08/08/2022

Chapter 1: OVERVIEW OF NEW PRODUCT

- What is a new product?
- Why study new product?
- How to develop a new product?

The importance of new products

What is a new product?

Chapter 1.
Overview of
New Product The Strategic Elements of
Product Development

The Basic New Product Process

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1.1 The importance of new products

• It is big business – billions of dollars annually on technical
development alone.
• The challenge of creating radical innovation (totally new product
categories) is viewed as “the most important business issue of our
time.” (Gary Hamel – a business consultant)
• Accelerating innovation and business growth through innovation are
the top business challenges according to the Industrial Research
Institute.

1.1 The importance of new products

Best Prac)ces in New Products
For every 100 ideas:
• Fewer than 70 make it though initial screening
• Fewer than 50 pass concept evaluation and testing
• A little more than 30 make it through development
• About 30 make it through testing
• About 25 are commercialized
• 15 of these 25 (about 60%) are successful.
• Success rate is lower in consumer goods (51%) and as high as 65% in
healthcare.
Source: Compara-ve Performance Assessment Study, PDMA, 2003.

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1.1 The importance of new products

The Best New Product Firms Achieve Superior Results

But the New Products Process is Difficult!

Percent of Products that Fail
90
90
80
70
60
50 40
40
30
20 10
10
0
Sometimes Quoted Research Reports Sometimes Claimed
in Press

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?

• “New products are the lifeblood of a company. As old products
mature and fade away, companies must develop new ones to take
their place.” (Kotler et al., 2020)

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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,
P&G Febreze and Dryel.
• 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
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.

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1.3 The Strategic Elements of Product Development

• 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.

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The Basic New Product Process

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Principles and Issues in the New Products Process

• Between the phases of the process are evaluaXon tasks or decision points,
where hard Go/No Go decisions are taken.
• There is pressure to accelerate Xme to market (speed the product through
this process), and phase overlapping and cross-funcXonal teams are used
to accomplish this.
• Fuzzy gates are commonly used: this is a “condiXonal Go” so as not to
slow down the process in analysis.
• SXll, fuzzy gates must have teeth! A potenXal problem is that the result
should be No Go but the project goes through anyway.
• Another problem: hollow gates (the Go decision is made but no financial
support is provided).

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Product Innovation Charter (PIC)

The purpose of new product strategy is to:
• Set new product objectives (sale, profit, contribution, market share….)
• Understand the contribution of new product development within the
company’s wider goals
• Define the technologies, markets and product scope

A Product Innovation Charter (PIC) can be used to help guide this process.
Product Innovation Charter (PIC), is a set of policies, goals, objectives and
restrictions across organizations.

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What is the Product InnovaGon Charter (PIC)?

• It is the new product team’s strategy.

• It is for Products (not processes).
• It is for InnovaTon (think of the definiTon of new product).
• It is a Charter (a document specifying the condiTons under which a
firm will operate).
• Typically, it is a document prepared by senior management designed to
provide guidance to the strategic business units (SBUs) on the role of
innovaXon.

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The New Products Process Interacts With the

Other Strategic Elements

• Without the strategic direcXon provided by the Product InnovaXon Charter

(PIC), the firm’s abempts at product development will be unfocused. The
PIC helps the team idenXfy opportuniXes and focus efforts.
• Product Pordolio consideraXons help the firm decide whether a new
product opportunity adds financially and strategically to the current line
and avoids spreading scarce financial and human resources too thin.

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Product Portfolio: The New Product’s Strategic Fit

• Strategic goals (defending current base of products versus extending the base).
• 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).

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1.4 The Basic New

Product Process

Figure 2.1 The Phases of the New

Products Process (page 29).

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The Evaluation Tasks in the New Products Process

Opportunity IdenXficaXon/ Direction:
SelecXon Where should we look?

Concept Generation Initial Review:

Is the idea worth screening?

Concept/Project Evaluation Full Screen:

Should we try to develop it?

Development Progress Reports:

Have we developed it?

