STRATEGIC PROCESS IN NEW PRODUCT

DEVELOPMENT

Submitted in partial fulfilment of the requirements

For the award of the degree of

Master of Business Administration

In
Software Enterprise Management

Under the guidance of

Mr. Amit Gupta (ERP Consultant)

CDAC, NOIDA

Centre for Development of Advanced Computing, Noida

Affiliated to
Guru Gobind Singh Indraprastha University
Kashmere Gate, Delhi - 110006
 DECLARATION

This is to certify that Report entitled “ STRATEGIC PROCESS IN NEW PRODUCT

DEVELOPMENT ” which is submitted by me in partial fulfilment of the requirement for

the award of degree MBA-(Software Enterprise Management), to GGSIP University,

Kashmere Gate, Delhi comprises only my original work and due acknowledgement has

been made in the text to all other material used.

Name: Signature of the Student

Enrolment No:

Semester:

Date :

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 TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION.................................................................................................... 1

CHAPTER 2: STRATEGIC PROCESS ......................................................................................... 3

CHAPTER 3: PRODUCT LIFE CYCLE STAGES...................................................................... 14

CHAPTER 4: NEW PRODUCT FAILURE ................................................................................. 19

CHAPTER 5: CONCLUSION ...................................................................................................... 21

CHAPTER 6: REFERENCES ....................................................................................................... 23

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 CHAPTER 1:
INTRODUCTION
 Background
In business and engineering, new product development (NPD) is the term used to

describe the complete process of bringing a new product or service to market.

There are two parallel paths involved in the NPD process:

 One involves the idea generation, product design and detail engineering;

 The other involves market research and marketing analysis.

Companies typically see new product development as the first stage in generating and

commercialising new products within the overall strategic process of product life cycle

management used to maintain or grow their market share.

Purpose of this Study

The purpose of the project is to get a deep understanding that what process is adopted by

various companies which try to diversify their product lines.

Scope
The main scope of the project is to study the various steps and procedures adopted or are

included in the strategic process of new product development.

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CHAPTER 2:
STRATEGIC
PROCESS

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Idea Generation

This step is often called the "fuzzy front end" of the new product development (NPD)

process

1. Ideas for new products can be obtained from basic research using :

 SWOT analysis (Strengths, Weaknesses, Opportunities & Threats)

 Market and consumer trends

 Company's R&D department

 Competitors

 Focus groups

 Employees

 Salespeople

 Corporate spies,

 Trade shows

2. Idea Generation or Brainstorming of new product or service can begin when you

have done your OPPORTUNITY analysis to support your ideas in the Idea

Screening Phase.

The Fuzzy Front End is also described in literature as "Front End of Innovation", "Phase

0", "Stage 0" or "Pre-Project-Activities".

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A universally acceptable definition for Fuzzy Front End or a dominant framework has not

been developed so far. Fuzzy Front End generally consists of three tasks: strategic

planning, concept generation, and, especially, pre-technical evaluation. These activities

are often chaotic, unpredictable, and unstructured. In comparison, the subsequent new

product development process is typically structured, predictable, and formal.

The term Fuzzy Front End describes the early stages of NPD as a four step process:

 In which ideas are generated

 Subjected to a preliminary technical and market assessment

 Merged to coherent product concepts

 Which are finally judged for their fit with existing product strategies and

portfolios

The vital predevelopment activities include:

1. Preliminary market assessment.

2. Technical assessment.

3. Source-of-supply-assessment

4. Market research: market size and segmentation analysis, voice of customer

research.

5. Product concept testing

6. Value-to-the customer assessment

7. Product definition

8. Business and financial analysis.

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These activities yield vital information to make a Go/No-Go to Development decision.

Idea Screening

The object is to eliminate unsound concepts prior to devoting resources to them.

The screeners should ask several questions:

 Will the customer in the target market benefit from the product?

 What is the size and growth forecasts of the market segment/target market?

 What is the current or expected competitive pressure for the product idea?

 What are the industry sales and market trends the product idea is based on?

 Is it technically feasible to manufacture the product?

 Will the product be profitable when manufactured and delivered to the customer

at the target price?

