Transcript New Product Development - Southern Methodist University

NEW PRODUCT
DEVELOPMENT
Professor Chip Besio
Cox School of Business
Southern Methodist
University
APPLE’S NEW-PRODUCT
INNOVATION MACHINE
APPLE’S NEW-PRODUCTS

Apple’s Innovation Machine

The Evolutionary
iPod nano and
Revolutionary
iPod touch
Benefits (+) and drawbacks (-) of a
firm’s market-product strategies
WHAT ARE NEW PRODUCTS?
New to the world
New to the company
Flankers
– Line extensions
– Brand extensions
Repositioning
Model changes
Dyson Products
Swiffer
Products
NEW PRODUCT DEVELOPMENT?
New product development is the most
important strategic activity of any firm
 However, it is the most risky venture
Most new products fail!
THE RISKS OF NEW PRODUCTS?
 Failure rates
– “…no more than 10% of all new products or services are
successful -- that is, still on the market and profitable after
three years” - Marketing Management (2003)
– 95% of new consumer products in US fail;90% of new
consumer products in Europe fail - Nielsen BASES and Ernst
& Young study (2002)
 Costs
– Introducing a new national brand can cost $20 million –
Marketing Management
– New Product News – “It probably costs $100 million to
introduce a truly new soft drink nationally and it costs $
10,000 to introduce a new flavor of ice cream in Minneapolis.
Somewhere in between is a worthless 'average' cost to
introduce a new product”
THE RISKS OF NEW PRODUCTS?
 Study by Assoc. of National Advertisers
(2004) --across all types of industries
– 27% of line extensions failed
– 31% of new brands introduced in categories
where company already had a product failed
– 46% of new products introduced to new
categories failed
 Only 1 in 9 new product ideas are carried to
the commercialization phase
NEW PRODUCTS AND WHY
THEY SUCCEED OR FAIL

Newness: The Organization’s Perspective
• Product Line Extension
• Significant Jump in Innovation
• True Innovation
10-9
Purina Elegant Medleys
What are the potential benefits and dangers
of incremental innovation?
10-10
NEW PRODUCTS AND WHY
THEY SUCCEED OR FAIL
LO3

Newness: The Consumer’s Perspective
• Continuous Innovation
• Dynamically Continuous Innovation
• Discontinuous Innovation
10-11
WHY NEW PRODUCTS FAIL
 Poor planning and strategy
– Market is not attractive
 Poor concept
 Poor execution
 Poor use of research
 Poor technology
 Poor timing
– Changes in tastes/environment
 Bad support from channel
WHY NEW PRODUCTS SUCCEED
 Top-management commitment
 Start with the consumer -- not the factory
 Intelligent use of research
 Find a competitive advantage
 Move quickly
 Know when to get out
 Accept, but manage risk
The degree of “newness” in a new product affects the
amount of learning effort consumers exert to use the
product
10-14
WHAT SEPARATES NEW-PRODUCT
WINNERS AND LOSERS
How a consumer product is classified affects which
products consumers buy and the marketing strategies
used
New Product Success Factors
Be close to the market
Set a strategic direction
Play to your strengths
Strong organizational support
Speed to market
THE SEVEN STAGES IN NEW-PRODUCT
DEVELOPMENT
THE NEW-PRODUCT PROCESS
STAGE 1: NEW-PRODUCT STRATEGY DEVELOPMENT

New-Product Process

New-Product Strategy Development
• Type of Strategy to Utilize
• SWOT Analysis Conducted
• Protocol Defined
• Strategic Role Identified
STRATEGIC ROLES OF MOST
SUCCESSFUL NEW PRODUCTS
THE NEW-PRODUCT PROCESS
STAGE 2: IDEA GENERATION

Idea Generation
• Open Innovation

Customer and Supplier Suggestions

Employee and Co-Worker Suggestions

Research and Development Laboratories

Competitive Products

Universities, Inventors, and Small Tech Firms
Volvo’s YCC
How are new-product ideas generated?
THE NEW-PRODUCT PROCESS
STAGE 3: SCREENING AND EVALUATION

Internal Approach
• Customer Experience Management (CEM)

External Approach
• Concept Tests
New Product Development Process
CONCEPT TESTING
 Goal
– Use primary market information to better
define the product, forecast likely demand, and
clarify target buyer
 Common tools
– Focus Groups
– Conjoint Analysis
– Information Accelerator
THE NEW-PRODUCT PROCESS
STAGE 4: BUSINESS ANALYSIS

Prototype

Business Fit

Capacity Management

Off-Peak Pricing
New Product Development Process
BUSINESS ANALYSIS
Review Product Sales, Costs, and Profits Projections
to See if They Meet Company Objectives
If No, Eliminate
Product Concept
If Yes, Move to
Product Development
Source: Prentice Hall
THE NEW-PRODUCT PROCESS
STAGE 5: DEVELOPMENT
 Brainstorming
 Service Encounters
 Safety Tests
Product Development
TESTING NEW PRODUCTS
Advertising testing
Product quality testing
Laboratory tests
Expert evaluation
Customer tests
– Single-product evaluation
– Blind tests
– Experimental variations
THE NEW-PRODUCT PROCESS
STAGE 6: MARKET TESTING
 Simulated Test Markets (STMs)
 Test Marketing
 When Test Markets Don’t Work
New Product Development Process
TEST MARKETING
Simulated
Test Market
Test in a simulated
shopping environment
to a sample of
consumers
Controlled
Test Market
A few stores that have
agreed to carry new
products for a fee
Standard
Test Market
Full marketing campaign
in a small number of
representative cities.
Source: Prentice Hall
SIX IMPORTANT TEST MARKETS – THE
WINNER IS WICHITA FALLS, TX
THE NEW-PRODUCT PROCESS
STAGE 7: COMMERCIALIZATION

Burger King’s French Fries
• Regional Rollouts

Risks with Grocery Products
• Slotting Fees
• Failure Fee
THE NEW-PRODUCT PROCESS
STAGE 7: COMMERCIALIZATION

Speed as a Factor in New-Product Success
• Time to Market (TtM)
• Parallel Development
• Fast Prototyping
Why Speed to Market?
 Markets are getting more specialized
 Intensified competition
 Changing technology
 Changing tastes
 Rampant copying
 Gaining shelf space early
Business Analysis
WHEN TO STOP A BAD IDEA
 Rule 1: Remember the sunk cost fallacy
 Rule 2: Set benchmarks for success
beforehand and stick to them
 Rule 3: Be sure to plan research so that it
will allow you to diagnose the cause of
problems
General Mills Fingos
Why did this product fail?
Thirsty Dog! and Thirsty Cat!
Why did these products fail?
Avert and Hey! There’s a Monster in My Room
Why did these products fail?
Brand Associations and
Line/Brand Extension
 Brand associations help determine which line and
brand extensions will be successful
Close-Up
B
Cheerios
Crest
C
8
Froot Loops
8
6
Original
6
Market
4
4
2
2
0
REALITY
Breath Mint
Higher income
Toothbrush
Camay
6
2 D

E
 
E
Source: Wes Hutchinson
8
Higher price,
6 & benefits
Coors
Deodorant
Budweiser
8
6
C 
4
4
2
2
0
0
Moisturizer
Lollipops
IBM
Segment 2
4 D 
Waffles
Apple
Irish Spring
8
0
New
Video Market
Games CellularPhone
0
Bottled
Water
Scotch