New Product Management

What Is a New Product?

• New-to-the-World Products
– Polaroid camera, Sony Walkman, word-processing
software
• New Category Entries
– Hewlett-Packard PCs, Hallmark gift items, Tata
Passenger cars (Indica)
• Additions to Product Lines
– line extensions or flankers
• Product Improvements
– Wagon-R, Windows 98, plain-paper fax
• Repositionings
• Cost Reductions
Product Newness
What Is a Successful New Product?
Percent of Products that Fail
90
90
80
70
60
50 40
40
30
20 10
10
0
Sometimes Quoted Research Reports Sometimes Claimed
in Press

Although you may hear much higher percentages, careful

studies supported by research evidence suggest that about
40% of new products fail -- somewhat higher for consumer
products, somewhat lower for business-to-business products.
 The Conflicting Masters of New
Products Management

• Three inputs to the new Quality

products process: the
right quality product, at
the right time, and at the
right cost. Value
• These conflict with each
other but may have
Time Cost
synergies too.
• Issue: how to optimize
these relationships in a
new product situation.
 New Product Development
Imperatives-1

Breakthrough Platform Maintenance

A Bubble Diagram at a Hewlett-Packard
Division
The Basic New Product Process
Phase 1: Opportunity Identification/Selection

Phase 2: Concept Generation

Phase 3: Concept/Project Evaluation

Phase 4: Development

Phase 5: Launch
The Impact of Simultaneous Operations on
the Product Development Process
 Phase 1: Opportunity
Identification/Selection
Active and passive generation of new product
opportunities as
• spinouts of the ongoing business operation.
• New product suggestions,
• changes in marketing plan,
• resource changes,
• and new needs/wants in the marketplace.
Research, evaluate, validate, and rank them (as
opportunities, not specific product concepts).
Give major ones a preliminary strategic
statement to guide further work on it.
 Activities that Feed Strategic Planning
for New Products
• Ongoing marketing planning (e.g., need to
meet new aggressive competitor)
• Ongoing corporate planning (e.g., senior
management shifts technical resources from
basic research to applied product
development)
• Special opportunity analysis (e.g., a firm has
been overlooking a skill in manufacturing
process engineering)
 Sources of Identified Opportunities

• An underutilized resource (a manufacturing

process, an operation, a strong franchise)
• A new resource (discovery of a new material with
many potential uses)
• An external mandate (stagnant market combined
with competitive threat)
• An internal mandate (new products used to close
long-term sales gap, senior management desires)
 Phase 2: Concept Generation

Select a high potential/urgency opportunity, and

begin customer involvement. Collect available
new product concepts that fit the opportunity and
generate new ones as well.
 Phase 3: Concept/Project Evaluation

Evaluate new product concepts (as they begin to

come in) on technical, marketing, and financial
criteria. Rank them and select the best two or
three. Request project proposal authorization
when have product definition, team, budget,
skeleton of development plan, and final PIC.
 Stages of Concept/Project Evaluation

• Screening (pretechnical evaluation)

• Concept testing
• Full screen
• Project evaluation (begin preparing product protocol)

The first stages of the new products process are sometimes

called the fuzzy front end because the product concept is
still fuzzy. By the end of the project, most of the fuzz should
be removed.
 Phase 4: Development
(Technical Tasks) Specify the full development
process, and its deliverables. Undertake to
design prototypes, test and validate prototypes
against protocol, design and validate production
process for the best prototype, slowly scale up
production as necessary for product and market
testing.
(Marketing Tasks) Prepare strategy, tactics, and
launch details for marketing plan, prepare
proposed business plan and get approval for it,
stipulate product augmentation (service,
packaging, branding, etc.) and prepare for it.
 Phase 5: Launch

