Developing new products

Developing new products

1. Terms

   • Invention
     • Discovery of new ideas and mehods
   • Innovation
     • Commercializing an invention by bringing it to the market

2. Key success factors in innovation

   • Creating and delivering added value
   • Speed to market
     • Delay increases the risk others getting to the market first
     • Consumer priorities may change
   • A product's inferior perceived value cannot be compensated for with high communication spending

3. What is a new product?

   • Product replacements (45%)
     • Revisions and improvements to existing products (repositioning and cost reductions)
   • Additions to existing lines (25%)
     • Depth of product mix
   • New product lines (20%)
     • Move into a new market)
     • Width of product mix
   • New-to-the-world products (10%)
     • Highest risk

4. Creating and nurturing an innovative culture

5. Effective organization for new product development (NPD)

   • The importance of teamwork
   • The role of marketing directors
     • Encourage teamwork
     • Improve the provision of marketing information to R&D
     • Take R&D people out of the lab
     • Develop informal relationships with R&D
     • Learn about technology
     • Formalize the product development process
   • The role of senior management (for improving relationships between marketers and R&D people)
     • Make organizational design changes
       • Place marketing and R&D next to each other, give them more autonomy
     • Show personal interest in NPD
     • Provide strategic direction
     • Encourage teamwork
     • Increase resources
     • Understand marketing's importnace
   • Methods
     • Project teams
       • Cross-functional team for NPD
         • Better decision-making
         • Shared responsibility
         • Advantage from collective expertise
         • Helps in preventing "tunnel vision and inflexibility of problem solving"
     • Product and brand managers
       • Assignment of product managers to product lines and/or brand managers to individual brands
         • Responsible for managing exisitng product lines/brand and developing new ones
       • Common in high-volume, relative low-value products such as groceries, toiletries and drinks industries
     • New product departments and committees
       • Oversee the process of NPD review the projects, decide wether to continue them, etc.

6. Managing the NPD process

   • New product startegy
     • Setting objectives - target market, market share gain, profitability, technological leadership, resource allocation
   • Idea generation
     • Brainstorming
       • The technique where a group of people generate ideas without initial evaluation; only when the list of ideas is complete is each idea then evaluated
     • From the marketing environment
   • Screening
     • Using criteria
       • market attractiveness, fitting between product and company objectives, capability of the company to produce and market the product, etc.
   • Concept testing
     • Testing new product ideas with potential customers
     • Group discussions with questionnaires
     • Online marketing research
       • Community sites
     • Heed functional fixedness
       • The tendency of people to evaluate new products in terms of what they already know. Can impede innovation
       • Overcome it through the scenario method where the new product concept is explained and visualized to the consumer (scenario: description of how the new product is used in a new to the consumer setting so they appreciate the added value)
   • Business analysis
     • A review of the projected sales, costs and profits for a new product to establish whether these factors satisfy company obectives
     • Break-even analysis
       • States the quantity needed to be sold to cover costs
       • Used to see if the project is financially feasable
     • Sensitivity analysis
       • How price, cost and customer acceptance will impact sales revenue and profits
   • Product development
     • Principles for effective management of cross-functional teams in the product development stage
       • Clear mission and objectives
       • Organization of team members
       • Project plan with a work plan, resource requirements and evaluation objectives
       • Project leaders should not only manage the team internally but also externally by keeping in contact with the market
       • Responsibilities - shared within the team, but also as individual members of their departments
       • Executive sponsorship - a senior management member who is the link between the project team and the top management; also acts as a coach and mentor
     • Simultaneous engineering
       • The involvement of manufacturing and product development engineers in the same development team in an effort to reduce development time
     • Product testing
       • Focuses on the functional aspects of the product and on consumer acceptance
   • Market testing
     • The limited launch of a new product to test sales potential
     • Simulated market test
       • Consumers are put in a simulated market and product penetration (the proportion of consumers who buy the new product at least once) and repeat purchase (the rate of which purchasers buy again) are measured
     • Test marketing
       • The launch of a new product in one or a few geographic areas chosen to be representative of the intended market
       • Gives more accurate sales penetration and repeat purchases estimates
       • Benefits
         • Facilitates the "go/no go" national launch decision and the effectiveness of the marketing mix
       • Problems
         • The geographic area(s) may not be representative for the national level, making sales projections more inaccurate
         • Competitors may give incentives to distributors to give them more shelf space, and thus denying the new product of some
         • Needs to run for some time so repeat purchases can be measured. This way, competitors may go first to the market
         • Gain the cooperation of distributors
   • Commercialization
     • Developing a commercialization strategy for a new product
       • Target market
         • Diffusion of innovation process
           • Connect with product life-cycle
           • Managing Products
           • The process by which a new products spreads through a market over time
           • Understand the characteristics of the innovator and early adopter categories to target them at launch. They are the leaders in market acceptance and perception of the product => have a big influence over the success of the new products
           • Shows that target group and message need to be modified over time as new categories of customers enter the market
       • Differential advantage
         • Divisibility
           • The degree to which the product can be tried on a limited basis
     • Product replacement strategies
       • Facelift
         • Product churning
           • A continuous and rapid spiral of new product introductions
     • Success factors when commercializing technology
       • Being faster to market
       • Supplying a wider range of markets
       • More product launches
       • Using a wider breadth of technologies

7. Competitive reaction

   • Through the marketing mix
   • Response is faster in high-growth markets
   • Response is dependent on the market share of the introducer and his competitors
     • Slower response of competitors when introducing firm has a big market share. Faster response by competitors with bigger market share than the one of the introducing firm
   • Response is faster in markets with frequent product changes
   • Response time is related to the time needed to develop the new product

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