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Structure of Lecture

New Product Development

1.
2.
3.
4.

Why is new product development (NPD) important?


What is a new product?
How firms manage new product development?
How do we develop new products (process)?

Importance of NPD?
Why is NPD important?

NPD vital to continuing success


Difficult
NPD = transforming business opportunities
into tangible new products
Rewards of NPD are evident

A product is a multi-dimensional concept


brand name

What is a new product?


Are these all new products?

features
quality
specifications

price
level of
service

packaging

technology

Changes to any element


create a new product!

How can we classify new


products?
(20%)

Newness to
company

(10%)

New to the world


products

New product lines

High

(new to firm)
Firm enters category new to it

Create new markets

(26%)

(26%)

Revisions/improvements
to existing products

Additions to existing
product lines

Improvements to current products

Line extensions in current markets

(11%)

(7%)

Cost reductions
Low

How do we know which products to


develop and where to focus our efforts?
Product Strategies

Repositioning

Replaces existing product at lower


cost

Products targeted for new use

Low

High

Newness to market
Source: Booz, Allen & Hamilton, 1982

What NPD strategies do firms


have?
Product Strategy

Firm

How?

Elements of
strategy

1) Product proliferation

Sony
Honda
P&G

Range of televisions
Range of engine sizes
Range of nappies

Cover entire market


Launch many products
Market response
determines support

2) Value

Toyota
Lexus

High quality and


emphasis on reliability

New quality/cost tradeoff curves


Continuous improvement

3) Design (outward
appearance)

Braun
Harley Davidson
Apple

Unique styles, elegance


and ease of use

Aesthetics, touch, ease


of use
Engineering and
aesthetic design

4) Innovation

Canon
3M

Strong technology culture

Typically market pioneer


Technological &
marketing innovations

5) Service

American Express
Tesco

Forefront of service
development

Customer relations,
physical distribution,
customer service

Implementing strategies

The role of product platforms in NPDKey to some strategies

(particularly proliferation)

VAG inter-firm product platform development

How do we develop new products?

H igh

A ud i TT

A ud i A 3

Single platform
Many common parts

Product
price
V W G olf
Seat Le on
Skoda O kta via
L ow

O verall c ost lead ership


G eneric Stra tg ey

D ifferen tiation

What is the process?

New Product Development Activities

Looking in from the outsideThe Macro View of NPD

STAGE

SUMMARY OF ACTIVITIES
Market & technical analysis
Company objectives

Macro environment

Explicit statement of
new product strategy &
budget allocation

Idea Generation

Competition, finance, economic conditions, legal framework

Spinouts of ongoing SBUs


New product suggestions
Changes in marketing plans
Resource changes

Initial assessments:

New market needs & opps

Research, evaluate, & rank


Demand/potential &
capabilities

Idea Screening
Concept developmt
& testing

New ideas,
Suggestions,
concepts

Generate new ideas:

New products
& services

NPD
The organisation

Marketing Strat
Development
Business Analysis

Develop concept & statement


Research
Target markets &
positioning

Assess: market & technical


requirements

Organisational capabilities

Evaluate: market opportunity,


technical & marketing feasibility,
production requirement, financial
analysis, & corporate objectives

Differentiation & SCA

Prototyping

Product Development

?
How does this process work

Small or large scale tests


with consumers (inc market
testing

Test Marketing

Test full marketing mix


Issue of delays in timing &
costs of testing

Commercialization

Customer testing
Post launch evaluation (short &
long term

Timing
Full launch or roll-out

New Products & strategy


changes required

Costs

Summary of NPD Activities, adapted from Trott (2003) & Baker & Hart (2007)

Simultaneous Activities

Product & manufacturing


assessment (inc functional
performance against comp)

Use of data from test marketing

Network Models
External inputs:

per cent of activity

per cent of activity

100

commercialisation

100

technical
development
concept
generation

Competitors
Suppliers

External inputs:
Societal needs

Marketing and sales

Competitors

Customers

Supplier partnerships
Distributors
Customers
Strategic Alliances

strategic
planning
0

Distributors

Finance

duration of product innovation process

Engineering and
manufacturing

end

Research and
development
External inputs:

External inputs:

Scientific and
technological
developments

Competitors
Suppliers

Source: Crawford, 2000

Competitors

Distributors

Suppliers

Customers

Customers

University Departments

University Departments

The NPD Process as a Series of Linked


Strategic
Activities
planning
Scientific &
technological
developments

R&D

assembling
knowledge

Market
Research

Generating Business
opportunities

Society &
market
developments
leading to needs

Product concept generation


Development of
product prototypes
Market and technical testing
Market introduction

Screening
and evaluation
is not a one-off
activity
it is a continual
process and takes
place at every stage.