Commercialize the plans and prototypes from

development phase, begin distribution and sale
of the new product (maybe on a limited basis)
and manage the launch program to achieve the
goals and objectives set in the PIC (as modified
in the final business plan).
The Life Cycle of a Concept
 Rate of Use of NPD Steps among
PDMA Members
Concept searching 90%
Concept screening 76%
Concept testing 80%
Business analysis 89%
Product development (technical) 99%
Use testing/market testing 87%
Opportunity Identification and
Selection
Strategic Planning for New
Products
Opportunity Identification and Selection
 Opportunity Identification:
Finding Greenfield Markets
• Find another location or venue. Once McDonald’s had taken up the best
locations for traditional fast-food restaurants, it continued its U.S.
expansion by placing stores inside Wal-Marts, in sports arenas, and
elsewhere. Starbucks Coffee complemented coffee-shop sales by selling
its coffee beans and ice creams in supermarkets.
• Leverage your firm’s strengths in a new activity center. Nike has recently
moved into golf and hockey, and Honeywell is looking into casino
opportunities.
• Identify a fast-growing need, and adapt your products to that need.
Hewlett-Packard followed the need for “total information solutions” that
led it to develop computing and communications products for the World
Cup and other sporting events.
• Find a “new to you” industry: P&G in pharmaceuticals, GE in
broadcasting (NBC), Disney in cruises, Rubbermaid in gardening
products – either through alliance, acquisition, or internal development.

Source: Allan J. Magrath, “Envisioning Greenfield Markets,” Across the Board, May 1998, pp. 26-30.
 Why Does a Firm Need a New
Products Strategy?
• To chart the group’s/team’s direction
– What technologies?/what markets?
• To set the group’s goals and objectives
– Why does it exist?
• To tell the group how it will play the game
– What are the rules?/constraints?
– Any other key information to consider?
 Corporate Strengths
New products in this firm will:
• Use our fine furniture designers (Herman Miller)
• Gain value by being bottled in our bottling system (Coca-Cola)
• Utilize innovative design (Braun)
• Be for babies and only babies (Gerber)
• Be for all sports, not just shoes (Nike)
• Be for all people in computers (IBM)
• Proliferate our product lines (Rubbermaid)
• Be almost impossible to create (Polaroid)
• Use only internal R&D (Bausch & Lomb)
• Not threaten P&G (Colgate)
 Product Platform Planning
Many firms find that it is not efficient to develop a
single product.
Platform: product families that share similarities in
design, development, or production process.
• Car industry: $3 billion price tag on a new car platform is
spread out over several models.
• Sony: four platforms for Walkman launched 160 product
variations.
• Boeing: passenger, cargo, short- and long-haul planes
made from same platform.
• Black & Decker: uses a single electric motor for dozens of
consumer power tools.
Other Platforms-Brand, Category, SBU, Trade Channel
What is the Product Innovation Charter
(PIC)?
• It is the new product team’s strategy.
• It is for Products (not processes).
• It is for Innovation (think of the definition of
new product).
• It is a Charter (a document specifying the
conditions under which a firm will operate).
The Contents of a Product Innovation
Charter

Key id
A Sample PIC for a Chemical Product

Focus: The XYZ Company is committed to a program of innovation in specialty

chemicals, as used in the automobile and other metal finishing businesses, to the
extent that we will become the market share leader in that market and will achieve
at least 35 percent ROI from that program on a three-year payout basis. We seek
recognition as the most technically competent company in metal finishing.
Goals-Objectives: These goals will be achieved by building on our current R&D
skills and by embellishing them as necessary so as to produce new items that are
demonstrably superior technically, in-house, and have only emergency reliance on
outside sources. The company is willing to invest funds, as necessary, to achieve
these technical breakthroughs.
Guidelines: Care will be taken to establish patent-protected positions in these new
developments and to increase the safety of customer and company personnel.
 PIC Special Guidelines
• Degree of Innovativeness
– First-to-market
– Adaptive product
– Imitation (emulation)
• Timing
– First
– Quick second
– Slow
– Late
• Miscellaneous
– Avoidance of competition with certain firms
– Recognition of weaknesses
– Patentability
– Product Integrity
 Dimensions for Assessing
Strategic Fit
• Strategic goals (defending current base of products versus
extending the base).
• Project types (fundamental research, process improvements, or
maintenance projects).
• Short-term versus long-term projects.
• High-risk versus low-risk projects.
• Market familiarity (existing markets, extensions of current ones,
or totally new ones).
• Technology familiarity (existing platforms, extensions of current
ones, or totally new ones).
• Ease of development.
• Geographical markets (North America, Europe, Asia).
Strategic Buckets Model for
One SBU in Exxon Chemical
L ow M ark et N e wn ess H igh M arket N ewn ess

