Chapter 9 New Product Development New Product Development Strategy A firm can acquire new products by Acquisition buying a company patent or license New Product Development the development of original products product improvements product modifications and new brands through the firm s own product development efforts o New products means original products product improvements product modification and new brands The New Product Development Process Benefits enhances product mix Risks Expensive creates risk of market failure Major Stages in New Product Development Instead of thinking of this as a line THINK OF IT AS A FUNNEL start with many ideas that get cut down and one new product comes out 1 Idea Generation Idea generation Systematic search for new product ideas o Internal sources refer to the company s own formal research and development management o External sources refer to sources outside the company such as customers competitors and staff and intrapreneurial programs distributors suppliers and outside design firms So who comes up with new ideas Customers Salespeople Service providers Anyone with direct customer contact Competitors Supply chain members Scientists in R D division Consultants Crowdsourcing inviting broad communities of people customers employees independent researchers and even the public at large into the new product innovation process 2 Idea Screening Idea screening screening new product ideas to spot good ideas and drop poor ones as soon as possible o The first filter in the product development process which eliminates ideas that are inconsistent with the organization s new product strategy or are inappropriate for some other reason R W W Is it real Is there a need will people buy it Can we win Is there sustainable competitive advantage Is it worth doing 3 Concept development and Testing Product concept a detailed version of the new product idea started in meaningful consumer terms o Product idea idea of a possible product o Product concept detailed version of the idea stated in meaningful consumer terms o Product image the way a consumer perceives an actual or potential product Concept testing the testing of new product concepts with a group of target consumers to find out if the concepts have a strong consumer appeal 4 Marketing Strategy Development the product concept Marketing strategy development designing an initial marketing strategy for a new product based on o Develop a marketing strategy that can be used to introduce the product to the marketplace Marketing Strategy Statement has 3 parts goals for the first few years 1 Describes the target market planned value proposition the sales the market share and profit 2 Outlines the product s planned price distribution and marketing budget for the first year 3 Describes the planned long run sales profit goals and marketing mix strategy 5 Business analysis Business Analysis a review of the sales costs and profit projections for a new product to find out whether these factors satisfy the company s objectives o Assess how the new product will fit into the firm s total product mix o Evaluate whether the product can be a profitable contribution for the organization s product mix 6 Product development Product Development developing the product concept into a physical product to ensure that the product idea can be turned into a workable market offering o Involves the creation and testing of one or more physical versions by the R D or engineering departments o Requires an increase in investment o Shows whether the product idea can be turned into a workable product 7 Test marketing product Test marketing stage of new product development in which the product and its proposed marketing program are tested in realistic market settings o Traditional test marketing is expensive and gives competition a chance to evaluate the new o Controlled Test markets o Simulated Test markets eliminate competitive viewing and cost less but are not as accurate a test as a traditional test market Should firms always test market When firms test market o New product with large investment o Uncertainty about product or marketing program When firms may not test market o Simple line extension o Copy of competitor product o Low costs o Management confidence 8 Commercialization Commercialization introducing a new product line into the market Poor match between features and customer desires Why do new products fail No discernible benefits Overestimation of market size Incorrect positioning Price too high or too low Inadequate distribution Poor promotion Inferior product Managing New Product Development Customer centered new product development focuses on finding new ways to solve customer problems and create more customer satisfying experiences Team based new product development various company departments work closely together overlapping the steps in the product development process to save time and increase effectiveness Systematic new product development Development process should be holistic and systematic rather than compartmentalized and haphazard Make sure new ideas are continuously surfacing by using innovation management systems to collect review evaluate and manage new product ideas In turbulent times it s important to not cut funding in new product development This is a time where you can gain a competitive edge Product Life Style Strategies Product Life Cycle PLC the course of a product s sales and profits over its lifetime Explains how features change over the life of a product Concept that seeks to describe a product s sales competitors customers and marketing emphasis from its beginning until it is removed from the market 1 Product development 2 Introduction Stage new product is first distributed and made available for purchase Full scale launch of new product into marketplace Sales are low high failure rate Little competition Frequent product modification Limited distribution High marketing and product costs profits negative or low Promotion focused on product awareness and to stimulate primary demand Intensive personal selling to retailers and wholesalers Profits are extremely low so it s important for the market pioneer to launch a strategy consistent with the intended product positioning Can t be afraid to sacrifice short run gain for long run success 3 Growth Stage product sales start increasing rapidly Large companies may acquire small pioneering firms Profits are healthy Promotion emphasizes brand advertising and
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