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The importance of new products

Chapter 1: OVERVIEW OF NEW PRODUCT Chapter 1. What is a new product?

- What is a new product? Overview of

- Why study new product?
- How to develop a new product?
New Product The Strategic Elements of
Product Development

The Basic New Product Process

1.1 The importance of new products 1.1 The importance of new products
Best Practices in New Products
• It is big business – billions of dollars annually on technical
development alone. For every 100 ideas:
• The challenge of creating radical innovation (totally new product • Fewer than 70 make it though initial screening
categories) is viewed as “the most important business issue of our • Fewer than 50 pass concept evaluation and testing
time.” (Gary Hamel – a business consultant) • A little more than 30 make it through development
• Accelerating innovation and business growth through innovation are • About 30 make it through testing
the top business challenges according to the Industrial Research • About 25 are commercialized
Institute.
• 15 of these 25 (about 60%) are successful.
• Success rate is lower in consumer goods (51%) and as high as 65% in
healthcare.
Source: Comparative Performance Assessment Study, PDMA, 2003.

But the New Products Process is Difficult!

1.1 The importance of new products
The Best New Product Firms Achieve Superior Results

Although you may hear much higher percentages, careful studies

supported by research evidence suggest that about 40% of new products
fail — somewhat higher for consumer products, somewhat lower for
business-to-business products.

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1.2 What is a new product?

1.2 What is a new product?
• New-to-the-world (really-new) products (10% of new products): Inventions that create a
whole new market. Ex: Polaroid camera, Sony Walkman, Palm Pilot, Rollerblade skates,
• “New products are the lifeblood of a company. As old products P&G Febreze and Dryel.
mature and fade away, companies must develop new ones to take • New-to-the-firm products (20%): Products that take a firm into a category new to it. Ex:
P&G brand shampoo or coffee, Hallmark gift items, AT&T Universal credit card, Canon
their place.” (Kotler et al., 2020) laser printer.
• Additions to existing product lines (26%): Line extensions and flankers that flesh out the
product line in current markets. Ex.: Tide Liquid, Bud Light, Apple’s iMac, HP LaserJet 7P.
• Improvements and revisions to existing products (26%): Current products made better.
Ex.: P&G’s continuing improvements to Tide detergent, Ivory soap.
• Repositionings (7%): Products that are retargeted for a new use or application. Also
includes retargeting to new users or new target markets. Ex.: Arm & Hammer baking
soda sold as a refrigerator deodorant; aspirin repositioned as a safeguard against heart
attacks; Marlboro retargeted as a man’s cigarette.
• Cost reductions (11%): New products that provide the customer similar performance but
at a lower cost. May be more of a “new product” in terms of design or production.

1.3 The Strategic Elements of Product Development The Basic New Product Process

• The New Products Process

• A phased process that takes the new product idea through concept
development, evaluation, development, launch, and post-launch.
• The Product Innovation Charter
• A strategy for new products that ensures that the team develops products
in line with firm objectives and marketplace opportunities.
• The Product Portfolio
• A way to assess which new products would be the best ones to add to the
existing line, given financial and strategic objectives.

Principles and Issues in the New Products Process Product Innovation Charter (PIC)
• Between the phases of the process are evaluation tasks or decision points,
The purpose of new product strategy is to:
where hard Go/No Go decisions are taken.
• Set new product objectives (sale, profit, contribution, market share….)
• There is pressure to accelerate time to market (speed the product through
this process), and phase overlapping and cross-functional teams are used • Understand the contribution of new product development within the
to accomplish this. company’s wider goals
• Fuzzy gates are commonly used: this is a “conditional Go” so as not to • Define the technologies, markets and product scope
slow down the process in analysis.
• Still, fuzzy gates must have teeth! A potential problem is that the result A Product Innovation Charter (PIC) can be used to help guide this process.
should be No Go but the project goes through anyway. Product Innovation Charter (PIC), is a set of policies, goals, objectives and
• Another problem: hollow gates (the Go decision is made but no financial restrictions across organizations.
support is provided).

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What is the Product Innovation Charter (PIC)? The New Products Process Interacts With the
Other Strategic Elements
• It is the new product team’s strategy.
• It is for Products (not processes).
• Without the strategic direction provided by the Product Innovation Charter
• It is for Innovation (think of the definition of new product). (PIC), the firm’s attempts at product development will be unfocused. The
• It is a Charter (a document specifying the conditions under which a PIC helps the team identify opportunities and focus efforts.
firm will operate).
• Product Portfolio considerations help the firm decide whether a new
• Typically, it is a document prepared by senior management designed to product opportunity adds financially and strategically to the current line
provide guidance to the strategic business units (SBUs) on the role of and avoids spreading scarce financial and human resources too thin.
innovation.

Product Portfolio: The New Product’s Strategic Fit

1.4 The Basic New
• Strategic goals (defending current base of products versus extending the base). Product Process
• Project types (fundamental research, process improvements, or maintenance
projects).
• Short-term versus long-term projects.
• High-risk versus low-risk projects.
• Market familiarity (existing markets, extensions of current ones, or totally new
ones).
• Technology familiarity (existing platforms, extensions of current ones, or totally
new ones).
• Ease of development.
• Geographical markets (North America, Europe, Asia).
Figure 2.1 The Phases of the New
Products Process (page 29).