L ow P rodu ct N ewn ess Im pro ve m ents to E xisting P roducts

Additions to E xisting P roduct Lines
(35% ) (20% )

M ed iu m P rodu ct N ewn ess C ost R eductions N ew P roduct Lines

(20% ) (15% )

H igh P rod u ct N ewn ess R epositioning N ew -to-the-W orld P roducts

(6% ) (4% )

S ource: Adapted fro m R obert G. C ooper,ESdgett,

cott J.andE lko J.Kleinschmidt.
Portfolio M anagem ent
for N ew Prod ucts
, M cM aster University, Ha m ilton, O ntario, C anada, 1997, p. 63.
Concept Generation
 Required Inputs to the Creation
Process
• Form (the physical thing created, or, for a
service, the set of steps by which the service will
be created)
• Technology (the source by which the form is to
be attained)
• Benefit/Need (benefit to the customer for which
the customer sees a need or desire)
Technology permits us to develop a form that
provides the benefit.
Some Patterns in Concept Generation

Customer need firm develops technology

produces form
Firm develops technology finds match to need in a
customer segment produces form (Newton
message Pad)
Firm envisions form develops technology to
product form tests with customer to see what
benefits are delivered
Note: the innovation process can start with any of the
three inputs.
 What is a Product Concept?
• A product concept is a verbal or prototype
statement of what is going to be changed
and how the customer stands to gain or
lose.
• Rule: You need at least two of the three
inputs to have a feasible new product
concept, and all three to have a new
product.
 New Product Concepts and the
New Product

C
Need Form

C
C

“C”= Technology New

Concepts Product
 The Soft Bubble Gum Example

• Benefit: “Consumers want a bubble gum that

doesn’t take five minutes to soften up.”
• Form: “We should make a softer, more flexible
bubble gum.”
• Technology: “There’s a new chemical mixing
process that prevents drying out of food and keeps
it moist.”

Why would each of these taken individually not be a

product concept?
 What a Concept Is and Is Not
“Learning needs of computer users can be met by using
online systems to let them see training videos on the
leading software packages.” (good concept; need and
technology clear)
“A new way to solve the in-home training/educational
needs of PC users.” (need only; actually more like a
wish)
“Let’s develop a new line of instructional videos.”
(technology only, lacking market need and form)
 Methods for Generating Product
Concepts
Two Broad Categories of Methods:
• Gathering Ready-Made Product Concepts
• Using a Managed Process Run by the New
Products Team
 Best Sources of Ready-Made New
Product Concepts

• New Products Employees

– Technical: R&D, engineering, design
– Marketing and manufacturing
• End Users
– Lead Users
• Resellers, Suppliers, Vendors
• Competitors
• The Invention Industry (investors, etc.)
• Miscellaneous (continued)
Problem-Based Concept Generation
Problem Analysis: General Procedure
1. Determine product or activity category for
study.
2. Identify heavy users.
3. Gather set of problems associated with
product category.
– Avoid “omniscient proximity” -- rate
importance of benefits and levels of
satisfaction.
4. Sort and rank the problems according to
severity or importance.
 The Bothersomeness
Technique
List of pet owners' problems: A B AxB
Problem Occurs Problem is
Frequently B othersome
Need constant feeding 98% 21% .21
Get fleas 78 53 .41
Shed hairs 70 46 .32
M ake noise 66 25 .17
Have unwanted babies 44 48 .21
 Problem Analysis: Sources and
Methodologies
• Experts
• Published Sources
• Contacts with Your Business Customers
or Consumers
– Interviewing
– Focus groups
– Observation of product in use
– Role playing/Product Function analysis
 Scenario Analysis

