Rob Menko

1
New product development

• Rob Menko
• Rotterdam School of Management / Erasmus Graduate
  School of Business

2
Table of Contents

• Why New Product Development
• Different types of New Products
• Product Development Process
• Reasons for New product Failures
• Reasons for New Product Success
• New Product Entry Strategies
• Measuring Success
• Value Innovation
• A real life Example

3
Why new products?

• The company ...
• creates excitement, commitment, revitalizes
• helps salespeople create stronger relationships
• pull through on existing products
• can reposition / restate companys position
• fuels future growth / offsets decline of old
  products

• Customers ...
• new customer benefits which creates value for
  customer (and supplier)

Source John A. Hall
4
Are new products worth investing in?

• success rate under 10
• high expenditure, adversely affects bottom line
• long term, may never pay out
• soak up disproportionate management time
• Why?
• Market uncertainty
• Technological uncertainty

5
Sources of market uncertainty
Source Rangan, 1995
6
Sources of technological uncertainty
Source Rangan, 1995
7
What is the success rate fornew product
introductions?

• 15 of concepts are introduced commercially
  and 65 of these succeed
• only about 1 in 10 new products succeed
• 80 of new ventures fail within 2 years

8
Types of new products
9
What is a new product?

• the 3 Rs repackaged, repositioned, recycled
• line extension
• new, improved, next generation
• its new for us
• breakthrough

Source John A. Hall
10
New product success rates

• The 3 Rs repackaged, repositioned, recycled
• line extension
• new, improved, next generation
• its new for us
• breakthrough

11
Degree of innovativeness

• breakthrough product
• next generation product (platform)
• derivative (incremental)
• addition to product family
• add-ons and enhancements

Source Wheelwright and Clark, 1992
12
New product innovationmatching perceptions
Source Rangan, 1995
13
Product development processat Akzo Nobel Coatings
Source Anderson Narus, 1999
14
The seven step NPD modelresource commitments ...
Source L. Williams, , 1998
15
New product development stages (1)

• 1. Product innovation charter
• 2. Idea generation
• 3. Initial screening
• 4. Preliminary market assessment
• 5. Preliminary technical assessment
• 6. Detailed market study
• 7. Preliminary business analysis
• 8. Product development

Source Rangan, 1995 adapted
16
New product development stages (2)

• 9. Alpha tests
• 10. Beta tests
• 11. Test market / trial sell
• 12. Trial production
• 13. Final business plan
• 14. Production ramp up
• 15. Market launch
• 16. Alternative phase

17
Timing and impact of management attention and
influence
18
Idea generation

• Market structure analysis
• Benchmarking
• Customer suggestions and complaints
• Competitor activity
• Employees
• Suppliers
• Patent files
• Legal requirements
• Creativity

19
Going beyond customer-led
20
Market-driven innovation

• 'There are at least three major barriers to
  successfully introducing market-derived
  information into a new product development
  project
• corporate core rigidities,
• the tyranny of the current markets, and
• user myopia.'

Source Rangan, 1995
21
Eight reliable ways to kill ideas

• It wont work here
• Weve tried it before
• This isnt the right time
• It cant be done
• Its not the way we do things
• Weve done all right without it
• It will cost too much
• Lets discuss it at our next meeting

22
The innovation wall
Source L. Williams, 1998
23
Test marketing
Source L. Williams, 1998
24
Market entry timing considerations

• First Mover
• Various advantages e.g. customer loyalty, chain
  partnering and opportunity to build entry
  barriers
• Lots of uncertainty
• Follower
• Lower / no market development costs
• Learning from mistakes of the leaders
• Parallel Entry
• Prevents pre-emption
• Creation of standard
• Customer / partner trust

25
New product evaluationKey questions

• Is there a sound reason for customers to buy the
  new product rather than the one they are already
  using?
• Will the new product make money for the company?

