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Title
New Product Development Processes
A Case Study of Apple’s Success with iconic iPod and iPhone

Principle/Corresponding Author:

Muhammad Tariq Yousafzai


Email: Ibc208tamu@gmail.com or tariq.yousafzai@nu.edu.pk
Affiliation Address, Sarhad University of Science and Information technology, 36 B, Chinar
Road University Town, Peshawar, Khyber PukhtoonKhwa, Pakistan

Cell+92-333-5838252

Co-Author*
Given name Rabia, Family Name Ishrat
Email: ibc2010tamu@gmail.com
Phone+92-91-5846508
Affiliation Address, Sarhad University of Science and Information Technology, 36 B,
Chinar Road University Town, Peshawar, Khyber PukhtoonKhwa, Pakistan

Co-Author **
Given name Hashim, Family Name Khan
Email: hashimdaudzai@hotmail.com
Institute of Management Studies, University of Peshawar,
Khyber PukhtoonKhwa, Pakistan

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Abstract

This paper focuses on NPD processes which show a high failure rate, making businesses to rethink over their new product
and processes. This has lead companies to adopt a more customer oriented approach where previously unheard voice of the
customer is now taken to consideration. While launching new products level and form of innovation that a particular market
could absorb should be determined in the first place and new product or services should be launched accordingly. Once the
company strikes the right combination for success; the company can further use its existing image to launch new improvements
in the form of line and brand extensions. Apples frequent usage of its brand name (i) as in iPod, iMac and iPhone as well as in
many other new products symbolizes the company’s intentions of leveraging its success pattern across products and categories.
It has been observed that other than costs many products fail because of a universal but largely ignored psychological prejudice,
as consumer resist any distortion in their current-state-of-affairs. Shrewd companies like Apple devises strategies compressing
the lifecycles of brands iPod—iPhone. Besides this companies also try to acquire network externalities, where a customer is
contained by a dominant network such as Macintosh or PC operating systems. Companies must also realize the fact that new
approaches to marketing, commercialization and NPD must work coherently to maintain a sustained competitive advantage. In
such a case companies must strive to adopt innovative and integrated practices by coming out of their silos and assume
responsibility for new product development via using strategies such as creative marketing, lean manufacturing, flawless
operations, and sophisticated use of concurrent process reengineering (rugby approach as against rally race) and corporate
entrepreneurship initiatives like Apple so as to attain first mover advantage and reap the economic benefits from their new
product or process innovations.

Key Words: Job based segmentation, first mover advantage, network externalities, Apple, line and brand extensions,
Planned obsolescence, critical mass and voice of customer

1. Introduction
Gourville, (2006) contends that product failures reveal that new products fail at a startling rate between 40% and 90% depending
on the product category. The commercialization and marketing stages come in the later stages of New Product Development
(NPD) processes; however, they have a pivotal role to play in new product success. As a consequence, there is greater focus on
commercialization and marketing issues today, up front, than ever realized before. Therefore companies are now taking into
consideration a more detailed job based segmentation approach, because sometimes the consumer has hard times in precisely
expressing, the core benefit of certain product, as these may be use getting done various jobs in various situations. According to
Mueller, (1997) proposes that consumers follow a six step process to completely absorb innovative products or services.
However, these steps may vary and overlap each other due to level of consumer network externalities, brand loyalty, transaction,
learning, and obsolescence costs. Another important factor is that consumers over the years develop associations (brand loyalty)
with existing products or services and resist any change in the status quo by over valuing the old products too much; on the other
hand, companies commercializing new products over estimate their innovative features, design and differentiation. This creates a
complex situation where companies need to create awareness about their new products through innovative new product
launching campaigns. Companies need to find out the success recipe first and then they should launch their products or services.
If the success formula is attained then the company can once and for all use it by launching new and improved versions of the
products in the form of line and brand extension (Ibid).
1.1 Problem and Purpose
Steven et al. (1957) makes an interesting analogy to launch of a new generation of products and a journey into an uninhabited
area as no one can fathom going out without a blueprint for guidance into a jungle. The same holds true for new product
development process where a large number of new products fail because the innovators (suppliers) and the end-user do not see
and appreciate the market through the same lenses. There needs to be oneness of thought between companies and consumer,
which is not readily available, as often times there is a gap between the buyer and the seller’s imaginations. A company sells
their innovative products to consumers for solving a certain problem but consumer may not be aware of even the primary usage
of the product, its total transformations and augmentations. Therefore, voice of the customer should be taken to consideration
when embarking on a New Product Development (NPD) process. However, once the right combination of people, resources and
process is attained in the launch of a hit label or brand and the success formula is revealed, then it becomes easy to launch even
more success stories in the form of new products or services. It is therefore for this case we have chosen the iconic Apple
company brand as our empirical parameter for this scientific paper.
RQ: To analyze the high rate of new product success on a companies like Apple in comparison to a higher than normal rate
of failures in other firms?
The purpose of the study is to find out ways and means that would help managers in matching their products with their
customers. This is in line with basic marketing principle which stresses that the wants needs and demands of the customer should
be taken to consideration first and then a product or service should be commercialized so as to satisfy the consumer in the best
possible manner. However, in practice this is the other way around, especially companies coming up with really innovative
products face difficulty in testing their products on the market as the demand is latent, and consumer needs are not clear. The

