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
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Line extensions
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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
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“…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)
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95% of new consumer products in US fail;90% of new consumer products in Europe fail - Nielsen BASES and Ernst & Young study (2002)
Costs
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Introducing a new national brand can cost $20 million – Marketing Management
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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
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27% of line extensions failed
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31% of new brands introduced in categories where company already had a product failed
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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
LO3 NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL Newness: The Consumer’s Perspective • Continuous Innovation • Dynamically Continuous Innovation • Discontinuous Innovation 10-11
WHY NEW PRODUCTS FAIL
Poor planning and strategy
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Market is not attractive
Poor concept
Poor execution
Poor use of research
Poor technology
Poor timing
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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
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Conjoint Analysis
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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
B
8 6 4 Close-Up Crest
C
2 0
REALITY
Breath Mint
Higher income
Toothbrush 8 Original 6 Market 4 2 0 8 6 4
D
Camay Irish Spring
Segment 2
8 6
Higher price, & benefits
Apple IBM
E
C
2
D
0
E
Moisturizer Deodorant 2 0 New Cheerios Froot Loops Waffles 8 2 0 6 4 Lollipops Coors Budweiser Bottled Water Scotch Source: Wes Hutchinson