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Chapter 8: Developing new products and services

Learning objectives 8
1 Understand the three objectives in managing new product development (NPD). 2 Outline how the core benefit is augmented and developed into a commercially viable product. 3 Trace the role played by product design in NPD, particularly in regard to product packaging. 4 Highlight the special nature of high technology products. 5 Describe the process of diffusion and adoption of innovation at a macro and micro level. 6 Outline the NPD process and specify the nature and significance of each of the stages in the process. 7 Draw attention to the danger of NPD myopia and avoid the various traps in new product development.

Figure 8.1: Dimensions of the product


Potential product Augmented product Expected product Generic product Core Benefit

Identifying new product development opportunities INDUSTRY MARKET POTENTIAL


STRATEGIC OPTIONS New uses New users Variety of use Usage frequency

Usage

USAGE GAP

Distribution Intensity Coverage Product New product lines Product features

DISTRIBUTION GAP

PRODUCT LINE GAP

Direct competitors Competition Indirect competitors

COMPETITIVE GAP

Start

Present position

COMPANY SALES

SOURCE : Adapted from John A. Weber (1976), Planning Corporate Growth with Inverted Product Life Cycles, Long Range Planning, October, p.18

Figure 8.2: Product differentiation, price premium and image effects


High Image effect

Price Premium Medium

Low Low Medium High

Product differentiation

Effect of differentiation on image and price premium - consumer markets


Image effect Price premium Differentiation Homogenous Products/Services Examples: Staples Salt Sugar Bus ride Medium Low Differentiation Differentiation Examples: Branded Examples: packaged Shampoo food Oil / Petrol Carpet vacuum Tyres cleaner Taxi ride Televisions Videos Hair style High Differentiation Examples: Clothing Perfume Watches Cars Premium hotel

Effect of differentiation on product & service image and price premium - industrial markets
Image effect Price premium Differentiation Homogenous Products/Services Examples: Commodities & raw materials Agricultural products Basic chemicals Metals Electricity Low Medium Differentiation Differentiation Examples: Components Corrugated packing material Rail freight Examples: Personal computers Food processing equipment Refrigerated containers

High Differentiation
Examples: Special fine chemicals Customised machinery Integrated distribution systems with computerised information & control systems

Figure 8.3: Integrating design and quality in product development


FUNCTIONAL CHARACTERISTICS CUSTOMER SATISFACTION
scale 1 - 5 (5 = best)

*** *
CUSTOMER DEMANDS Easy to hold Does not smear Point lasts Does not roll BENCHMARKS Writesharp (now) Competitor X (now) Competitor Y (now) Writesharp (target)

strong correlation possible correlation

**

some correlation

Pencil Length (inches)

Time Between Lead Dust HexagonSharpenings (particles ality (written lines) per line)

Importance Rating (5 = highest)

Writesharp (now)

Competitor X (now)

Competitor Y (now)

Writesharp (target)

**
* *
5 5 4 5.5

** *** *** **
56 84 41 100 10 12 10 6

**
***
70% 80% 60% 80%

3 4 5 2

4 5 4 3

3 4 5 3

3 5 3 3

4 5 5 4

Market Price Market Share Profit

15c 16% 2c

18c 12% 3c

14c 32% 2c

16c 20% 4c
c = cents

Source : adapted and up-dated from Business Week, 2 December, 1991, pp 28 - 29

Figure 8.4: Contribution of adopters to product sales over time


Adopters 100% Laggards Late Majority

Early Majority
Early Adopers

Innovators
t1 t2 t 3 t4 TIME

Figure 8.5 : Product adoption in consumer markets


Awareness Interest Evaluation Trial Adoption

Confirmation

Figure 8.6: Adoption of a marketing innovation


Superiority Consistency Understanding and implementation

Relative advantage
Compatibility Complexity

Experimentation
Consequences Lack of information Market barriers

Trialability
Observability Uncertainty Diffusion obstruction

Figure 8.7: Process of new product development


New product development strategy Ideas generation refinement Screening

Technical feasibility

Research and development Market research Business and markets plan Physical product design, packaging & Performance

Commercial feasibility

Commercialisation

Figure 8.8: Time and action sequence for co-pack cereal product: from concept to market research
Time in weeks Customer Define concept/ costs 8-12 weeks Concept review Prototype review Customer review of process/product 10-12 weeks Market research Acceptance of prototype Review market research and assess costs Company Concept development Prototype process/product development Refinement of prototype process & product

Figure 8.8 Contd.: Time and action sequence for co-pack cereal product: from market research to second phase product development
Time in weeks Review market research and assess costs

10-20 Packaging and weeks storage testing*


Acceptance of product Confirm packaging and Q/A procedures 10-20 weeks Monitor consumer reaction Market research Total time 48-82 weeks Delivery of product

Reaction to market research Finalise Q/A for Process and Product Packaging
Monitor transit stability/ agree Q/A acceptability Second phase product development Reaction

12-26 weeks

Storage tests can take up to 52 weeks to complete

Figure 8.9: Traps in new product development


Competitive delusion Market scope

New product development traps


Marketing analysis and strategy

Capability Illusory innovations