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consumer needs to be educated first about the concept and how the product will revolutionalize the way he or she do things
currently. In specific terms, main purpose of the scientific article is to find out the success recipe for New Product Development
and how companies like Apple, Sony, Philips, and Dell make good advantage of the success recipe.

2. Literature Review
Song and Montoya (1998), contends that new product development is a high risk proposition for firms to start, as it involves
higher risk in targeting a budding market segment where customer wants are hidden and service or product requirements are
unspoken. On the other hand, new products often create considerable opportunities for firms to differentiate their offering
(product or service) and helps in attaining a lead from competitors through cost, quality, style and flexibility. Mueller, (1997),
proposes that the innovating firm may achieve a first mover advantage that would create considerably better results for the
company in the short and long term. However, first mover advantage may not always results in profiting as customers, imitators
and rival firms may quickly emulate your success and take away a greater share of the market share (Teece, 1986). In the same
vein, Steven et al, (1989) proclaim that a successful new product launch creates industry wise unique standards, which may
become barriers of entry for new firms trying to penetrate. It also helps in refreshing the minds of the engineering personnel;
sales force and give them a sense of accomplishment and may serve the opportunity for strategic corporate renewal and
redirection to the firm (Ibid). It is interesting to note that the EMI, CT scanner lost market share to late entrants; Bowmar which
launched the first pocket calculator, lost market share to Texas Instruments and Xerox a first mover in the office computers
business lost market share to late entrants such as Apples Macintosh which had striking resemblance with Xerox’s core product
ideas such as the mouse (Teece, 1986).
A study of the US market conducted by John and Gourville (2006) reveals that nearly 30,000 products are introduced yearly
in the packaged goods industry. Almost 70% to 90% among these fail to occupy store shelves for more than a year. Another
study, indicates that almost 47 % of the companies who enjoyed first mover advantage by commercializing before others in a
particular line of business had failed, meaning that firms that introduced new product categories left pursuing those modern ideas
Ibid). One prime example where innovator who was out run by followers is RC Cola, a small beverage company who first
commercialized cola in a can, as well as the first mover to launch diet coke. Coke and Pepsi entered the market immediately and
deprived RC Cola of any significant gains (Teece, 1986). According to Irwin et al, (1957) NPD is a process of reducing
uncertainty in the minds of managers that as a matter of fact the level of uncertainty associated with new product development
process depends on the degree of innovativeness of the offering. This view is in conformance with the information processing
theory that as the degree of unpredictability and uncertainty enhances, there is more need for information coordination.
Bonabeau et al, (2008) proposes that companies normally view NPD as a process of total uniformity, but it can be divided into
two separate stages namely Pre-Launch and Post launch, where pre-launch stage as truth seeking stage, focusing on assessing the
innovative products or services potential and removing the irrelevant or non functional parts. In the early stages the product
designs are fluid and firms compete on the basis of designs until the emergence of dominant design such as Model T Ford, IBM
360 and Douglas DC-3 in automobile, computer and aircraft industries respectively (Teece, 1986) and those firms with dominant
designs survive others normally disappear after this shakeout stage (Mueller, 1997).
According to Christensen, (2007) most firms segment their target market by population characteristics or their product
attributes and try to create differentiation with value added features and applications. However, the customer simply wants to just
carry out a job by acquiring a specific solution in the shape of some product or service. The “job”, is an unsatisfied state of
consumer need which he or she wants to satisfy by hiring a certain product and these jobs may vary from situation to situation
(ibid). According to Peter Drucker cited in Clayton et al. (2007), “The customer rarely buys what the business thinks it sells
him.” Firms many a times find to their amusement that customers are using their products for getting done tasks other than the
firm intended to serve. In the basic marketing literature Jobber, (2009) argue that general stages for new product development
consist of idea generation, screening, and concept development. Afterwards, a marketing strategy is developed leading to
business analysis and test marketing before full fledge product launch. Cooper, (1993) has identified five additional steps in NPD
process such as preliminary technical and business assessment, alpha, beta tests, final business plan and production ramp up.
According to Cooper, (1996) these stages are sequential just like a rally race; however, in a dynamic industry companies are
using concurrent engineering which is similar to rugby game where players moves forth at back, which resembles a firm having
multiple product under development (ibid) and many companies in Japan and US have adopted the same holistic approach
explained with the help of rugby analogy (Takeuchi & Nonaka, 1986).

