WHAT IS NEW PRODUCT
DEVELOPMENT?
O The creation of products with new or different
characteristics that offer new or additional benefits to
the customer.
O Product development may involve modification of an
existing product or its presentation, or formulation of
an entirely new product that satisfies a newly defined
customer want or market niche.
A. Make or Buy
O A make-or-buy decision is the act of choosing between manufacturing a
product in-house or purchasing it from an external supplier. In a make-or-
buy decision, the most important factors to consider are part of
quantitative analysis, such as the associated costs of production and
whether the business has the capacity to produce at required levels.
O In regards to in-house production, a business must include expenses
related to the purchase and maintenance of any production equipment as
well as the cost of production materials.
O Buy costs related to purchasing the products from an outside source
must include the price of the good itself, any shipping or importing fees,
and applicable sales tax charges.
B. Types of new products
The Six categories of new products
O 1. New-to-the-world products (really new Products)
The alternative expression for new-to-the-world products (really
new products) already indicates that this is what most people
would define as a new product. These products are inventions
that create a whole new market. Examples: Polaroid camera,
the iPod and iPad, the laser printer and so on.
O 2. New-to-the-firm products (new Product Lines)
Products that take a firm into a category new to it. The
products are not new to the world, but are new to the firm. The
new product line raises the issue of the imitation product: a
“me-too”. Examples: P&G’s first shampoo or coffee,
O 3. Additions to existing product lines
These are simple line extensions, designed to flesh out
the product line as offered to the firm’s current markets.
Examples: P&G’s Tide Liquid detergent, Bud Light,
Special K line extensions (drinks, snack bars, and
cereals).
O 4. Improvements and revisions to existing products
Current products made better. Examples: P&G’s Ivory
Soap and Tide power laundry detergent have been
revised numerous times throughout their history, and
there are countless other examples.
O 5. Repositioning
Repositioning are products that are retargeted for a new
use or application. Yet, they can be considered as new
products, as the firm undertakes a new products
process.
O 6. Cost reductions
Finally, cost reductions complete the six categories of
new products. Cost reductions refer to new products
that simply replace existing products in the line,
providing the customer similar performance but at a
lower cost. May be more of a “new product” in terms of
design or production than marketing.
Challenges in New Product
Development
A. The Innovation Imperative
O Continuous innovation is a necessity
O Creating New Choices from
hidden Aspects and Ignored
Processes
O Need For A Positive attitude
towards innovation And Risk
taking
Example ; Apple Inc.
Guide Posts For Innovation
O Affordability
O Appropriateness
O Sustainability
B. New-Product Success
O Established Companies - INCREMENTAL
INNOVATION
O Newer Companies
DISRUPTIVE TECHNOLOGIES
Example: Dettol India - It is one of the
leading names in the liquid soap segment
with an 80 percent market share.
Product Success factors
• Unique superior product
• Well defined product concept
• Technological, marketing synergy
• Market attractiveness
. New-Product Failure
New products launched face failure Due to
• Misinterpreted market research
• High development costs
• Ineffectual performance
• Incorrect positioning
•Insufficient distribution support
• Tough competitors
•Inadequate ROI/Payback
• Overestimation Of market size
Example: Coca Cola- New Coke
O Why it failed: There was nothing wrong with old
coke.
Life lesson: If it ain’t broke, don’t fix it.
Organizational Arrangement
A. Budgeting For New-Product Development
R&D outcomes are so unpredictable that it is difficult to use
normal investment criteria when budgeting for new-product
development.
O Some companies simply Finance as many projects as possible,
hoping to achieve a few winners .
O Other companies apply a conventional percentage-of-sales figure
or spend what the competition spends.
O Still Others decide how many successful New products they need
and work backwards to estimate the required investment.
B. Organizing New-Product Development
Company handles the organizational aspect of New
Product Development in several ways.
O Cross functional teams - Most progressive companies
assign new product development to venture teams
and cross functional groups charged with developing
a specific product. These employees are generally
referred to as Intrapreneurs.
O Stage gate systems – Many top companies use the
stage gate system to divide the innovation process
into stages. The idea for the project leader is to
provide deliverables to each gate before the process
can pass onto the next stage.
New Product Development
Process
Managing the Development
Process : Ideas
Tapping into the masses for innovative ideas –
Nurturing innovation at the grassroots
Interacting with employees
Studying competitors
Adopting creativity techniques
Tata Nano
O The Tata Nano was a compact city
car manufactured and
marketed by Tata
Motors over a single
generation, primarily
in India, as an
inexpensive rear-engined
hatchback intended to appeal to current
riders of motorcycles and scooters
1. Idea Generation
• Idea generation is continuous, systematic search for
new product opportunities. It involves delineating
sources of new ideas and methods for generating them.
• Ideas for new products can be obtained from basic
research using a SWOT analysis (OPPORTUNITY
ANALYSIS), Market and consumer trends, company's
R&D department, competitors, focus groups,
employees, salespeople, corporate people.
