new product development professor chip besio cox school of business southern methodist university
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NEW PRODUCT DEVELOPMENT
NEW PRODUCT DEVELOPMENT
Professor Chip BesioCox School of BusinessSouthern Methodist University
APPLE’S NEW-PRODUCTINNOVATION MACHINE
Apple’s Innovation Machine
The EvolutionaryiPod nano and RevolutionaryiPod touch
APPLE’S NEW-PRODUCTS
WHAT ARE PRODUCTS AND SERVICES?GOODS, SERVICES, AND IDEAS
Good
Services
• NondurableGoods
• DurableGoods
Product
Ideas
New to the world New to the company Flankers
– Line extensions
– Brand extensions
Repositioning Model changes
WHAT ARE NEW PRODUCTS?
New product development is the most important strategic activity of any firm
However, it is the most risky venture
Most new products fail!
NEW PRODUCT DEVELOPMENT?
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
THE RISKS OF NEW PRODUCTS?
NEW PRODUCTS AND WHYTHEY SUCCEED OR FAIL
• Product Line Extension
• Significant Jump in Innovation
• True Innovation
Newness: The Organization’s Perspective
10-9
Purina Elegant MedleysWhat are the potential benefits and dangersof incremental innovation?
10-10
LO3
Newness: The Consumer’s Perspective
• Continuous Innovation
• Dynamically Continuous Innovation
• Discontinuous Innovation10-11
NEW PRODUCTS AND WHYTHEY SUCCEED OR 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 FAIL
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
WHY NEW PRODUCTS SUCCEED
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 Be close to the market
Set a strategic direction Set a strategic direction Play to your strengths Play to your strengths
Strong organizational support Strong organizational support
Speed to market Speed to market
THE SEVEN STAGES IN NEW-PRODUCT DEVELOPMENT
THE NEW-PRODUCT PROCESSSTAGE 1: NEW-PRODUCT STRATEGY DEVELOPMENT
New-Product Process
• SWOT Analysis Conducted
New-Product Strategy Development• Type of Strategy to Utilize
• Strategic Role Identified
• Protocol Defined
STRATEGIC ROLES OF MOST SUCCESSFUL NEW PRODUCTS
THE NEW-PRODUCT PROCESSSTAGE 2: IDEA GENERATION
Idea Generation
Employee and Co-Worker Suggestions
Customer and Supplier Suggestions
Research and Development Laboratories
Competitive Products
Universities, Inventors, and Small Tech Firms
• Open Innovation
Volvo’s YCCHow are new-product ideas generated?
THE NEW-PRODUCT PROCESSSTAGE 3: SCREENING AND EVALUATION
External Approach
Internal Approach
• Customer Experience Management (CEM)
• 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 Focus Groups – Conjoint AnalysisConjoint Analysis– Information AcceleratorInformation Accelerator
THE NEW-PRODUCT PROCESSSTAGE 4: BUSINESS ANALYSIS
Prototype
Business Fit
Capacity Management
Off-Peak Pricing
New Product Development Process
BUSINESS ANALYSIS
Review Product Sales, Costs, and Profits Projectionsto See if They Meet Company Objectives
Review Product Sales, Costs, and Profits Projectionsto See if They Meet Company Objectives
If Yes, Move to Product Development
If Yes, Move to Product Development
If No, Eliminate Product Concept
If No, Eliminate Product Concept
Source: Prentice HallSource: Prentice Hall
THE NEW-PRODUCT PROCESSSTAGE 5: DEVELOPMENT
Service Encounters
Brainstorming
Safety Tests
Product DevelopmentTESTING NEW PRODUCTS Advertising testing Product quality testing Laboratory tests Expert evaluation Customer tests
– Single-product evaluation– Blind tests– Experimental variations
THE NEW-PRODUCT PROCESSSTAGE 6: MARKET TESTING
Simulated Test Markets (STMs)
Test Marketing
When Test Markets Don’t Work
New Product Development Process
TEST MARKETING
StandardTest Market
Full marketing campaignin a small number of representative cities.
StandardTest Market
Full marketing campaignin a small number of representative cities.
SimulatedTest Market
Test in a simulated shopping environment
to a sample of consumers
SimulatedTest Market
Test in a simulated shopping environment
to a sample of consumers
Controlled Test Market
A few stores that have agreed to carry newproducts for a fee
Controlled Test Market
A few stores that have agreed to carry newproducts for a fee
Source: Prentice HallSource: Prentice Hall
SIX IMPORTANT TEST MARKETS – THE WINNER IS WICHITA FALLS, TX
THE NEW-PRODUCT PROCESSSTAGE 7: COMMERCIALIZATION
Burger King’s French Fries
Risks with Grocery Products
• Slotting Fees
• Failure Fee
• Regional Rollouts
Speed as a Factor in New-Product Success
• Time to Market (TtM)
• Parallel Development
• Fast Prototyping
THE NEW-PRODUCT PROCESSSTAGE 7: COMMERCIALIZATION
Why Speed to Market?
Markets are getting more specialized Intensified competition Changing technology Changing tastes Rampant copying Gaining shelf space early
Business AnalysisWHEN 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 FingosWhy did this product fail?
Thirsty Dog! and Thirsty Cat!Why did these products fail?
Avert and Hey! There’s a Monster in My RoomWhy did these products fail?