Lieberman and Montgomery, (2002) contends that that firms entering the market first are known as market pioneers. Their
competencies and skills mainly depend on better product or process development, marketing research and technology. If the firm
relentlessly preserves these competencies by making them an integral part of the corporate culture, then the probability of
investments in new product development activities is high and the firm would stress on major breakthrough innovations.
Whereas, Henderson, (1993) argues that competitive advantage depends on the predictably, predictable activities, such as
capitalizing on historic research and development capabilities as in such a situation small incremental innovations would mainly
take place like better or improved version of products.
According to Schnaars, (1994) late entrants can also overtake the first mover. The late comer may use superior placement,
aggressive promotions, or may even engage in a price war. Therefore these late entrants stress on non-product competition, that’s

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why they do not invest heavily in research and development and mostly comes up with imitative products through reverse
engineering in a weak appropriable regime.
Some pitfalls of the NPD process as pinpointed by Steven et al, (1989) are moving target, lack of product distinctiveness,
unexpected technical problems, and mismatches between functional departments. Better planning leads to efficient courses of
action and the likelihood of success is increased (ibid). From a marketing orientation viewpoint, there are five competing
concepts under which organizations conduct marketing activities starting with basic production concept and culminating at
holistic marketing concept where everything matters (Kotler, 2000). Normally organizations try to launch superior products or
services and improve their quality gradually, making implicit assumption that the customer is knowledgeable and differentiates
between quality and ordinary products. This is even true for companies like GM where a top notch executive once said many
years ago, “How can the public know what kind of car they want until they see what is available?”
This notion was also common place in the history where phrases like “Good wine needs no bush” were used meaning that a
good product does not require any promotion. This theme generated here goes in conformance with Kotler and Armstrong,
(2001) where companies are wonderstruck to reveal that consumer are not necessarily looking for a better product “mousetrap”
but for a better solution to the mouse problem. In an ideal situation where other things remain the same, normally consumer
follow steps such as seeking awareness about a product or services, then comprehending the information, afterwards they form a
positive or negative attitude about the product. If they value it positively the start considering it legitimate to use the product,
then the customers uses the products or services on a trial basis so as to check efficiency of the product. If the product matches
expectations they adopt it (Stanton & Kotler 2000). According to Schiff man et al, (2009) cited in Tariq and Ghaffar, (2010)
diffusion is a macro process encompassing the spread of a new innovation from its creator to the general masses. Whereas,
adoption is a micro process which is concerned with the steps through which a customer passes when accepting or rejecting a
new innovation. Rogers, (1967) proposed a six step profile of consumer innovators as shown in figure 2-2 stretching from
innovators to laggards. Innovators are the pioneers of adopting a new technology and laggards are the last ones. These six steps
as shown in the Figure (2-1) are innovators 2.5%, early adopters 13.5%, early majority 34%, late majority 34%, and at the end
laggards which constitute 16% of the population (ibid). Schiffman et al. (2009), stresses that time is the backbone of diffusion
process as it determines the rate of adoption of new product (s) or service (s).
As evident from the above process the consumer behavior can also be traced by a careful examination of the customer
buying and usage behavior. Figuratively speaking, consumers often need to modify their behavior for new products. And
consumer with the passage of time may change its relationship staus as shows in figure (2-2) starting with a prospect, becoming
a purchaser, turning into a client and subsequently an advocates and finally a partner of the company (Tariq and Ghaffar, 2010).
Mueller, (1997) contends that companies are well aware that such a change is not easy as it may involve learning costs, planned
obsolescence, switching costs, network externalities and so on. For instance, cost of learning by changing from PC to Apple
Macintosh operating system and the planned obsolescence is a deliberate ploy such as fashion and fads (Armstrong & Kotler,
2007). Similarly, switching costs incur when consumers switch from compact disc to DVD players, their previous CD collection
becomes obsolete. Finally, the value of mobile or a telephone service increases with the rise in number of connections and so
does is the case with credit cards whose utility increases with the number of shops accepting them. These products are
characterized by a phenomenon known as network externalities (Muller, 1997).
However, according to Gourville (2006) there are also psychological costs associated with the change in behavior. This
phenomenon is termed as psychological prejudice as people tend to overestimate the advantages of products they own in relation
to the new products. Whereas, companies tend to overestimate the value of their new labels or brands. It is over here that
disharmony is created in the perspectives of the both parties. That’s why consumers in first place may simply refuse new offer or
choice, whereas, on the other hand the company is expecting success which can act as a double-edged sword. Generally,
companies should think from the perspective of customers.

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3. Real Time Case “Apple”


