Market Factors of New Products

Prof. V N Achutha Naikan

IIT Kharagpur
 Marketing Vs R&D
A proactive strategy must integrate R&D and Market
• R&D:
•US Fed. Govt. $50bn/yr
•Private Industry $60bn/yr
• Marketing:
• Survey, Research
• Customer based innovations
• About 80% of successful products are developed based on customer
demands
• R&D alone is not worth
• Marketing inputs are must for the success
• Effective communication should be established among specialists in sales,
marketing, production, R&D to see that opportunities are not overlooked
R&D Expenditures for New-Product
Development in Various Industries
Industry Companies in sample Percentage of Total
Expenses
Electrical 28 79%
Equipment
Chemicals & 34 82
pharmaceuticals
Instruments 16 88
Machinery & 19 68
computers
Aircraft 6 84
Food 7 96
Product Innovations Resulting from Market
Needs and Technological Opportunities
Type of innovation (Sample size) Market or Technical
Product Opportunities
Needs
British firms (137) 73% 27%
Winner’s industrial research award 69 31
(108)
Weapon systems (710) 61 39
British innovators (84) 66 34
Computers, railways, housing (439) 78 22
Materials (10) 90 10
Instruments (32) 75 25
Other (303) 77 23
 Market Failures
Why products fails ? How to avoid failures ?
• Market too small:
Insufficient demand for this type of product
• Poor match of company to product
Company capabilities do not match product requirements
• Not new/not different
A poor idea that really offers nothing new
• No real benefit
Product does not offer better performance
• Poor positioning/misunderstanding of consumer needs
Perceived attributes of product are not unique or superior
• Inadequate support from channel (network)
Product fails to generate expected channel support
 Market Failures….
• Forecasting error: under/over estimation
• Competitive response: quick/effective copying
• Changes in consumer’s tastes
Substantial shift in consumer preference before product is
successful, too much lead time for product introduction in
the market
• Changes in environmental constraints
Drastic change in key environmental factors
• Insufficient ROI : poor profit margins and high costs
• Organizational problems, conflicts, poor management
policies:
Intra-organizational conflicts and poor management
practices
 Safeguards against Market Failures

1. Market is defined and rough potential estimated in

the opportunity identification and concept test phase
2. Opportunities are matched to company’s capabilities
and strategic plans before development is begun
3. Creative and systematic idea generation. Also, early
consumer check to see how idea is perceived
4. In the design stage, perceived benefits of concepts as
well as benefits from actual products use are tested
5. Use of perceptual mapping and preference analysis to
create well-positioned products
6. Assessment of trade response in pretest-market phase
Safeguards against Market Failures…
7. Use of systematic methods in design, pretest, and test phase
to forecast consumer acceptance
8. Good design and strong positioning to preempt competition.
Quick diagnosis of, and response to, competitive moves
9. Frequent monitoring of consumer's perceptions and
preferences, during development and after introduction
10. Incorporation of environmental factors in opportunity
analysis and design phases. Adaptive control
11. Careful selection of markets, forecasting of sales and costs,
and market-response analysis to maximize profits
12. Multifunctional approach to new product development to
facilitate intra-organizational communication.
Recommendations for a sound formal and informal
organizational design
 Cost of NPD
Cost : Limited resources
Typical Management budget : How much each phase cost

Consumer products (lakhs) Industrial products

Opportunity Identification 100 - 500 50 - 200
Design 200 - 1500 500 -5000
Testing 1000 - 6000 300 -3000
TOTAL DEVELOPMENT 1300 - 8000 850 -8200
Introduction 5000 -20000 1000-10000
TOTAL INVESTMENT 6300-28000 1850-18200

High cost : Testing & Introduction

Conclusion : 1. Early phase is less risky
2. Eliminate failures early before they lead to higher
investment
 Time for NPD
Time:
Too long a development process loss of opportunity
 Too short a development process may ignore key issues failures
 Difficult to estimate in advance
 Depends on creative breakthroughs and getting product and market
strategy at start
Months
Opportunity identification 04 - 08
Design 02 -15
Testing
Pretest 02 -05
Test market 06 -12
Introduction 02 - 06
Total Time 16-46
 Time….
If R&D is substantial, add at least 12-24 months
2 ½ years is reasonable
18 months is very fast schedule
5 years Industrial product

Products Requiring Major Break through : Many years

Xerox → 15 years
Penicillin → 15 years
TV → 55 years
 Risk of NPD
Risk:
Probability of successful design : Pd (50 %)
Pr of successful test market, given design = PTM (45 %)
Pr of Market success, given successful TM = PM (70 %)
Over all success = Pd · PTM · PM = 16 % (consumer product)
 = 27 % (for industrial product)
Risk starts from very beginning of PD.
Careful management is essential
One is every 6 consumer products only succeed
End