Concept Development and Testing

 Develop the marketing and engineering details

 Investigate intellectual property issues and search patent data bases

 Who is the target market and who is the decision maker in the purchasing

process?

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  What product features must the product incorporate?

 What benefits will the product provide?

 How will consumers react to the product?

 How will the product be produced most cost effectively?

 Prove feasibility through virtual computer aided rendering, and rapid prototyping

 What will it cost to produce it?

Testing the Concept by asking a sample of prospective customers what they think of the

idea usually via Choice modelling.

Intellectual property (IP)

Intellectual property is a term referring to a number of distinct types of legal monopolies

over creations of the mind, both artistic and commercial, and the corresponding fields of

law. Under intellectual property law, owners are granted certain exclusive rights to a

variety of intangible assets, such as musical, literary, and artistic works; discoveries and

inventions; and words, phrases, symbols, and designs. Common types of intellectual

property include copyrights, trademarks, patents, industrial design rights and trade secrets

in some jurisdictions.

These exclusive rights allow owners of intellectual property to reap monopoly profits.

These monopoly profits provide a financial incentive for the creation of intellectual

property, and, in case of patents, pay associated research and development costs.

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Patent

Patent is a set of exclusive rights granted by a state (national government) to an inventor

or their assignee for a limited period of time in exchange for a public disclosure of an

invention.

The procedure for granting patents, the requirements placed on the patentee, and the

extent of the exclusive rights vary widely between countries according to national laws

and international agreements. Typically, however, a patent application must include one

or more claims defining the invention which must be new, non-obvious, and useful or

industrially applicable. In many countries, certain subject areas are excluded from

patents, such as business methods and mental acts. The exclusive right granted to a

patentee in most countries is the right to prevent others from making, using, selling, or

distributing the patented invention without permission.

Choice Modelling

Choice modelling attempts to model the decision process of an individual or segment in a

particular context. Choice modelling may also be used to estimate non-market

environmental benefits and costs.

Choice Models are able to predict with great accuracy how individuals would react in a

particular situation. Unlike a poll or a survey, predictions are able to be made over large

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numbers of scenarios within a context, to the order of many trillions of possible

scenarios.

Choice Modelling is believed to be the most accurate and general purpose tool currently

available for making probabilistic predictions about human decision making behaviour.

In addition Choice modelling is regarded as the most suitable method for estimating

consumers’ willingness to pay for quality improvements in multiple dimensions.

Business Analysis

 Estimate likely selling price based upon competition and customer feedback

 Estimate sales volume based upon size of market and such tools as the Fourt-

Woodlock equation

 Estimate profitability and breakeven point

Fourt-Woodlock equation

The Fourt-Woodlock equation is a market research tool to describe the total volume of

consumer product purchases per year based on households which initially make trial

purchases of the product and those households which make a repeat purchase within the

first year. Since it includes the effects of initial trial and repeat rates, the equation is

useful in new product development.

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The Fourt-Woodlock equation itself is

V = (HH * TR * TU) + (HH * TR * MR * RR *RU)

The left-hand-side of the equation is the volume of purchases per unit time (usually taken

to be one year). On the right-hand-side, the first parentheses describe trial volume, and

the second describes repeat volume.

HH is the total number of households in the geographic area of projection, and TR ("trial

rate") is the percentage of those households which will purchase the product for the first

time in a given time period. TU ("trial units") is the number of units purchased on this

first purchase occasion. MR is "measured repeat," or the percentage of those who tried

the product who will purchase it at least one more time within the first year of the

product's launch. RR is the repeats per repeater: the number of repeat purchases within

that same year. RU is the number of repeat units purchased on each repeat event.

The applied science of product forecasting is used to estimate each term on the right-

hand-side of this equation. Estimating the trial rate is complex and typically requires

sophisticated models to predict, while the number of households is usually well known.

