opportunities

An empirical research by Robert Cooper found three key factors that distinguish winning projects from the losers



Three key factors for effective product development: Factor 1: A High-Quality New Product Process Factor 2: A Clear and WellCommunicated New Product Strategy for the Business Factor 3: Adequate Resources for New Products

Factor 1: A High-Quality New Product Process
Some of these success factors that top performers build into their new product processes include: emphasizing the up-front predevelopment homework; building in the voice of the customer throughout

Factor 1: A High-Quality New Product Process

Factor 2: A Clear and WellCommunicated New Product Strategy for the Business

demanding sharp, early product definition having tough Go/Kill decision points where projects really do get killed and highlighting quality of execution throughout there are clear goals or objectives for the business's total new product effort; for example, what percentage of sales or profits new products will contribute to the business

there are clearly defined arenas— specified areas of strategic focus, such as products, markets, or technologies—to give direction to the business's total new product effort

the role of new products in achieving the business's goals and the new product strategy for the business are clearly communicated to all who need to know



Factor 3: Adequate Resources for New Products
In top-performing businesses, senior management has devoted the necessary resources—people and money, marketing and technical—to achieve the business's new product objectives

R&D budgets are adequate— judged to be sufficient in light of the business's new product objectives

What is Adoption?
the necessary people are in place and have their time freed up for new products.
Adoption is an individual’s decision to become a regular user of a product.

Stages in the Adoption Process
Awareness Interest Evaluation Trial Adoption

Adopter Categorization



Characteristics of an Innovation
Relative advantage Compatibility Complexity Divisibility Communicability

Marketing Management – A South Asian Perspective 13the By Kotler, Keller, Koshy, Jha Principles of Marketing 11the – Kotler & Armstrong Multiple Resources on the internet