26
Launching the new product
27
Product failure types

• The better mousetrap nobody wanted (28 )
• The me-too product meeting a competitive
  brick-wall (24 )
• Competitive one upman-ship (13 )
• Environmental ignorance (7 )
• The technical dog (15 )
• The price crunch (13 )

28
Why do products fail?these are the stated
reasons ...

• Poor analysis of market needs 50
• Product defects 30
• Ineffective marketing 25
• Costs higher than expected 20
• Competitors reactions 19
• Poor timing of launch 14
• Technical / production problems 12
• All other 24

29
Cultural blockages to new product initiatives
Dont make waves
Hey, Ive got this really good idea
Ill never get past finance - forget it
Put it in a memo for the next meeting
But what if it fails?
We cant make it with the equipment weve got
Its been tried before
Theres no market for that type of thing
Its not our job to have ideas
30
Why do products fail?... other reasons might be

• bad idea, powerful champion
• a solution looking for a problem
• no market research
• no top commitment
• impatience not giving the product enough time to
  take hold
• not having direct control of key processes (e.g.
  subcontracting)
• consensus mentality / committee culture
• poor management... did the key stakeholders buy
  in to the idea and the process?

31
Causes of product failures

• Market too competitive
• Insufficient market research
• Product not novel
• No savings / benefits to users
• Insufficient training of sales support
• Insufficient promotion / advertising

32
New product developmentrecipes for success

• sharp focus on customers unsatisfied needs
• good operations planning
• good financial planning - include NPD in the
  business plan, sensitivity analysis, know the
  worst case ... can you live with it?
• teamwork approach- clear leader but wide
  cross-functional involvement
• supportive culture - free of politics, support
  of top management, allows failure
• speed
• accept failure early

Source John A. Hall
33
Shortening time-to-market

• Get slack out of the system
• Parallel activities
• Use newest technology
• Early supplier involvement
• Design for assembly
• Closer integration marketing - RD - production -
  purchasing
• Flexible manufacturing
• Alliances
• Fun

34
Reasons for product success

• Market synergy
• Technical synergy
• Product quality
• Advantage to customer significant
• Good target market identification and pricing
• Channel support

35
Harmony marketing RD means success
Source Souder, 1987
36
An innovation mindset
Innovation norms and values
Dedicated teams
Innovation strategy
Measurements
Innovation blueprint
Consumer-driven process
Performance- based rewards
Source Kuczmarski, 1996
37
Key skills required for product development

• Creative understanding of customer needs...
  current or potential
• Good project management disciplines
• Product portfolio management skills... kill
  early, kill often
• Ability to think outside the box in terms of
  service add-ons
• A culture of curiosity and questioning ideas
  orientated tolerant of failures and mistakes
  product development teams have high profile

38
How to support innovation

• Set innovative targets
• Develop long term thinking
• Systems rewarding successful innovation
• Build fun into organizations
• Accept failures in innovation as part of the
  game
• Get engineers, scientists etc. closer to
  customers
• With organization structures that support
  innovation

Source M. Parlitz
39
Measurementsthe top ten innovation indices (1)
40
Measurementsthe top ten innovation indices (2)
41
Lessons from the new product success
storieschecklist (1)

• Understand consumer needs
• Follow market trends
• Employ market segmentation
• Leverage a products global opportunities
• Align strategic partners and build relationships
  to manage difficult business environments
• Participate in the new products regulatory
  environment
• Select a new product development philosophy best
  suited to the organizations culture
• Treasure food leadership and support product
  champions with adequate resources
• Build cross-functional teams
• Leverage and mange creative resources

Source Thomas, 1995
42
Lessons from the new product success
storieschecklist (2)

• Empower employees who interact with customers
• Carefully assess the role of market research
• Run the numbers
• Define a clear core product concept
• Develop a superior product
• Pursue total quality management for new products
• Strive for innovative design based on design
  principles
• Consult lead users for new product ideas - with
  caution
• Increase the use of information technology in
  product design
• Select a positioning consistent with the core
  product concept

Source Thomas, 1995
43
Lessons from the new product success stories
checklist (3)

