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NEW PRODUCTS MANAGEMENT
Yushan Zhao UW, Whitewater

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Review of Marketing
Marketing—4Ps: • Product • Price • Place (Distribution, Channels) • Promotion

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Product Life Cycles
• • • • • • Product Development Introduction Growth Maturity (Saturation) Decline

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Product Life Cycles
• Product Development: Stages
– New ideas/possible inventions – Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at? – Product Development and refinement – Test Marketing – possibly local/regional – Analysis of test marketing results and amendment of product/production process – Preparations for launch – publicity, marketing campaign

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Product Life Cycles
• Introduction/Launch:
– Advertising and promotion campaigns – Target campaign at specific audience? – Monitor initial sales – Maximise publicity – High cost/low sales – Length of time – type of product

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Product Life Cycles
• Growth:
– Increased consumer awareness – Sales rise – Revenues increase – Costs - fixed costs/variable costs, profits may be made – Monitor market – competitors reaction?

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Product Life Cycles
• Maturity:
– Sales reach peak – Cost of supporting the product declines – Ratio of revenue to cost high – Sales growth likely to be low – Market share may be high – Competition likely to be greater – Price elasticity of demand? – Monitor market – changes/amendments/new strategies?

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Product Life Cycles
• Saturation:
• New entrants likely to mean market is ‘flooded’ • Necessity to develop new strategies becomes more pressing: – Searching out new markets:
• Linking to changing fashions • Seeking new or exploiting market segments • Linking to joint ventures – media/music, etc.

– – – – –

Developing new uses Focus on adapting the product Re-packaging or format Improving the standard or quality Developing the product range

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Product Life Cycles
• Decline and Withdrawal:
– Product outlives/outgrows its usefulness/value – Fashions change – Technology changes – Sales decline – Cost of supporting starts to rise too far – Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again?

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Product Life Cycles
Sales
Development Introduction Growth Maturity Saturation Decline

Time

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Product Life Cycles
Sales

Effects of Extension Strategies

Time

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Video

•4Ps

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Team Activities
Discussion: • What is a new product? • Why do firms need to develop new products? • What are important for new product success?

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What Is a New Product?
• New-to-the-World Products
– Polaroid camera, in-line skates, Kevlar, word-processing software

• New Category Entries
– Hewlett-Packard PCs, Hallmark gift items, Discover Card

• Additions to Product Lines
– line extensions

• Product Improvements
– frozen yogurt, Miller Lite, Windows 98, plain-paper fax

• Repositionings
– Arm & Hammer baking soda

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Types of NPD Projects
New product lines (e.g. AT&T Universal Card) 10% New-to-the-world (e.g. laser printer) Additions to existing product line (e.g. Bud light)

High

20%

Newness to the company

26%

26%

Revisions/improvement to existing products (e.g. MS Excel ‘00) 11% Cost reductions (e.g. Low-end PC) 7% Repositionings (e.g. A&H Deodorizer)

Low Low Newness to the market High
Source: New Products Management for the 1980’s (New York: Booz, Allen &Hamilton, 1982

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What Is a Successful New Product?
Percent of Products that Fail
90 90 80 70 60 50 40 30 20 10 0

40

10

Sometimes Quoted in Press

Research Reports

Sometimes Claimed

Although you may hear much higher percentages, careful studies supported by research evidence suggest that about 40% of new products fail -- somewhat higher for consumer products, somewhat lower for business-to-business products.

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Classic Brand Names
• • • • • • • • • • Budweiser Ivory Coca-Cola Maxwell House Kodak General Electric Steinway Wrigley Kleenex Waterford • • • • • • • • • • L.L. Bean Ford John Deere Maytag JCPenney Sears Colgate Hershey Gillette Ticonderoga

Which of these have the most value today as launch pads for new products?