Launch Market Testing:

Should we market it?

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Phase 1: Opportunity Identification/Selection

• AcXve and passive generaXon of new product opportuniXes as spinouts

of the ongoing business operaXon.
• New product suggesXons, changes in markeXng plan, resource changes,
and new needs/wants in the marketplace.
• Research, evaluate, validate and rank them.
• Give major ones a preliminary strategic statement to guide further work
on it.

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Activities that Feed Strategic Planning for New Products

• Ongoing marketing planning (e.g., need to match a new aggressive

competitor)
• Ongoing corporate planning (e.g., senior management shifts resources
from basic research to applied product development)
• Special opportunity analysis (e.g., a firm has been overlooking a skill in
manufacturing process engineering)

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Sources of Iden>fied Opportuni>es

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

strong franchise)
• A new resource (discovery of a new material with many potential uses)
• An external mandate (stagnant market combined with competitive
threat)
• An internal mandate (senior management desire, new product to close
long-term gap)

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Phase 2: Concept Generation

• Select a high potenXal/urgency opportunity and begin customer

involvement. Collect available new product concepts that fit the
opportunity and generate new ones as well.

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Phase 3: Concept/Project Evaluation

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

technical, marketing, and financial criteria.
• Rank them and select the best two or three.
• Request project proposal authorization when there is a proper
product definition, team, budget, skeleton of development plan, and
final PIC.

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Stages of Concept/Project Evalua>on

• Screening (pre-technical evaluation)
• Concept testing
• Full screen
• Project evaluation (begin preparing product protocol)

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 (Technical Tasks)

• Specify the full development process, and its deliverables.

• Undertake to design prototypes, test and validate prototypes against
protocol, design and validate production process for the best prototype,
and
• Slowly scale up production as necessary for product and market testing.

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Phase 4: Development (Marketing Tasks)

• Prepare strategy, tacXcs, and launch details for markeXng plan

• Prepare proposed business plan and get approval for it
• SXpulate product augmentaXon (service, packaging, branding, etc.)
and prepare for it.

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Phase 5: Launch

• Commercialize the plans and prototypes from development phase

• Begin distribution and sale of the new product (maybe on a limited basis);
• Manage the launch program to achieve the goals and objectives set in the
PIC.

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The Evolu>on from Concept to New Product

Corresponding New Products Process Phases:

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

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Methods for Accelerating Time to Market

• Have a clear product innovaXon charter (PIC).

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

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Additional Techniques for Accelerating Time to Market

• Organization: not just an empowered team, but also effective team

leadership and focus on organizational learning and knowledge transfer.
• Intensify Resource Commitments: Integrate vendors and resellers, get
users involved and capture the Voice of the Customer.
• Design for Speed: use computer-aided design, rapid prototyping, common
components, get fast trial.
• Rapid Manufacturing: standard processes, computer-aided
manufacturing, just-in-time delivery.
• Rapid Marketing: Use rollouts, spend as needed to generate awareness,
offer trial purchasing.

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What About New Services?

• Successful new services tend to come from firms that use a systematic
process (like new products process) – all the tools fit.
• Iterations may be more frequent since they are less expensive.
• Unique, superior service must be delivered, to achieve success.
• Speed to market with services is important, especially in enhancing
reputation, image, and customer loyalty.
• Most important adjustments have to do with the “customized” experience
of each service customer.
• Human interaction between service provider and customer is of highest
importance.
• Consider how the customer evaluates the service.

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New Service Examples

´Jet Blue: focused on friendliness, customized experiences, easy
communicaXon by website, stress on safety, gathers much customer
feedback.
´FedEx: customers are co-creators and provide early input. Studies
suggest opportuniXes such as greater access, more digital services,
and service offerings such as photocopying.

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What About New-to-the-World Products?

• The challenges are different, but the first phase remains the same:
opportunity identification and development of a strategic statement.
• Clear connection required between the radical innovation and the firm’s
strategic vision.
• A firm may establish a transition management team to move the R&D
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.

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