“The Iconic Apple,” Yes, it is true that half of the US over slept on the new years eve of 2011 because of the iconic iPhone.
This speaks volumes of the impact of Apple on consumers by becoming a lifestyle brand and that is why we have chose Apple as
a special case of success. Due to the strong marketing focus “Apples” has been very successful in creating a tribe of loyal
customer base that think, live and act in a differentiated way. In the year (1998) Apple was born again when Steve Jobs launched
the new computer iMac which came with a complete collection of software’s and new operating system called MAC OS X. It
was an instant success. Soon the corporate entrepreneur and CEO of Apple Steve Jobbs launched its “iBook” a special kind of
laptop. However, the biggest success was the introduction of iPod in the year 2001 that achieved market share in excess of 70%
in the US. Furthermore, Apple made a deal with Intel to become compatible with Microsoft Windows. Since then, iPod is
enjoying market leadership in the domain of competition.
Ever since its inception, Apple has remained busy with developing more than one product at a time. In retrospect, we find that
in the year (1984), Apple commercialized two products namely “Apple C” and “Macintosh”, in (1986) it launched “Apple llgs”
and “Macintosh Plus”, (1987) it launched “Macintosh II” and “Macintosh SE”. In the same continuity in the year (1989) it
commercialized three computers namely “Macintosh Portable”, “Macintosh IIlci” and “Macintosh IIfx”. In the year (1990) it
launched another three computer models Macintosh Classic, Macintosh IIlsi and Macintosh LC. Similarly in the year 1993
Apples commercialized seven products namely “Color Classic”, “Quadra 800”, “Macintosh Centris”, “Macintosh LCIII”,
“Power book 180c” and “Macintosh LC 475”.
At the start of new decade in the year (2001) Apple again launched three products namely “Power Macintosh” “Quick silver”,
and its bestseller “iPod” first generation. In the year 2004 Apple commercialized four products namely “xServe” “G5”, “iMac
G5”, “iPod click wheel” and “iPod Mini” and in the year (2005) again Apple launched four successful products namely, “iPod
shuffle”, “iPod Nano”, “Video iPod”, and “Mac Mini”. And finally, as we all know that in the year 2007 Apple scored a home
run by launching its premier iPhone. By analyzing the above trends in NPD and commercialization it can easily be understood
that Apple is constantly churning out new innovative products at unprecedented rate. This is mainly due to the fact that at Apple
is using concurrent engineering philosophy to good effect. As earlier on stated in such a process the product under development
may lie in more than one stage of development and thus we can also deduce that Apple is following a rugby approach to new
product development which can go back as well as in forward direction simultaneously. These factors have enabled Apple in
terms of speed, accuracy, and quality.
From a consumers behavior viewpoint in the case of “Apple” consumers who purchased MP3 can be termed innovators; the
early adopters bought the first iPod. Early majority purchased the second and third models of iPod. We can say that Late
Majority purchase models which came after third iPod. Finally, laggards or hard core loyal would normally buy a used or
cheaper version of iPod.
