Chapter 1

MANAGING THE NEW PRODUCT

DEVELOPMENT PROCESS

Rajshree Agarwal

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Agenda What are the objectives of the new product

development process? What are the different stages in new product

development? What are some ways to increase the

efficiency of the NPD process? How might NPD differ over the different

stages of the industry life-cycle?

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Some dismal facts…Despite the intense attention paid to

innovation, failure rates are still very high.More than 95% of new product

development projects fail to earn an economic return.

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The objectives of NPD Maximize fit with customer requirements

Value proposition should be clear Better features or lower costs

Minimize development cycle time First mover advantages Reduced costs and risk of preemption

Controlling development costs To make profits, costs of development cannot

exceed potential revenues! Higher margins

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3. Business Analysis3. Business Analysis

The NPD Process

1. Idea1. IdeaGenerationGeneration

2. Idea2. IdeaScreeningScreening

4. Development4. Development5. Test marketing5. Test marketing

6. Commercialization6. Commercialization

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Where do ideas come from? Employees

Customers (users)

Suppliers

Competitors/Complementors

Ideas often evolve due to interaction among the above groups

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NPD Process





Employees, customers, suppliers, competitors

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NPD Process





Many -- employees, customers, suppliers, distributors, competitors

Reduce # quickly

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Back to decision making under uncertainty At early stages of idea development,

significant uncertainty about potential success

Use of both qualitative and quantitative methods are important Qualitative methods may help yield insights,

while quantitative methods validate Strategic, Financial, and Customer focus

All three need to be examined

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NPD Process






Reduce # quickly

S/F/C criteria; decision making under uncertainty

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Sequential versus Party Parallel Development ProcessesBefore mid-1990s, most US companies used

sequential NPD process; now many use partly parallel process.

Partly parallel process shortens overall development time, and enables closer coordination between stages.

In some situations, however, a parallel development process can increase risks.

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Real options—use of stage gate process Utilize tough go/kill decision points in the development

process help filter out bad projects.

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NPD Process






Reduce # quickly


Processes for reducing costs

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Test Marketing

StandardTest Market

+Costs+Brand Equity -Jamming-Duplication

Introduction in a small market supported by a full-fledged marketing campaign

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NPD Process






Reduce # quickly


Processes for reducing costs

Experiment with small numbers

Launch new product!!

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Product Life Cycles

Time

Do

llar

s

Introduction Growth Maturity DeclineIntroduction Growth Maturity Decline

IndustryIndustry SalesSales

IndustryIndustry ProfitsProfits

0

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SalesSales

CostsCosts

ProfitsProfits

Innovtn ObjectivesInnovtn Objectives

Product vs processProduct vs process

PricePrice

Low sales Low sales

High cost per customerHigh cost per customer

Negative or lowNegative or low

Build product awareness & stimulate trial – primary demandBuild product awareness & stimulate trial – primary demand

Offer a basic product; mainly productOffer a basic product; mainly product

Usually is highUsually is high

DistributionDistribution High distribution expensesHigh distribution expenses

PromotionPromotion Build product awareness among early adopters thro’ mass-media

Build product awareness among early adopters thro’ mass-media

Summary of Characteristics, Objectives, & Strategies

Introduction Stage of the PLC

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SalesSales

CostsCosts

ProfitsProfits


Product vs. processProduct vs. process

PricePrice

Rapidly rising sales Rapidly rising sales

Decreasing cost per customer relative to intro stageDecreasing cost per customer relative to intro stage

Rising profits - HighestRising profits - Highest

Maximize salesMaximize sales

Both product and processBoth product and process

Lower price (relative to intro stage)Lower price (relative to intro stage)

DistributionDistribution Increase number of distribution outletsIncrease number of distribution outlets

PromotionPromotion Mass market advertising & word of mouth from adopters in the intro

stage.

Mass market advertising & word of mouth from adopters in the intro

stage.


Growth Stage of the PLC

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SalesSales

CostsCosts

ProfitsProfits


Product vs. processProduct vs. process

PricePrice

Peak sales (growth slows, levels off)Peak sales (growth slows, levels off)

Low cost per customerLow cost per customer

Decreasing profitsDecreasing profits

Defending market shareDefending market share

Diversify brand (many line extensions); More usage; More usesDiversify brand (many line extensions); More usage; More uses

Lower price to match or best competitorsLower price to match or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

PromotionPromotion Stress brand differences and benefits; Sales promotions

Stress brand differences and benefits; Sales promotions


Maturity Stage of the PLC

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Some misconceptions about product life cycles

At the level of the category and not the brand – Cell phones not CINGULAR wireless.

Different products go through the stages differently.

Timing of stages may vary substantially.

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Tools for Measuring New Product Development Performance

Measuring performance of NPD process can help company improve its innovation strategy and process. Measures of NPD performance can help

management: identify which projects met their goals and why, benchmark the organization’s performance compared to that

of competitors, or to the organization’s own prior performance,

improve resource allocation and employee compensation, and refine future innovation strategies

Important to use multiple measures to provide fair representation

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Some yardsticks of overall innovation performance

What is the firm’s return on innovation? ratio of the firm’s total profits from new products to

total costs (including R&D costs, the costs of retooling and staffing production facilities, and initial commercialization and marketing costs.)

What is the percentage of projects that achieve their sales goals?

What percentage of revenues are generated by products developed within the last five years?

What is the firm’s ratio of successful projects to its total project portfolio?

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Key Takeaways New product development is risky, but can

provide high returns Not engaging in NPD will surely result in failure

Managing the various stages of the NPD process is critical

NPD projects should be cognizant of the industry life cycle

NPD initiatives should be evaluated using multiple yardsticks

Chapter 1

Documents

development costs

costs of development

development process

idea generation

idea screening

objectives of npd

basic product

parallel process