NEW PRODUCT DEVELOPMENT

Overview
y Financial engineers use

financial products to achieve

specific objectives.
y Financial engineers are assist in the development of new

financial product when existing products are unsuitable to accomplish a given objective
y New product development may result from productizing

the solution to a specific clients need

Distinguish between product and strategy

y Products are goods and services that are sold to clients. y Strategies are in-house trading techniques designed to

accomplish specific objectives of the firm.

y Strategies may be sold outright involving the transfer of

strategies may be sold when this is done, strategies become products of the firm.

PRODUCTS DEFINED
y Products are combination of tangible and intangible that

provide satisfaction of end users needs or wants.

y Tangible goods used by financial engineers often take the

form of financial instruments.

y Intangible are the provision of most services .and it is

not possible without the use of tangible goods

Model of New Product Development

Formulation of new product objectives and strategy Idea generation Idea screening Concept development Concept testing Project authorization

Project design and testing Process and system design and testing Marketing program design and testing Personnel training Product testing and pilot run Test marketing Full scale launch Post launch review

STAGES
y Direction y Design y Testing y Introduction

Direction
It includes 3 individual steps:
1. Formulation of new product objectives and

strategies. 2. Idea generation 3. Idea screening

Direction
Markets offerings Existing services Share building Market extension Existing buyers New buyers

New services

Line extension

New business

Design
It includes 8 steps y Concept development y Concept Training y Business Analysis y Project Authorization y Product design and Testing y Delivery process and System y Marketing Program y Personnel Training

CONCEPT DEVELOPMENT The surviving ideas are expanded into full-fledged concepts with the help of input from prospects and the financial institutions own customer contact personnel. CONCEPT TESTING  Understand the idea of the proposed service.  React favorably to it.  Feel it offers benefits that answer unmet needs. BUSINESS ANALYSIS Comprehensive scrutiny of the business implications of each concept. PRODUCT AUTHORIZATION Develop recommendations to top management concerning which new product ideas should be implemented.

PRODUCT DESIGN AND TESTING Conversion of the new product concept in to operational entity. This requires the development of operational details of the product. PROCESS AND SYSTEM DESIGN TESTING Delivery mechanism is very much important for the product that has to be installed, refined, and debugged to ensure smooth delivery. MARKETING PROGRAM It has to be formulated and tested in conjunction with prospective users. PERSONNEL TRANING All employees have to be familiarized with the nature and operational details of the new product.

Testing
y Product Testing is used to determine potential customers

acceptance of the new product .

y Pilot Run ensures smooth functioning of the product. y Test Marketing

Introduction

y Company now initiates the full-scale launch of the new

product.
y Post Launch Review

Instrument preview
Four broad classes
y Equity y Debt y Derivatives y Hybrids

EQUITIES
y Equities represent ownership interests in a business firm. y Equities

interest are sold by corporations and partnerships in order to provide the equity financing a necessary ingredient in any business organisation

DEBENTURES
y Debt instrument represent a debtor/creditor relationship

evidenced by some form of promissory note.

y Debt instrument are sold by business firms, government, and

individuals to finance purchase and to increase leverage

y Debt instruments are often lumped together with preferred

stock into a large category called fixed- income securities

DERIVATIVES
y Derivative instruments are instruments whose value is

derived from that of other assets called underlying assets

y The most important type of derivative instruments are

future contract,forward contract, option contracts and swaps

HYBRID
y Hybrid instruments are instruments that are not

perfectly classified into any of the other categories because they possess properties from more than one category

THANK U