Chapter 7 New Product Planning and Development

1. Chapter 7 New Product Planning and Development

2. Key Terms New Product Strategy, Market Penetration, Product Development, Market Development, Diversification, Cyclical Stability, New Product Planning, Out-rotation, Strategic Risk, Market Risk, Internal Risk, Skunkworks, Rugby or Relay Approach, Time to Market, Warranty, Guarantee

3. Introduction • New products are a vital part of a firm's competitive growth strategy • New product sales grow far more rapidly than sales of current products • Companies vary widely in the effectiveness of their new product programs

4. Introduction • Many new products are failures, ranging from 33 percent to 90 percent, depending on the industry • Limited vision is an obstacle to effectively predicting new product demand • Primary reason found for failure is an inability to match the firm’s offerings to the needs of the customer

5. New Product Strategies • New-to-the-world products - Products that are new inventions • New category entries - Products that take the firm into a new category, but are not new to the world • Additions to product lines - Products that are line extensions or flankers to the current markets

6. New Product Strategies • Product improvements - Current products made better • Repositionings - Products retargeted for a new use or application

7. New Product Strategies • Developed by H. Igor Ansoff in the form of growth vectors • Market penetration - Growth direction through increase in market share for present markets • Product development - Creating new products to replace existing ones

8. New Product Strategies • Market development - Finding new customers for existing products • Diversification - Developing new products and cultivating new markets

9. Organizational Growth Strategies(Figure 7.1)

10. New Product Strategies • Policy-making criteria on new products should specify: • Working definition of profit concept acceptable to top management • Minimum level or floor of profits • Availability and cost of capital to develop a new product • Specified time period for recuperating operating costs and contributing to profits

11. Factors Associated With New Product Success(Marketing Insight 7-1)

12. The New Product Development Process(Figure 7.2)

13. Idea Generation • Every product starts as an idea • Most ideas do not become products • Idea generation - Requires recognizing available idea sources • Least expensive step in new product development • Top-management support - New product development must focus on meeting customer needs

14. Idea Generation • Technology push and market pull research activities play an important role • Out-rotation - Involves placing employees in positions that require direct contact with customers, competitors, and other key outside groups

15. Idea Screening • The primary function of the idea screening process is twofold • To eliminate ideas for new products that could not be profitably marketed by the firm • To expand viable ideas into full product concepts

16. Idea Screening • The three risk categories • Strategic risk - The risk of not matching the role of a new product with a specific strategic need • Market risk - The risk that a new product won’t meet a market need in a value-added, differentiated way • Internal risk - The risk that a new product won’t be developed within the desired time and budget

17. Idea Screening • Strategic alliance - A long-term partnership between two organizations designed to accomplish strategic goals of both parties • Potential benefits of strategic alliances include: • Increased access to technology, funding, and information • Market expansion and greater penetration of current markets • De-escalated competitive rivalries

18. Project Planning • Analyze the proposal in terms of production, marketing, financial and competitive factors • Establish a development budget with preliminary marketing and technical research

19. Project Planning • Create a “rough form” product • Alternative product features and components specified • Create a project plan with estimated costs, capital requirement, and manpower needs • Review the project plan with top management

20. Project Planning • Two better-known methods for creating and managing project teams include: • Skunkworks - A project team can work in relative privacy away from the rest of the organization • Rugby or relay approach - Groups in different areas of the company are simultaneously working on the project

21. Product Development • Upon evaluation, if all expectations are met, further research and testing is considered • Produce a finished product and market test it

22. Product Development • Development report must spell out in detail the: • Results of the studies by the engineering department • Required plan design • Production facilities design • Tooling requirements • Marketing test plan • Financial program survey • Estimated release date

23. Test Marketing • The main goal is to evaluate and adjust, if necessary, the marketing strategy to be used in the marketing mix • Throughout the process, findings are being analyzed and forecasts of volume developed • Upon completion of the test market, prepare a final marketing plan in preparation for launch

24. Commercialization • The firm commits to introducing the product into the marketplace • Heavy emphasis is placed on organizational structure and management talent needed to implement the marketing strategy • Follow-up to eliminate bugs in the design, production costs, quality control, and inventory requirements

25. The Importance of Time • Time to market is the elapsed time between product definition and marketplace product availability • Companies that reach the market first with a new product enjoy both profit and market share advantages • Increasingly, companies are bypassing time-consuming regional test markets, when feasible, in favor of national launches

26. New Product Decisions • Quality level: Both consumers and organizational buyers consider the level of product quality when making purchase decisions • Warranty - Producer’s statement of what it will do to compensate the buyer if the product is defective • Guarantee - An assurance that the product is as represented and will perform properly

27. Some Criteria for Determining Perceptions of Quality(Figure 7.3)

28. New Product Decisions • Product features • Fact or particular specification of the product • Determined by what it is that the customer wants the product to offer • These wants are not created by effective marketers but rather are learned

29. New Product Decisions • Product design • Can clearly differentiate a new product from competitors • Good design can add value to the new product • A well-designed product can please a customer without necessarily costing more

30. New Product Decisions • Product safety • Safety is both an ethical and practical issue • Ethically, customers should not be harmed by using the product as intended • Some products are inherently dangerous and can result in injury to users • It may be so expensive to make them safer that buyers cannot afford to buy

31. Causes of New Product Failure • No competitive point of difference, unexpected reactions from competitors, or both • Poor positioning • Poor quality of product • Nondelivery of promised benefits of product • Poor perceived price/quality (value) relationship

32. Causes of New Product Failure • Faulty estimates of market potential & other marketing research mistakes • Too little marketing support • Faulty estimates of production or marketing costs • Improper channels of distribution selected • Rapid change in the market (economy) after product introduction

33. Need for Research • Specific questions commonly raised in evaluating product ideas are: • What is the anticipated market demand over time? Are the potential applications for the product restricted? • Can the item be patented? Are there any antitrust problems? • Can the product be sold through present channels and the current sales?

34. Need for Research • What number of new salespersons will be needed? What additional sales training will be required? • At different volume levels, what will be the unit manufacturing costs? • What is the most appropriate package to use in terms of color, material, design, and so forth? • What is the estimated return on investment? • What is the appropriate pricing strategy?