Similarly, referring to Lieberman and Montgomery (2002) we can interpret that Apple has invested heavily in new product
development process and therefore attained the status of market pioneer. This was especially true for Apple a couple of decades
ago as well as today. As with the advent of iPod first generation in (2001) on the market it revolutionalizes the electronics
industry and had a major impact on competition. Ever since, Apple has successfully launched several other line extensions of the
older version with small incremental improvements. For example in the year (2003) Apple launched iPod 3rd Generation and in
the subsequent year (2004) it launched two more extensions of the products namely iPod Mini and iPod click Wheel. Again in
the year (2005) Apple came up with some improved products in the form of iPod Shuffle, Nano and Video iPod. And finally in
the year 2007 iPhone was launched under the same brand umbrella term (i). Therefore the view point of Henderson, (1993) who
states that gaining competitive advantage is a function of predictably predictable activities within the firm. Thus we see small
incremental changes in Apple product line as well as the view point of Lieberman and Montgomery is best exemplified by Apple
launch of iPhone in the year (2007). If we consider the case of NeXT, a desktop computer developed by Steve Jobs, the
legendary founder of Apple, customers did not want the optical drive instead of the floppy drive. Because the new feature makes
it difficult for end-users to switch work from a personal computer to a NeXT. The machine enjoyed other superior features like
hi-fi sound; end-users never look beyond the initial resistance. Many people found it far too expensive, while engineers reckoned
the workstations with superior value.
Therefore, Steve Jobs has to abandon the 200 million dollars product. Here it is suggested that if Steve has listened to the
customer voice he could have been successful, because in this scenario customers were expecting an incremental innovation.
However, for almost thirty long years “Apple” had remained the trend setter to foresee and foretell the future of the domestic
computers. The balance of probability is high that it would continue to lead the way. The success recipe came to Apple in the
form of iPod, and even Apple personal computers sales started going up because of this hit product. Apple has been very clever
in its ploy of planned obsolescence as it is launching iPhone after iPod and that too with new improvements. The new improved
product has the cool feeling assorted around it. Therefore it is compelling customers to engage in repeat purchase, which serves
the long term purpose of the company. Thanks to planned obsolescence. Another very interesting case in point relating to Apple
is launch and commercialization of Apple Macintosh personal computers line. The new Apple Mac customers encounter
mistakes while using Mac because it doesn't work the same way it would be expected to on a Windows computer? Simply the
Windows users follow and expect everything to word the same way as in Windows. And on the other hand Macintosh users see
and expect their Macs to work in its original way (Macintosh way). There are substantial commonalities between Apple and
Windows operating systems, but there are some differences which I am reckoned worth mentioning. It is here that the concept of

