Given the rapid changes in consumer tastes technology arid competition companies must develop a steady stream of new products and services A firm can obtain-new products in two ways. One is through acquisition by buying a whole company a patent or a license to produce someone else s product The other as through new-product development in the company’s own research -and-development department By new products we mean original products product improvements product modifications and new brands that the firm develops through its own research-and-development efforts.
When an organization introduces a product into a market they must ask themselves a number of questions.
1. Who is the product aimed at?
2. What benefit will they expect?
3. How do they plan to position the product within the market?
4. What differential advantage will the product offer over their competitors?
New products continue to fail at a disturbing rate. One source estimates that more than 90 percent of all new products fail in within 2 years Another- study suggested that of the staggering 25,000 new consumer food, beverage, beauty, and healthcare products to hit the market each year, only 40 percent will be around 5 years later Moreover failure rates for new industrial products may be as high as 30 percent.
Why do so many new products fail? There are several reasons Although an idea may be good the market size may have been overestimated Perhaps the actual product was not designed as well as it should have beer Or maybe it was incorrectly positioned in the market priced too high or advertised poorly A high-level executive might push a favorite idea despite poor marketing research findings- Sometimes the costs of product development are higher than expected, and sometimes Competitors fight back harder than Expected. However the reasons behind some new product failures seem pretty obvious Try the following on for size.
12 Steps for New Product Development
The following steps briefly summarize the major dimensions of new product development.
1. Clarify the Organization’s Goals and the Strategic Role of New Product Development for Competitive Advantage
New product development can play a variety of roles in defining corporate strategy to gain competitive advantage. This variability makes the process of new product development subject to the emerging organizational issues of the day. In general, a long-run, focused, and ongoing strategic commitment to attractive market opportunities should define the role of new product development. New product development should be integrated into an organizations strategy and significantly contribute to its perpetual renewal. Achieving this integration re¬quires the dedication of intellectual resources at all organizational levels. This intellectual process begins with a responsiveness to the business environment.
2. Build Flexibility to Cope with and Mediate Environmental Turbulence
Turbulent global business environments are the source of new product opportunities and problems for an organization. Consequently, the critical factors defining the organization s market environment for new products must be scanned on a regular basis. In particular, the effects of technology that reduce the life cycles of a firm’s products and services must be carefully monitored. For example, the effects of changing information technology will continue to alter the way organizations innovate, design, manufacture, and market new products, as well as the way consumers and other stakeholders respond to those products. They may even redefine markets from traditional channel-dependent institutions to direct, interactive exchanges between buyers and sellers. Consumers may dial up a manufacturers electronic catalog, send in specifications, and receive a customized product (from flexible manufacturing processes) through an express delivery service in days.
3. Anticipate Market Acceptance of New Products
The crux of new product development is identifying the unmet needs of potential buyers and other key market stakeholders as the basis for defining market opportunities and translating them into core new product concepts. Potential buyers who are affected by turbulent global environments respond largely to their own needs and problems. Identifying the needs of potential buyers and segmenting markets according to those needs is a challenging prospect, but one that enhances new product acceptance. It requires a variety of research approaches that should bring the innovating organization as close to potential buyers as possible. In fact, for many situations, new product development should be viewed as an interactive relationship between the innovating organization and potential buyers (and other key stakeholders) to jointly define and develop the new product. The best way to anticipate market response for a new product is to jointly create it with potential buyers, then estimate when and how many consumers might enter the market to buy.
4. Prepare the Organization for the Change Needed to Develop New Products on a Regular Basis
The new product development paradox suggests that organizations respond to the demands of a new product in ways that often create organizational resistance and slow development time. To overcome this resistance, strong leader¬ship, good management, cross-functional teams, and new product champions are crucial. Although the prescription for success may be clear, implementation can be difficult. How does the interruption of organizational processes by new products affect individual career patterns? What are the incentive systems that will motivate highly qualified individuals to join high-risk new product development teams? Where in the organization should the new product development team be located—internally or externally?
Resolving organizational issues related to new product development re¬quires an understanding of critical organizational processes such as strategic choice, influence, communication, decision making, resource allocation, and implementation. Studying and profiling these processes in terms of an organization’s propensity to innovate will help (1) identify areas needing change, and (2) if processes cannot be changed in a reasonable time, estimate response time to innovate. The outcome of this process will be realistic estimates of development cycle time. The process will also help focus educational efforts among employees to bring about an enlightened view of new product development and its role in the future of the organization and their own careers.
5. Operationalize an Ongoing Process of New Product Development
How the organization decides to respond to environmental forces, organizational resistance, and market stakeholder needs defines its new product development process. This process has been observed to be sequential, overlapping, holistic, or chaotic. However, because business situations vary, each organization should craft a process that enables it to (1) maintain a strategic focus, (2) remain flexible to cope with varying degrees of environmental turbulence, (3) interact with the market to anticipate and/or overcome friction in formulating the new product, (4) integrate organizational efforts and resource commitments to motivate the process through cross-functional new product development teams, and (5) commit to new product development as an ongoing process of organizational renewal. The process should encompass different levels of product concept refinement (ideas, concepts, prototypes, products, and launch programs) and critical management activities (diagnosis, search, design, evaluation, decision making, implementation, and monitoring).