• “Extending” vs. “leaping”

• Using seed trends for an “extend“
scenario
• Techniques:
– Follow “trend people”/”trend areas”
– “Hot products”
– Prediction of technological changeover
– Cross-impact analysis
Relevance Tree Form of
Dynamic Leap Scenario
 Wild Card Events and
Their Consequences
• No-Carbon Policy: Global warming may cause governments to put
high taxes on fossil fuels, shifting demand to alternative sources of
energy. This changes the allocation of R&D investment toward
alternative energy, possibly causes new “energy-rich” nations to
emerge, and ultimately may lead to a cleaner environment for
everyone.
• Altruism Outbreak: This is the “random acts of kindness” movement
– solve social problems rather than leaving it up to the government.
Schools and other institutions will revive due to community actions,
and perhaps inner cities would be revitalized.
• Cold Fusion: If a developing country perfects free energy, it
becomes prosperous overnight. It gains further advantages by
becoming an energy exporter.
 Solving the Problem
• Group Creativity Methods/Brainstorming
• Principles of Brainstorming:
– Deferral of Judgment
– Quantity Breeds Quality
• Rules for a Brainstorming Session:
– No criticism allowed.
– Freewheeling -- the wilder the better.
– Nothing should slow the session down.
– Combination and improvement of ideas.
Analytical Attribute Analysis
 What are Analytical Attribute
Techniques?

• Basic idea: products are made up of

attributes -- a future product change must
involve one or more of these attributes.
• Three types of attributes: features,
functions, benefits.
• Theoretical sequence: feature permits a
function which provides a benefit.
 Gap Analysis
• Determinant gap map (produced from
managerial input/judgment on products)
• AR perceptual gap map (based on
attribute ratings by customers)
• OS perceptual map (based on overall
similarities ratings by customers)
A Determinant Gap Map
 Obtaining Customer Perceptions

Rate each brand you are familiar with on each of the following:
Disagree Agree
1. Attractive design 1..2..3..4..5
2. Stylish 1..2..3..4..5
3. Comfortable to wear 1..2..3..4..5
4. Fashionable 1..2..3..4..5
5. I feel good when I wear it 1..2..3..4..5
6. Is ideal for swimming 1..2..3..4..5
7. Looks like a designer label 1..2..3..4..5
8. Easy to swim in 1..2..3..4..5
9. In style 1..2..3..4..5
10. Great appearance 1..2..3..4..5
11. Comfortable to swim in 1..2..3..4..5
12. This is a desirable label 1..2..3..4..5
13. Gives me the look I like 1..2..3..4..5
14. I like the colors it comes in 1..2..3..4..5
15. Is functional for swimming 1..2..3..4..5
Snake Plot of Perceptions (Three Brands)

Ratings
5

4.5

3.5 Aqualine

3
Islands
2.5

2
Sunflare
1.5

1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Attributes
 The AR Perceptual Map
2

Comfort
Aqualin
e
Gap 1

Islands Molokai

Fashion
-2 2
Splash
Sunflare

Gap 2

-2
 Failures of Gap Analysis
• Input comes from questions on how brands differ
(nuances ignored)
• Brands considered as sets of attributes;
totalities, interrelationships overlooked; also
creations requiring a conceptual leap
• Analysis and mapping may be history by the
time data are gathered and analyzed
• Acceptance of findings by persons turned off by
mathematical calculations?
 Trade-Off (Conjoint) Analysis
• Put the determinant attributes together in
combinations or sets.
• Respondents rank these sets in order of
preference.
• Conjoint analysis finds the optimal levels
of each attribute.
 Conjoint Analysis Input: Salsa
Example
Thickness Spiciness Color Actual Ranking as
Ranking* Estimated
by Model
Regular Mild Red 4 4
Regular Mild Green 3 3
Regular Medium-Hot Red 10 10
Regular Medium-Hot Green 6 8
Regular Extra-Hot Red 15 16
Regular Extra-Hot Green 16 15
Thick Mild Red 2 2
Thick Mild Green 1 1
Thick Medium-Hot Red 8 6
Thick Medium-Hot Green 5 5
Thick Extra-Hot Red 13 13
Thick Extra-Hot Green 11 11
Extra-Thick Mild Red 7 7
Extra-Thick Mild Green 9 9
Extra-Thick Medium-Hot Red 14 14
Extra-Thick Medium-Hot Green 12 12
Extra-Thick Extra-Hot Red 17 18
Extra-Thick Extra-Hot Green 18 17