• Invest in and protect the brand name
• Prepare appropriate new product launch
  communication programs
• Achieve adequate distribution availability by
  launch date
• Provide sufficient value in introductory pricing
• Implement an integrated and resonating launch
  marketing program
• Assess market entry timing First-mover
  disadvantage?
• Persevere for effective execution testing,
  re-testing and training
• Anticipate the competition that a successful new
  product almost always attracts
• Do not give up easily on a good new product
  idea the entrepreneurial instinct
• Plan to be patient - accelerate product
  development when possible, but success takes time
• Adhere to strong business principles
• Foster a bias toward process over project success

Source Thomas, 1995
44
New product entry strategies
45
(No Transcript)
46
Optimal entry strategies
Source Aaker, 1995 adapted
47
Value innovation - the mindset

• Forget everything you know about the existing
  rules, practices and traditions of the industry!
• What would you do if you were starting afresh?

Source Kim Mauborgne adapted
48
Formula 1s success story

• Gained considerable cost advantages ? Building
  costs lt half of industry average ? Staff costs
  23 compared to 35 in the industry
• Captured mass market ? Market share gt next 5
  players combined
• Expanded the market ? From truck drivers to
  business travelers

49
Value innovation - the approach

• Which of the factors that our industry takes for
  granted should be eliminated?
• Which factors should be reduces well below the
  industry standard?
• Which factors should be raised well above the
  industry standard?
• Which factors should be created that the industry
  has never offered?

50
Reinventing industriesbreaking industry rules

• Shop the way the customer shops
• Pay attention to how the customer really uses the
  product or service
• Explore the customers latent dissatisfactions
• Pay careful attention to abnormalities
• Look for solutions to other industries
• Look for diseconomies in the industrys value
  chain

Source Stalk Pecaut
51
Strategic success

• Delivery of superior customer value is paramount,
  and drives shareholder and employee value
• Leading the customer is at least as important as
  being customer led
• Trying to be all things to all people is
  seductive but dangerous
• Sustainability comes from being imitation proof
• Past success guarantees nothing!

52
A new product plans specific variables (1)

• Product conceptualization and product attributes
• Product uses and applications
• Buyer benefits -specific customer need-
  satisfaction situations
• Market segments -'niche markets'
• Proper customer - product match analysis
• Possible new uses -discovered and undiscovered
• Organizational buying behavior - relative to the
  new product

53
A new product plans specific variables (2)

• Pricing mechanisms established with commensurate
  long-term strategy
• Distribution systems established with
  commensurate long-term strategy
• Promotion systems established with detailed
  strategic changes over time
• Contingency (what if) plans covering entire
  plan's horizon to contend competitive actions
• Pro forma income and cash flow statements for
  each plan year showing expected sales, costs and
  profit contribution

54
Product development assignment exercisea
picture is worth a thousand words

• Draw your impression of the present product
  development process of your unit
• How are you involved? Why?(Draw yourself in this
  picture)
• Draw the ideal product development process of
  your unit
• Explain your (future) contribution to this process

55
Product development assignment

• What will you do in order to
• a. Improve the process
• b. Improve your contribution
• Use your imagination!!
• Metaphors are welcome!

56
Product development and additiondevelopment
funnel
In this model of the development funnel, the
front end (phase one) is expanded to encourage
more and better idea generation. Following an
initial screening, the best of those ideas are
then detailed and analyzed (phase two), ready for
go / no-go decision. At screen 2, the approved
projects are staffed and moved toward rapid
introduction through a focused effort (phase
three).
57
Actual development funnel - Medical Electronics
Firm A. Team 1
This funnel, drawn by a group of executives,
illustrates the often confused reality of actual
development
funnels. In this diagram, there are many funnels
choice is a random throw of the dice, and the
course of
development is convoluted.
Source Clark Weelwright 1992
58
Actual development funnel- Medical Electronics
FirmB. Team 2
This funnel, drawn by a group of executives,
illustrates the problems firms experience with
real
development funnels. In this drawing, the source
of ideas is uncertain, products for development
get
jammed up and seem to recirculate, there is a lot
of heat at the end, and a few products 'drip out'
into the
market.
Source Clark Weelwright 1992