The Evaluation Tasks in the New Products Process Phase 1: Opportunity Identification/Selection
Opportunity Identification/ Direction:
Selection Where should we look?
• Active and passive generation of new product opportunities as spinouts
of the ongoing business operation.
Concept Generation Initial Review: • New product suggestions, changes in marketing plan, resource changes,
Is the idea worth screening? and new needs/wants in the marketplace.
• Research, evaluate, validate and rank them.
Concept/Project Evaluation Full Screen:
• Give major ones a preliminary strategic statement to guide further work
Should we try to develop it?
on it.
Development Progress Reports:
Have we developed it?

Launch Market Testing:

Should we market it?

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Activities that Feed Strategic Planning for New Products Sources of Identified Opportunities

• An underutilized resource (a manufacturing process, an operation, a

• Ongoing marketing planning (e.g., need to match a new aggressive strong franchise)
competitor)
• A new resource (discovery of a new material with many potential uses)
• Ongoing corporate planning (e.g., senior management shifts resources
from basic research to applied product development) • An external mandate (stagnant market combined with competitive
threat)
• Special opportunity analysis (e.g., a firm has been overlooking a skill in
manufacturing process engineering) • An internal mandate (senior management desire, new product to close
long-term gap)

Phase 2: Concept Generation Phase 3: Concept/Project Evaluation

• Evaluate new product concepts (as they begin to come in) on

• Select a high potential/urgency opportunity and begin customer technical, marketing, and financial criteria.
involvement. Collect available new product concepts that fit the • Rank them and select the best two or three.
opportunity and generate new ones as well.
• Request project proposal authorization when there is a proper
product definition, team, budget, skeleton of development plan, and
final PIC.

Stages of Concept/Project Evaluation Phase 4: Development (Technical Tasks)

• Screening (pre-technical evaluation)
• Concept testing • Specify the full development process, and its deliverables.
• Full screen • Undertake to design prototypes, test and validate prototypes against
protocol, design and validate production process for the best prototype,
• Project evaluation (begin preparing product protocol) and
• Slowly scale up production as necessary for product and market testing.
The first stages of the new products process are sometimes called the
fuzzy front end because the product concept is still fuzzy. By the end of the
project, most of the fuzz should be removed.

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Phase 4: Development (Marketing Tasks) Phase 5: Launch

• Commercialize the plans and prototypes from development phase

• Prepare strategy, tactics, and launch details for marketing plan • Begin distribution and sale of the new product (maybe on a limited basis);
• Prepare proposed business plan and get approval for it • Manage the launch program to achieve the goals and objectives set in the
• Stipulate product augmentation (service, packaging, branding, etc.) PIC.
and prepare for it.

The Evolution from Concept to New Product Methods for Accelerating Time to Market

• Have a clear product innovation charter (PIC).

• Have a third-generation new products process that permits
overlapping phases (fluid & flexible).
• Use a new product portfolio and careful project selection to allocate
scarce resources.
• Focus on quality: “get it right the first time.”
• Have an empowered cross-functional team.

Corresponding New Products Process Phases:

Opp. Identification  Concept Generation  Project Evaluation  Development  Launch

Additional Techniques for Accelerating Time to Market What About New Services?
• Organization: not just an empowered team, but also effective team • Successful new services tend to come from firms that use a systematic
leadership and focus on organizational learning and knowledge transfer. process (like new products process) – all the tools fit.
• Intensify Resource Commitments: Integrate vendors and resellers, get • Iterations may be more frequent since they are less expensive.
users involved and capture the Voice of the Customer. • Unique, superior service must be delivered, to achieve success.
• Design for Speed: use computer-aided design, rapid prototyping, common • Speed to market with services is important, especially in enhancing
components, get fast trial. reputation, image, and customer loyalty.
• Most important adjustments have to do with the “customized” experience
• Rapid Manufacturing: standard processes, computer-aided of each service customer.
manufacturing, just-in-time delivery.
• Human interaction between service provider and customer is of highest
• Rapid Marketing: Use rollouts, spend as needed to generate awareness, importance.
offer trial purchasing. • Consider how the customer evaluates the service.

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New Service Examples What About New-to-the-World Products?

Jet Blue: focused on friendliness, customized experiences, easy • The challenges are different, but the first phase remains the same:
communication by website, stress on safety, gathers much customer opportunity identification and development of a strategic statement.
feedback. • Clear connection required between the radical innovation and the firm’s
FedEx: customers are co-creators and provide early input. Studies strategic vision.
suggest opportunities such as greater access, more digital services, • A firm may establish a transition management team to move the R&D
and service offerings such as photocopying. innovation project to business operating status.
• The new products process is more explanatory: need to bring in Voice of
the Customer (VOC) early.
• Lead users may be critical here.

CLASS ACTIVITY

Students will choose any ONE product and discuss how the following
products were discovered:-

• Microwave ovens
• Aspartame (NutraSweet)
• ScotchGard fabric protector
• Teflon
• Penicillin
• X-rays

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