* 1 = most preferred, 18 = least preferred.

 Conjoint Analysis: Graphical Output

Thickness Spiciness Color

2
UTILITY

-1

-2
Regular Thick Ex-Thick Mild Medium-Hot Ex-Hot Red Green
0.161 0.913 -1.074 1.667 0.105 -1.774 -0.161 0.161
 Conjoint Analysis:
Relative Importance of Attributes

0 20 40 60 80 100 %

Spiciness 59.8%
Thickness 34.6%
Color 5.6%
 Some Qualitative Attribute
Analysis Techniques
• Dimensional Analysis
• Checklists
• Relationships Analysis
– There are many others.
 A Dimensional Attribute List
• Weight • Explosiveness
• Rust resistance • Flammability
• Length • Aroma
• Color • Translucence
• Water resistance • Buoyancy
• Materials • Hangability
• Style • Rechargeability
• Durability • Flexibility
• Shock resistance • Malleability
• Heat tolerance • Compressibility
 An Idea Stimulator Checklist
for Industrial Products
• Can we change the physical/chemical properties of the
material?
• Are each of the functions really necessary?
• Can we construct a new model of this?
• Can we change the form of power to make it work better?
• Can standard components be substituted?
• What if the order of the process were changed?
• How might it be made more compact?
• What if it were heat-treated/hardened/cured/plated?
• Who else could use this operation or its output?
• Has every step been computerized as much as possible?
 Relationships Analysis
• Force combinations of dimensions (features, functions, and
benefits) together.
• Techniques:
– Two-dimensional matrix
– Multidimensional (morphological) matrix
• Two-dimensional example: person/animal insured and event
insured against.
• Household cleaning products example used six dimensions:
– Instrument used, ingredients used, objects cleaned, type of
container, substances removed, texture or form of cleaner
 Other Methods:
Lateral Search Techniques
• Free association
• Creative stimuli words
• Studying “big winners”
• Use of the ridiculous
• Forced relationships
• Analogy
Concept/Project Evaluation
The Evaluation System
Cumulative Expenditures Curve
% of
expenditures

Many high-tech
products

Many consumer
products

Time Launch
 Risk/Payoff Matrix at Each
Evaluation
Decision  A B
Stop the Project Now Continue to Next Evaluation
A. Product would fail if
marketed AA BA

B. Product would succeed if

marketed AB BB

• Cells AA and BB are “correct” decisions.

• Cells BA and AB are errors, but they have different
cost and probability dimensions.
 Planning the Evaluation
System: Four Concepts
• Rolling Evaluation (tentative nature of new
products process)-Risk management via
acceptance or mitigation)
• Potholes
• People
• Surrogates
 Rolling Evaluation (or,
"Everything is Tentative")
• Project is assessed continuously (rather than a single
Go/No Go decision)
• Financial analysis also needs to be built up continuously
• Not enough data early on for complex financial analyses
• Run risk of killing off too many good ideas early
• Marketing begins early in the process
• Key: new product participants avoid "good/bad"
mindsets, avoid premature closure
 Potholes
Know what the really damaging problems
are for your firm and focus on them when
evaluating concepts.
Example: Campbell Soup focuses on:
• 1. Manufacturing Cost
• 2. Taste
 People
• Proposal may be hard to stop once there
is buy-in on the concept.
• Need tough demanding hurdles,
especially late in new products process.
• Personal risk associated with new product
development.
• Need system that protects developers and
offers reassurance (if warranted).
 Surrogates

• Surrogate questions give clues to the real answer.