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dominant design and network externalities comes into play with Microsoft having a clear edge in terms of network externalities
and therefore greater market share. Similarly the “Apple” has its own network externalities in the form of “iTunes” that could
only be downloaded for their website.
An interesting case in point is that in the year (1985), Bill Gates was literally begging “Apples” CEO Steve Jobs to license his
Mac operating system to Personal computer vendors. Apple did not agree and later on Bill Gates came up with a smack in the
face response and now the situation is that Apple has only 4% market share in PC business. However, this time around the buzz
is related to digital music, encompassing iPod music player and its iTunes made it cheaper and convenient to download songs at
a rate of 99 cents only. But the irony is that Apples iPod music player only plays songs in the company’s "FairPlay" digital rights
management (DRM) format and songs downloaded from iTunes play only on iPod. For example, a customer who gets a song
downloaded from Apples iTunes and wants to play it on his or her real player would be highly disappointed
(www.macnewsworld.com). On the other hand an iPod owner is left limited to get music from iTunes, even though there are
many other services on the Web, such as Napster and Real Networks. But the customer can’t help the situation. Apple must hear
the voice of the customer as customers is always in search of perpetual perfection and who knows who will be the next?

4. Conclusions
The new product development activities differ from company to company especially in stages of commercialization and
marketing. Often times the companies overvalue their new product quality, features and adoptability, whereas the consumers are
reluctant to switch the existing products thus exhibiting a high level of brand loyalty. This is mainly due to the fact that switching
entails costs which can take many forms. Also important is the fact that consumers develop nostalgic fondness with products
therefore not ready to accept innovation many a times.
In simple words, consumers form associations with certain products and therefore become reluctant to other alternatives
because of their habits. Then the sequential new product process with path dependencies is seldom followed as gigantic
companies like Apple are continuously developing three to four products in pipeline. This practice is also done at Apple with the
help project oriented teams working with a well connected system of links to other areas of the over all value chain. Companies
should bear in mind that apart from internal sources of innovation there is a much neglected and overlooked source of new
product development i.e. the voice of the customer has to be taken into consideration. It’s good to have a visionary and
charismatic leader like Steve Jobs and Henry Ford. However, these leaders should not impose their own prerogatives. In Apple
case it lost market share to Microsoft in past because of the rigidity of then CEO Steve Jobs. Similarly, Mr. Henry Ford was also
fond of influencing the new product development process. Someone asked him in how many colors do you produce cars? He
replied cars in all colors as long as the color is black. Some of the top notch companies make silly blunders as they do not do
proper research before they commercialize their products. They misunderstand between needs, wants and demands. So if
consumer is not clear himself about the job he wants to get the product for how can companies doing marketing research for their
new product development elicit the right information from consumer. So I reckon it’s better to analyze the market by a job based
segmentation approach.
This means figuring out the specific job which for which the consumer hires the product or service in a particular situation.
Companies like Apple who struck the home run in one or two of their products can help its new product development processes
because of historical research and development capabilities as well as a strong goodwill on the market. The company can then
easily launch brand extensions as well as line extensions to help transfer the brand equity or goodwill of existing products to new
products. A prime example in case of Apple is the use of letter (i) in many of Apple products nowadays. Finally, from
commercialization and marketing viewpoint it is important for companies not to launch not to launch valuable new products to
pre-mature markets as was the case with NEXT computers at Apple, where customer needs were in the developing stage, and a
new product was introduced which was in a way difficult to handle. Companies are also exercising to a great extent a
phenomenon of planned obsolescence where the company’s products become obsolete after a certain period of time and the
consumer is compelled to engage in repeated purchase so as to serve the firms profit motive. In simple, the chances of success
for a seasoned company becomes more as it becomes a key opinion leader in ship shaping customer preferences and ways of
thinking by design or by default after it makes a home run in the form of product or services. In nutshell, first understand the
customer and then be understood on the market.

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Annexure 1

Figure 2-1 New Product Adopter Categories (adopted from Everett M. Roger, 1967)

I nIn
Innovators, EA EM LM Laggards

Figure 2-2 Source: Adopted from Tariq and Ghaffar (2010)

Partner: Someone one who has the relationship


of partner with you.

Partner Advocate: Someone who actively recommends


you to others, who does your marketing for
you.
Advocate
Supporter: Someone who likes your
organization, but only supports you passively.
Supporter
Client: Someone who has done business with
you on a repeat basis neutral, towards your
Client
organization.

Customer: Someone who has done business


just once with your organization.
Customer
Prospect: Someone whom you believe may be
persuaded to do business with you.
Prospects

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