6. Build a New Product Decision Support System
Viewing new product development as an ongoing organizational process re-’ quires a decision support system to provide timely information. Key elements are identifying new product decision problems, modeling those problems, establishing a data base of the important variables and relations in the model, collecting and analyzing the data through marketing research methods, and using optimization procedures to find the best decision. The design and implementation of new product decision support systems should be linked to an organizationwide system to build a useful historical data base, yet provide a capability for off-line analysis to support rapid retrieval and manipulation of data. Further, the role of decision-maker judgment in data collection and modeling activities should be integrated into the new product decision sup¬port system, albeit with care and scrutiny in order to continually learn from its use.
7. Estimate the New Product Market Opportunity
The objective of market opportunity forecasting is to clarify the nature of a market opportunity and to estimate its market potential and market penetration. To accomplish this objective, a model of critical factors that drive the new product opportunity should be formulated, data should be collected to operationalize the model, and the resulting forecasts should be updated throughout development. Estimates of year-to-year growth, possibly obtained from a data base of analogical diffusion models, are critical for rapidly deciding the value of a new product idea. Unfortunately, the procedures for quickly screening new product ideas with such information rely heavily on judgment. Future research on expert systems and industry-based product analogy data bases may help to improve the speed and reliability of market opportunity forecasting. In addition, the use of enhanced scenarios employing advanced multimedia technology to further define a core concept in the context of rapidly shifting environments is a promising way to better understand the possible evolution of and response to new products.
8. Formulate a Sales Forecasting Process that Captures Market Response to New Product Alternatives
In developing models for any of the forecasting processes, but especially sales forecasting, several guidelines should be considered:
• Develop a system of conceptual models that includes relevant variables.
• Develop a managerial decision model that is simple, intuitive, and logical; if after very careful study it is not understood, revise it or don’t use it.
• To the extent possible, develop rigorous submodels of selected variables in the spreadsheet model to improve estimation and link decisions to market response.
• Use a variety of data sources (market studies, expert judgment, secondary data) and methods (such as perceptual mapping, positioning, conjoint analysis of preferences and simulations) to operationalize the models and sub¬models.
• Submit the model to sensitivity tests with different values and check for robustness (for example, using the “what-if” tool on computer spreadsheets).
• Check assumptions carefully.
• Use multiple, different, and independent approaches and reconcile estimates when they are divergent.
• Formulate alternative scenarios using variation in the values and assumptions of the model—and consider contingencies.
9. Establish a Financial Forecasting Capability that Provides a New Product Control Chart
Combining market opportunity and sales forecasts with estimates of new product costs, investments, risks, and development cycle time provides a financial control capability that can be summarized in a control chart. The format of this control chart should be agreed upon by the new product team at the outset of the project and followed thereafter. It should include the key measures of performance that guide the pre-launch development and post-launch tracking of the new product. Continual updating of all major forecasting processes to reflect changes in the shape of the new product and in the organization and market environment is the basis for realizing a capacity for control throughout new product development.
10. Consider Test Marketing as a First Step to Implementation
Prior to launching a new product, it is strongly recommended that a market entry strategy and launch marketing program be orchestrated and tested. This process should involve the use of simulated, controlled, and/or conventional test marketing to evaluate, decide, and refine the product and its launch program. Designing and implementing test marketing approaches should consider the nature of the implementation problems, the new product, its importance to the organization, and the amount of uncertainty in the market environment. In some cases, test marketing can be bypassed in favor of immediate market entry. This approach can succeed with careful attention to tracking the new product launch and modifying accordingly.
11. Develop a Market Entry Approach that Capitalizes on the Current Market Situation and Complements the Strategic Role of the New Product
Market entry for new products is highly situational—being first does not always pay. The market entry approach should reflect environmental, organizational, and market factors (potential buyers, competitors, trade, stakeholders) that de¬fine the situation. A market entry approach should be based on the timing, scale, and resonance of the launch marketing program. Using market opportunity, sales, and financial forecasts can provide input to an approach for modeling market entry decisions. In particular, launch timing is critical when cycle time and/or competitive factors can make a difference in performance. Recognizing time as a key variable, and making it the focus of a special decision model, may be the best way to handle this market entry decision.
12. Launch and Track New Product Programs to Implement Needed Modifications for Success
Once a new product is launched, the use of various data collection procedures and forecasting models to track performance, modify, and otherwise control the new product can lead to product and program improvements or to a comfortable decision to terminate the product. One issue related to how much effort an organization is willing to invest in post-launch tracking is problem diagnosis. Quick fixes and program changes that are based on impressions of market problems rather than diagnosis can lead to a products early demise or the extension of mediocre performance. Finding early launch marketing problems may lead not only to quick modifications, but also to the next-generation new product.
Experience has shown that although it will not be used often, diagnosis can be helpful in all pre- and post-launch circumstances, even in a postmortem sense. The ultimate value of new product development may be the learning it makes possible—learning how to adjust the marketing program to consumer needs; learning how to educate the potential buyer on the benefits of the new product; learning why the product won’t succeed in the market and why it should be abandoned now; learning that complete withdrawal is not necessary, but that a next-generation product can overcome the diagnosed difficulties; and, perhaps most importantly, learning to have the patience to learn.
