NEW PRODUCT DEVELOPMENT

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NEW PRODUCT DEVELOPMENT
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Importance of NPD

• PLC (and PEC) indicate NEW PRODUCTS ARE NEEDED
• About 1/2 of all profits come from products less
  than 10 years old
• RISK is present New Products Fail (33, 80)
• Not clear whether failure rate is too high
• What is the optimal failure rate??
• New Product Development is Expensive

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Paths to New Products

• Acquisition
• Buy product line/license
• Buy business
• Develop
• Basic Research
• Applied Research
• Copy cat strategy (fast but second)
• wait and pounce, same market/same product, new
  markets

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Two Major Approaches to New Product Development

• Need Pull
• Find out what people want and then develop
• Technology Push
• Develop technology and then figure out ways to
  apply to needs/wants

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NPD Preliminaries

• Structure -
• New product committee
• Product Managers
• New Venture Groups
• Strategic Guidelines? Product Innovation Charters
• What ideas should be sought/avoided?

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NEW PRODUCT DEVELOPMENT PROCESS

• STEP 1. Idea Generation and Capture
• Idea Sources
• Internal Service personnel, engineering and RD,
  sales force, marketing, other employees
• Boundary Organizations Distributors, suppliers,
  competitors, customers
• External Organizations Inventors, NASA,
  universities, think tanks
• Capture versus Generation

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• STEP 2. Idea Screening
• Cost 1000/idea
• DROP Errors IBM, Kodak, and Xerox (copiers)
  Radio and RCA, Victor Talking Machines
• GO Errors Fords Edsel, RCAs SelectaVision
  videodisc player, TIs home computers

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• STEP 3. Concept Development and Testing
• Cost/idea 20,000
• a. Flesh out product idea into more specific
  product concepts (add positioning)
• b. Have members of appropriate target group
  evaluate product concepts

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The following Two Steps Should NOT be
Independent!!

• STEP 4. Marketing Strategy Development
• Target group identification, position
  identification, 4 Ps
• STEP 5. Business Analysis
• NPV

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• STEP 6. Product Development
• Cost 200,000/idea
• Physical prototypes are developed and subjected
  to functional tests
• STEP 7. Test Marketing
• Cost 500,000
• Not always done f(risks, uncertainty)
• Of acceptance and competitive considerations
• Standard Test Markets
• Controlled Test Markets
• Simulated Test Markets

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• STEP 8. Commercialization
• Cost (national launch) 5,000,000
• When?
• F(competition, buying cycles, etc.)
• Where?
• F(market potential, company presence, etc.)
• To Whom?
• Channel considerations, early adopters
• How?
• Samples, discounts, heavy advertising, etc.

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Speeding Up New-Product Development

• Standard presentation Sequential development
• Simultaneous development stages are worked on
  simultaneously
• Expeditionary Marketing Lots of products
  generated and thrown at market (shotgun versus
  rifle approach)

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COMMENTS

• 1. Dont minimize failures - maximize values
• 2. Note that successive stages become more
  expensive
• 3. NPD is an investment decision
• 4. New products are needed