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EUT 441E
New Product Development
Prof.Dr. H. Alpay ErITU Dept. of Industrial Product Design
Office: EUT 7, Phone: 2931310 ext. 2201, E-mail: [email protected]
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Aims
EUT 441ENew Product Development
(NPD) course aims:1. to familiarize ID students with the basic
concepts of NPD and,
2. to help students understand how ID fitsinto NPD in a business context.
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Agenda
Main topics to be covered:Importance of NPD,
NPD Strategies,
Factors Affecting NPD at firm-level,Product Life Cycle,
Organisation of NPD,
NPD Process,
The Role of ID in NPD,Prototyping,
Management of NPD.
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Evaluation
Mid-term % 20
Term Paper % 20
Attendance & Participation % 10 Final Exam % 50
TOTAL %100
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Main Sources
Ulrich, K.T.and Eppinger S.D. (2000) Product Design and Development,
Mc Graw-Hill Inc., NY.
Urban G.L. and Hauser, J.R. (1993) Design and Marketing of New
Products, Prentice Hall, New Jersey.
Rosenal, M.D. (ed.) (1996) The PDMA Handbook of New ProductDevelopment, John Wiley and Sons Inc., NY.
Cagan, J. and VogelC. M. (2002). Creating Breakthrough Products,
Prentice-Hall Inc., New Jersey.
Bruce, M. and Bessant J. (2002) Design in Business, Pearson, Essex.
Design Management Journal
Journal of Product Innovation Management
Harvard Business Review
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Introduction
New Product Development (NPD) is a
cognitive and organizational process by
which new products or product systemsare conceptualized, designed and
developed to address opportunities and
problems in an industrial context.
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Characteristics of NPD
NPD is risky!
failure rates of new products are high.
Average %35 of new products fail in the
market.
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NPD is costly !
Large investments are made in NPD. Butnot all new-product ideas are carried to thecommercialization phase. Only one of 7NP ideas reaches to the market. This
means that the successful product mustcover not only its own NPD cost but alsothe cost of other 6.
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Characteristics of NPD
However, NPD is rewarding and necessary tomaintain a healthy organization in a market
economy.
Because NPD is the main source of
differentiation in a market where the price and
quality are not enough to differentiate productsanymore.
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Economics of NPD
Classical theory of economics
concentrates on quantity and price,assuming that product has more or less
standard quality.
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In markets where large numbers of people
are hungry for products, quantity and price
of a product are more important.
This type of markets are called as Sellers
Market
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Economics of NPD
When the number of companies offering similar
products increases in a market, then first the
price, and gradually the quality become
standardized factors. Companies start designing and developing new
products with new or improved features in order
to attract customers.
Such markets are called as Buyers Market.
NPD is a function of Buyers Market
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In order to differentiate its products
A company can;
buy other companies with attractive new
products (Acquisition).
buy patents of promising new products fromother companies or individuals.
manufacture new products under the licenseof other companies
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or
A company
can design and developits own new products!
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New Product Development
NEW: new to the worldnew to the company
new to the market
PRODUCT: anything for sale for thepurpose of satisfying a want or need onboth sides of the exchange process.
DEVELOPMENT: Iterative process thatcovers from the idea to the market launch.
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Related Concepts & Definitions
Invention:Act of discovering new methods andtechniques.
Innovation: Commercialization of invention.
Innovation is the transformation of an idea into a new orimproved saleable product or process in industry orcommerce. Technical, Organizational, Product orProcess Innovations. Design Innovations
R&D: The commitment of resources by a company to
scientific research and the refinement and modificationof research ideas aimed at ultimate development ofcommercially viable products or processes..
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Definitions
NPD: The process that transforms ideas, market needs
and opportunities into a new product to be launched on
to the market. NPD may involve changes in form,
components or even just packaging rather than chances
in operating principle or technology.
Product Design is the core of innovation and NPD
(OECD, 1982).
Design is the process of converting an idea into
information from which a new product can be made.
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Why do firms design & develop new products?
1. Financial goals : Pressures for Profit maximization, firms
generate about %40 of profits from new
products in the US.
NPD is linked to financial planning.
The need for sound profit making is a
strong motivation behind NPD.
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Why do firms design & develop new products?
2. Sales and Market Share Growth:
Firms can capture a large slice of market share
by NPD, and then through incremental product
modification and experience cost advances can
be achieved. NPD becomes the chief means of market share
growth in a focused market strategy.
As Japanese did in the past, and as Koreans
have done recently. Vestelin CTV market ?
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Why do firms design & develop new products?
3. Competitive actions:
It means what competitors doing.
An indication of unfavorable competitive
change is a strong motivation for NPD.
Office furniture and electronics industries
in Turkey.
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4. Product Life cycle:As a product matures, its
sales begins to decline, so do profits.
Then the movements of existing products in their
life cycle towards decline crates a motivation for
NPD. (Cars. Renault 9. Fiat 131)
5. Technology: Technological change puts
extreme pressures on firms to innovate or give
up.
A major technological change always forcesfirms towards NPD
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Why do firms design & develop new products?
6. Globalization creates two new dimensions:
new competitors entering home markets
(threats) and opportunities abroad.
NPD is always an important part of firms global
business strategy.
7. Regulation: Government regulations and
deregulations causes firms to consider NPD.
Environmental standards imposed by
governments - e.g. Downsizing of cars,
packaging
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Why do firms design & develop new products?
8. Material Costs and Availability: due to material costand availability, new product may have to be developed.
Oil crises of the 70s led to the design and developmentof small cars.
9. Invention. Start up companies, new inventionsusually led to NPD.
10. Demographic and life style changes: asconsumers ages, their needs change, so they need new
products, drug and medical services, diet, decafproducts, teenage as a consumer, liberation of woman.
Health conscious products. Environmental sensitivity.
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Why do firms design & develop new products?
11. SupplierInitiatives and Reactionscan also be a source for NPD.
12. Customer requests. Especially inindustrial goods.
13. Alliances amongfirms: New NPDopportunities in NPD or pressures for
growth through NPD.
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New Product Strategies
Firms develop their own managerial
strategies to deal with NPD. These are
called New Product Strategies.
NP strategy is part of the overall corporate
strategy.
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What is corporate strategy?
Corporate strategy is a framework that
gives a company its overall direction.
The strategy formulation begins with a
systematic diagnosis of the threats and
opportunities, the organizations weakness
and strengths, and understanding of the
demand and competition in the market.
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Basic New Product Strategies
The basic strategic NP decision is whether to be
reactive or proactive.
A reactive strategy is based on dealing with
initiative pressures as they occur, whereas aproactive strategy would explicitly allocate
company resources to preempt undesirable
events in the future or achieve goals.
Each strategy is appropriate under certain
conditions.
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Reactive NP Strategies:
Defensive
Imitator (me too) Second but better,
Responsive
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Proactive NP Strategies:
R&D based
Marketing-led
Entrepreneurial Acquisition
Alliances
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PLC
Introduction
Maturity
Product Life Cycle
Time
Sales Volume
Decline
Growth