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The Conflicting Masters of New Products Management
• Three inputs to the new products process: the right quality product, at the right time, and at the right cost. • These conflict with each other but may have synergies too. • Issue: how to optimize these relationships in a new product situation. Quality

Value Time Cost

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Breakthrough Innovations that Changed Our Lives
• • • • • • • • • • • Personal Computer Microwave Oven Photocopier Pocket Calculator Fax Machine Birth Control Pill Home VCR Communication satellite Bar coding Integrated Circuit Automatic Teller • • • • • • • • • • • Answering Machine Velcro Fastener Touch-Tone Telephone Laser Surgery Apollo Lunar Spacecraft Computer Disk Drive Organ Transplanting Fiber-Optic Systems Disposable Diaper MS-DOS Magnetic Resonance Imaging

This list was compiled in the early 1990s. Since then one would certainly have to add the Internet. Anything else you would add? Which would you delete?

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Not All New Products Are Planned
• • • • • • • Microwave ovens Aspartame (NutraSweet) ScotchGard fabric protector Teflon Penicillin X-rays Dynamite
In each case, an accidental discovery -- but someone knew they had something when they saw it!

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Challenges in New Product Development
• Failure occurs frequently

- Studies have shown that 40%-45% of NPD projects introduced to the market fail • Inefficiencies are pervasive* - Only 59% of products intro’ed were successful - Only 6.6 new product ideas lead to 1 success - More innovative projects took 23.8 mos. • Very expensive - Tens of $millions to several $billions
* 1995 PDMA Best Practices Survey

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Market Uncertainty
• Consumer fear, uncertainty, and doubt (FUD) • Customer needs change rapidly and unpredictably • Customer anxiety over the lack of standards and dominant design • Uncertainty over the pace of adoption • Uncertainty over/inability to forecast market size

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Technology Uncertainty
• Uncertainty over whether the new innovation will function as promised • Uncertainty over timetable for NPD • Ambiguity over whether the supplier will be able to fix customer problems with the technology • Concerns over unanticipated/unintended consequences • Concerns over obsolescence

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Competitive Uncertainty
• Uncertainty over who will be future competitors • Uncertainty over competitor’s strategies • Uncertainty over product form competition (competition between product classes vs. between different brands of the same product)

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NPD Strategies
• Reactive Strategies: - Defensive strategy - Imitative Strategy - Second-but-better Strategy - Responsive • Proactive Strategies

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Reactive Strategies
• Require concentration on existing products or markets • Can achieve little protection for innovation • Are in markets too small to recover investment • Are in danger of being overwhelmed by competitive imitation • Are in distribution chains dominated by another innovator

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Proactive Strategies
• • • Require rapid sales growth Provide high volume or margin Offer a capability of achieving patent or Market protection • Supply resources and time necessary to develop new products • Provide reasonable power in the distribution channel

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Discussion: Find examples for: •New-to-the-World Products •New Category Entries •Additions to Product Lines •Product Improvements •Repositionings

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Team Activities: Find 5 firms that using Proactive Strategies Find 5 firms that using Reactive Strategies

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NPD Myths
• First to market wins! • Company reputation, a strong brand name and a good selling effort will make almost any new product a success. • Having a low price is critical to winning.

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NPD Myths
• We just can’t afford the time to do market studies, customer tests and a trial sell. Speed is of the essence! • If you’re large, powerful and strong enough, you don’t need synergy to win. Diversify anywhere… any product, market or technology arena is “fair game.”

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NPD Myths
• Don’t try to pin down the definition of the product before development begins: This thwarts the creativity of the scientists. • The competitive situation makes all the difference between winning and losing: If you don’t succeed, blame it on a highly competitive market.

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Key Reasons for Failure
• Market too small
• • • • • Poor fit with company’s strengths No real benefit for customer Not new/not different product Poor competitive positioning Poor timing of product introduction

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Key Reasons for Failure (cont.)
• Lack of coordination across functional areas
• Organizational problems (e.g. conflict, communication, top management support) • Inaccurate forecasts • Inadequate support by channel • Market changes in customer tastes • Competitive response to new product • Major shifts in technology

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The Basic New Product Process
Phase 1: Opportunity Identification/Selection Phase 2: Concept Generation Phase 3: Concept/Project Evaluation Phase 4: Development Phase 5: Launch

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Stage-Gate System
Detailed Investigation (Business Case) Preliminary Assessment Preparation Development Full Production & Market Launch

Testing & Validation

Gate

Stage Gate

Stage Gate

Stage Gate

Stage Gate

Stage

Initial Screen

Second Screen

Decision on Business Case

PostDevelopment Review

Pre-Commcialization Business Analysis

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