Real Question Surrogate Question

Will they prefer it?
after
Will cost be competitive?
Will competition leap in?
Will it sell?
Did they keep the prototype
product we gave them
the concept test?
Does it match our
manufacturing skills?
What did they do last time?
Did it do well in field testing?
An A-T-A-R Model of Innovation
Diffusion
Profits = Units Sold x Profit Per Unit

Units Sold = Number of buying units

x % aware of product
x % who would try product if they can get it
x % to whom product is available
x % of triers who become repeat purchasers
x Number of units repeaters buy in a year

Profit Per Unit = Revenue per unit - cost per unit

 The A-T-A-R Model: Definitions
• Buying Unit: Purchase point (person or
department/buying center).
• Aware: Has heard about the new product with some
characteristic that differentiates it.
• Available: If the buyer wants to try the product, the effort
to find it will be successful (expressed as a percentage).
• Trial: Usually means a purchase or consumption of the
product.
• Repeat: The product is bought at least once more, or
(for durables) recommended to others.
 A-T-A-R Model Application
10 million Number of owners of Walkman-like CD players
x 40% Percent awareness after one year
x 20% Percent of "aware" owners who will try product
x 70% Percent availability at electronics retailers
x 20% Percent of triers who will buy a second unit
x $50 Price per unit minus trade margins and
discounts ($100) minus unit cost at the intended
volume($50)= $5,600,000 Profits
 Getting the Estimates for
A-T-A-R Model
Item Market Concept Test Product Use Component Market Test
Research Test Testing
Market Units XX X X X
Awareness X X X X
Trial XX X X
Availability X XX
Repeat XX X
Consumption X X X XX
Price/Unit X X X X XX
Cost/Unit X XX

xx: Best source for that item.

x: Some knowledge gained.
Concept Testing
 Many Ideas Are Eliminated Before
Concept Testing
• PIC eliminates most new product ideas even before they
are developed into concepts.
• Ideas of the following types are excluded:
– Ideas requiring technologies the firm does not have.
– Ideas to be sold to customers about whom the firm
has no close knowledge.
– Ideas that offer too much (or too little) innovativeness.
– Ideas wrong on other dimensions: not low cost, too
close to certain competitors, etc.
 Suggested Questions for the
Initial Reaction
• Market Worth: what is the attractiveness of the
new product to the targeted customer
population?
• Firm Worth: Is the new product project viewed
positively by management? Does this new
product project enhance the firm’s
competencies?
• Competitive Insulation: Can the product’s
advantage be maintained against competitive
retaliation?
 What Is a Product Concept
Statement?
• A statement about anticipated product
features (form or technology) that will yield
selected benefits relative to other products
or problem solutions already available.
• Example: “A new electric razor whose
screen is so thin it can cut closer than any
other electric razor on the market.”
 Purposes of Concept Testing
• To identify very poor concepts so that
they can be eliminated.
• To estimate (at least crudely) the sales
or trial rate the product would enjoy
(buying intentions, early projection of
market share).
• To help develop the idea (e.g. make
tradeoffs among attributes).
Procedure for a Concept Test
• Prepare concept statement
• Clarify specific purposes
• Decide format(s)
• Select commercialization
• Determine price(s)
• Select respondent type(s)
• Select response situation
• Define the interview
• Conduct trial interviews
• Interview, tabulate, analyze
Mail Concept Test -- Verbal Description
Here is a tasty, sparkling beverage that quenches thirst, refreshes, and makes the mouth
tingle with a delightful flavor blend of orange, mint, and lime.
It helps adults (and kids too) control weight by reducing the craving for sweets and
between-meal snacks. And, best of all, it contains absolutely no calories.
Comes in 12-ounce cans or bottles and costs 60 cents each.