Beta Testing and Market Testing

 Produce a physical prototype or mock-up

 Test the product (and its packaging) in typical usage situations

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  Conduct focus group customer interviews or introduce at trade show

 Make adjustments where necessary

 Produce an initial run of the product and sell it in a test market area to determine

customer acceptance

Technical Implementation

 New program initiation

 Finalize Quality management system

 Resource estimation

 Requirement publication

 Publish technical communications such as data sheets

 Engineering operations planning

 Department scheduling

 Supplier collaboration

 Logistics plan

 Resource plan publication

 Program review and monitoring

 Contingencies - what-if planning

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Commercialization

 Launch the product

 Produce and place advertisements and other promotions

 Fill the distribution pipeline with product

 Critical path analysis is most useful at this stage

New Product Pricing

 Impact of new product on the entire product portfolio

 Value Analysis

 Competition and alternative competitive technologies

 Differing value segments (price, value, and need)

 Product Costs (fixed & variable)

 Forecast of unit volumes, revenue, and profit

These steps may be iterated as needed. Some steps may be eliminated. To reduce the time

that the NPD process takes, many companies are completing several steps at the same

time (referred to as concurrent engineering). Most industry leaders see new product

development as a proactive process where resources are allocated to identify market

changes and seize upon new product opportunities before they occur (in contrast to a

reactive strategy in which nothing is done until problems occur or the competitor

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introduces an innovation). Many industry leaders see new product development as an

ongoing process (referred to as continuous development) in which the entire organization

is always looking for opportunities.

Because the NPD process typically requires both engineering and marketing expertise,

cross-functional teams are a common way of organizing projects. The team is responsible

for all aspects of the project, from initial idea generation to final commercialization, and

they usually report to senior management (often to a vice president or Program Manager).

In those industries where products are technically complex, development research is

typically expensive, and product life cycles are relatively short, strategic alliances among

several organizations helps to spread the costs, provide access to a wider skill set, and

speeds the overall process.

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 CHAPTER 3:
PRODUCT LIFE
CYCLE STAGES

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The Product Life Cycle (PLC) has Five Stages:

 Product Development

 Introduction

 Growth

 Maturity

 Decline

Product Development Stage

• Begins when the company develops a new-product idea

• Sales are zero

• Investment costs are high

• Profits are negative

Introduction Stage

• Low sales

• High cost per customer acquired

• Negative profits

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 • Innovators are targeted

• Little competition

Marketing Strategies for Introduction Stage

• Product – Offer a basic product

• Price – Use cost-plus basis to set

• Distribution – Build selective distribution

• Advertising – Build awareness among early adopters and dealers/resellers

• Sales Promotion – Heavy expenditures to create trial

Growth Stage

• Rapidly rising sales

• Average cost per customer

• Rising profits

• Early adopters are targeted

• Growing competition

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Marketing Strategies for Growth Stage

• Product – Offer product extensions, service, warranty

• Price – Penetration pricing

• Distribution – Build intensive distribution

• Advertising – Build awareness and interest in the mass market

• Sales Promotion – Reduce expenditures to take advantage of consumer demand

Maturity Stage

• Sales peak

• Low cost per customer

• High profits

• Middle majority are targeted

• Competition begins to decline

Marketing Strategies for Maturity Stage

• Product – Diversify brand and models

• Price – Set to match or beat competition

• Distribution – Build more intensive distribution

• Advertising – Stress brand differences and benefits

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 • Sales Promotion – Increase to encourage brand switching

Decline Stage

• Declining sales

• Low cost per customer

• Declining profits

• Laggards are targeted

• Declining competition

Marketing Strategies for Decline Stage

• Product – Phase out weak items

• Price – Cut price

• Distribution – Use selective distribution: phase out unprofitable outlets

• Advertising – Reduce to level needed to retain hard-core loyalists

• Sales Promotion – Reduce to minimal level

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CHAPTER 4: NEW
PRODUCT
FAILURE

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Causes of New Product Failures

• Overestimation of Market Size

• Product Design Problems

• Product Incorrectly Positioned, Priced or Advertised

• Costs of Product Development

• Competitive Actions

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 CHAPTER 5:
CONCLUSION

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To create successful new products, the company must:

 understand its customers, markets and competitors

 Develop products that deliver superior value to customers.

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 CHAPTER 6:
REFERENCES

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http://en.wikipedia.org/wiki/New_product_development

http://en.wikipedia.org/wiki/Intellectual_property

http://en.wikipedia.org/wiki/Patent

http://en.wikipedia.org/wiki/Fourt-Woodlock_equation

http://en.wikipedia.org/wiki/Product_life_cycle_management

Marketing management by Philip Kotler

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