How do we improve new product development


performance & maximise success?

1.
2.

Projects and project based structures


Effective screening processes

1) New Products as Projects

Matrix Organisational Structure


full time

The process is managed and operated by people


NPD is not the preserve of one department
It involves a variety of people across the
organisation
Teams of people and project teams is at the heart
of NPD

part-time

marketing

Senior Management
R&D

Sales

production

Finance

Business
Team 1
Business
Team 2
Business
Team 3

2) Screening- Key part of


process!

It is not a single, one-off activity;


Do we have the necessary commercial knowledge and experience?
Do we have the technical know-how to develop the idea further?
Would such a product be suitable for our business?
Are we sure there will be sufficient demand?
The main purpose of screening ideas is to select those that will be
successful and drop those that will not- herein lies the difficulty
Kodak and IBM failed to see potential in photocopying but Xerox did
not
Apple exploited MP3 Sony & others?

Summary

New products and NPD are key


Many types of new products
Effective management requires strategy
and a well managed process
The process is complex and involves many
teams and interactions across the
organisation until a final product is
produced

References
Trott P (2005) Innovation management &
New product development, Prentice Hall, 3rd ed., London.
Baker M and Hart S (1989) Product strategy and management,
Harlow, Prentice Hall.
Deschamps J P and Nayak P R (1993) Lessons from product juggernaughts,
Prism, Second Quarter.
Wheelwright S C and Clark K B (1992) Revolutionising Product Development.
New York: The Free Press.
Booz, Allen & Hamilton (1982) New Product Management for the 1980s, Booz,
Allen & Hamilton.
Crawford (2000) New Products Management, Irwin.
Johnson & Jones (1997) How to organise for new products, Harvard Business
Review, May-June.
Ansoff (1965) Corporate Strategy, Penguin Press.

Additional Slides

How does NPD Contribute to


Growth? Strategies for growth
Current
Products

New
Products

Current
Markets

Market
Penetration

Product
Development

New
Markets

Market
Development

Diversification

What are the key


considerations in NPD?
External
environmental
changes

Internal
organisational
inputs

On-going
corporate
strategy

On-going R&D
and technology
management
strategy

On-going marketing
strategy

New product
strategy

(Ansoff, 1965)

A Range of Product
Development Opportunities

New Product Development activities

Increasing technology newness

Increasing
market
newness

Products objectives

No technological
change

Improved technology

New technology
To acquire scientific
knowledge and
production skills new
to the company

No market change

Sustain

Reformulation
To maintain an
optimum balance of
cost, quality and
availability in the
formulae of present
products

Replacement
To seek new and
better ingredients of
formulation for present
company products in
technology not now
employed

Strengthened market
To exploit more fully
the existing markets
for the present
companys products

Remerchandising
To increase sales to
consumers of types
now served by the
company

Improved product
To improve present
products for greater
utility and
merchandisability to
consumers

Product line extension


To broaden the line of
products offered to
present customers
through new
technology

New market
To increase the
number of types of
consumer served by
the company

New use
To find new classes of
consumer that can
utilise present
company products

Market extension
To reach new classes
of consumer by
modifying present
products

Diversification
To add to the classes
of consumer served by
developing new
technology knowledge

(Johnson &
Jones, 1997)

Summary: Phases & Evaluation Tasks


Process phase

Evaluation Task

Key Questions

Opportunity
identification &
selection

Direction

Where should we look?

Initial review

Is the idea worth


screening?

Concept generation

Concept/project evaluation
Full screen
Development
Progress reports

Have we developed it?


If not, should we
continue to try?

Market testing

Should we market it?


If so, how?

Launch