1. How different, if at all, do you think this diet soft drink would be from other
available products now on the market that might be compared with it?
Very different ( ) ( ) ( ) ( ) Not at all different

2. Assuming you tried the product described above and liked it, about how often do
you think you would buy it?
More than once a week ( ) ( ) ( ) ( ) ( ) ( ) Would never buy it
Purposes of the Full Screen
• To decide whether technical resources should be
devoted to the project.
– Feasibility of technical accomplishment -- can we do it?
– Feasibility of commercial accomplishment -- do we want
to do it?
• To help manage the process.
– Recycle and rework concepts
– Rank order good concepts
– Track appraisals of failed concepts
• To encourage cross-functional communication.
 Screening Alternatives

• Judgment/Managerial Opinion
• Concept Test followed by Sales
Forecast
(if only issue is whether consumers will like it)
• Scoring Models
 A Simple Scoring Model
Values
Factors: 4 Points 3 Points 2 Points 1 Point
Degree of Fun Much Some Little None
Number of People Over 5 4 to 5 2 to 3 Under 2
Affordability Easily Probably Maybe No
Capability Very Good Some Little
Student's Scores: Skiing Boating Hiking
Fun 4 3 4
People 4 4 2
Affordability 2 4 4
Capability 1 4 3
Totals 11 15 13

Answer: Go boating.
Source of Scoring Factor
Models
A Scoring Model for Full Screen
Note: this model only shows a few sample screening factors.

Factor Score (1-5) Weight Weighted Score

Technical Accomplishment:
Technical task difficulty
Research skills required
Rate of technological change
Design superiority assurance
Manufacturing equipment...
Commercial Accomplishment:
Market volatility
Probable market share
Sales force requirements
Competition to be faced
Degree of unmet need...
 The Scorers

• Scoring Team:
Major Functions (marketing, technical, operations, finance)
New Products Managers
Staff Specialists (IT, distribution, procurement, PR, HR)

• Problems with Scorers:

May be always optimistic/pessimistic
May be "moody" (alternately optimistic and pessimistic)
May always score neutral
May be less reliable or accurate
May be easily swayed by the group
May be erratic
 Alternatives to the Full Screen
• Profile Sheet
• Empirical Model
• Expert Systems
• Analytic Hierarchy Process
A Profile Sheet
 Empirical Screening Model
(This example is based on Project NewProd
database.)

Eight Significant Factors

• Product superiority
• Overall firm/resource compatibility
• Market need, growth, and size
• Economic advantage of product to end user
• Technological resource compatibility
• Product scope (mass vs. narrow specialty)
• Market competitiveness (-)
• Newness to the firm (-)
Why Financial Analysis for New
Products is Difficult
• Target users don’t • Biased internal
know. attitudes.
• If they know they • Poor accounting.
might not tell us. • Rushing products to
• Poor execution of market.
market research. • Basing forecasts on
• Market dynamics. history.
• Uncertainties about • Technology
marketing support. revolutions.
 Handling Problems in Financial
Analysis
• Improve your existing new products process.
• Use the life cycle concept of financial analysis.
• Reduce dependence on poor forecasts.
– Forecast what you know.
– Approve situations, not numbers (recall Campbell Soup example)
– Commit to low-cost development and marketing.
– Be prepared to handle the risks.
– Don’t use one standard format for financial analysis.
– Improve current financial forecasting methods.
The Life Cycle of Assessment
 Calculating New Product’s
Required Rate of Return
% Return
Reqd. Rate
of Return

Cost of
Capital

Risk
Avg. Risk Risk on
of Firm Proposed
Product
Hurdle Rates on Returns and
Other Measures Hurdle Rate
Product Strategic Role or Purpose Sales Return on Market Share
Investment Increase
A Combat competitive entry $3,000,000 10% 0 Points
B Establish foothold in new $2,000,000 17% 15 Points
market
C Capitalize on existing $1,000,000 12% 1 Point
markets

Explanation: the hurdles should reflect a product’s purpose,

or assignment. Example: we might accept a very low
share increase for an item that simply capitalized on our
existing market position.