2. Using Idea Screening
The object is to eliminate unsound concepts prior to
devoting resources to them.
The screeners must ask these 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?
5. Managing the Development
Process: Concept to Strategy
3. Concept Development and Testing
Concept testing present the consumer with a
proposed product and measure attitudes and
intention at this early stage of development.
Concept testing of prototypes can help avoid costly
mistakes.
Failure in Concept Development
O Bad Looks - Look became one of the reasons
for the failure of nano. The average Indian
population is more concerned about looks. In
a country where even a fat, bald man
advertises for a tall, thin, fair bride – would a
Tata Nano not appear as a blown up ‘match-
box’ or what many people called a ‘covered
auto rickshaw’? The design of the Tata Nano
did not go down too well with the target Indian
consumer, who concentrate more on how
something ‘looks’.
4. Marketing strategy development
Market strategy development includes development of
three part strategy plan
Describe the market’s size, structure, and behavior,
the planned product positioning, and the sales,
market share, and profit goals for first few years.
Outlines the planned price, distribution strategy, and
marketing budget for the first year.
Describes the long-run sales and profit goals and
marketing-mix strategy over time.
Failure in Marketing Strategy
O The Word ‘Cheap’ -This is the main reason
for the failure of the car because the word
‘cheap’ hugely affected the image of tata
nano. In fact, Ratan Tata admitted the
same in an interview to a news channel,
where he said, Nano became termed as
the cheapest car by the public and, I am
sorry to say, by ourselves, not by me, but
the company when it was marketing it. I
think that is unfortunate.
5. Business Analysis
• Estimate likely selling price based upon competition
and customer feedback
• Estimate sales volume based upon size of market
• Estimate profitability and breakeven point
Failure in Business Analysis
O It was estimated that the demand for the
People’s car shall be around 500 thousand
units per year but Tata Motors only managed
to sell 70,000 units in the initial year and
there was no considerable improvement in
this figure in the future.
Managing the Development process :
Development to Commercialization
6. Market 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
7.Commercialization
Commercialization involves implementing a total
marketing plan and full production
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
7. The Consumer-Adoption
Process
A. Stages in the Adoption Process
1. Awareness Stage
2. Interest and Information Stage
3. Evaluation Stage
4. Trial Stage
5. Adoption Stage
B. Factors Influencing the Adoption Process
Some important factors influencing the consumer
adoption process are as bellow:
Readiness of the Consumer/Customer to try new
products and switch to the new brands
New product or Innovation
Personal Choices and influences about the
Purchase Decisions
Varying Rates of Product Adoption
Readiness of the organization to launch new
products
Failures in Consumer
Adoption Process
O Negative Publicity and Failed
PR Movement
Another major factor which
was faced by the car was
the negative publicity which
appeared to conceal it.
Yes, a few car caught fire – but, all
the Tata Nanos did not catch fire? The PR cell at
Tata could not do enough to contain the
collateral damage done by the people for
negative publicity, which was one of the reasons
car did not take off.
O Expectations vs Reality - The Indian people
had expected a wonderful car which would
be affordable to their pockets and give their
image in a society because in
India purchasing a car is related to your
success. However, the requirements of the
Indian middle-class was not met by Tata
Nano: an average family of four members
had difficulty fitting in the car; there was no
boot-space, the car was not meant for the
rough Indian roads.
O Key success factors in New Product
Development
• Operating philosophy
• Organization structure
• The experience effect
• Management style
Patanjali Ayurveda
O Patanjali Ayurveda started its journey in
2006 in a humble way as a pharmacy
store. The company has changed its pace
and stepped the gas in 2013 with
introduction of full range of products like
biscuits, hair oil, shampoos, soaps etc.
Many established FMCG giants in India
might have never dreamt that Patanjali
could lap up Rs, 2000 crore sales in FY
15 and will aim for Rs 5,000 crore figures
in FY16.
O The Ayurveda based company has nearly
10,000 outlets, churning sales with wide array
of products. The entry of Patanjali is almost a
disruptive change in FMCG space which has
disturbed the strategic plans of established
players like HUL, ITC, Dabur, Colgate,
Britannia and Parle. Toothpaste brand like
‘Dantkanti’ is going hung-ho against brands
like Colgate, Pepsodent, and Dabur Red. The
feeling of ‘totally Indian’ has touched the right
chord with consumers which are backed up by
very aggressive marketing efforts by market
savvy Baba. Most Patanjali products are
priced at 20-40% less than the previously
leading brands. This has made consumers
take note of it and their shift in loyalty.
Netflix
O Netflix is a provider of on-demand internet
streaming media in United States and some
other countries. It was established in 1997
and started as a subscription based digital
distribution service but later in 2009 it added a
new feature of offering a collection of 100,000
titles on DVD and managed to gain 10 million
users. By 2017 it had made 56.71 million
subscribers in United States and 130 million
worldwide and their total digital revenue was
$11.6 billion. Thus it is changing the platform
of entertainment retail and technology
integration.
Thank You
