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BM050-3.5.

3 IMNPD
Innovation Management and New Product Development

An introduction to New
Product Development (NPD)

New products Development:


Product Strategy
New Product Development –
Managing Innovation within firms

Learning Objectives
 Recognize that new products serve a variety of purposes
depending on what is seen to be strategic imperative
 Examine the concept of platforms in new product
development
 Assess the importance of brand strategy in product
development
 Explain how differentiation and positioning contribute
to a product’s success in the market place
 Recognize the importance of marketing research in the
effective development of new products

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Product Development
Opportunities

New product platforms


 Involves major development effort to create a
new family of products based on a new,
common platform,
 R & D developing a new core technology.
 New platform used to help existing products
compete. e.g. Kodal move into digital
photography

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Product Development
Opportunities
Derivatives of existing platforms
 Develop existing platform usually to ensure
existing products are updated
 Provide an advantage over competition
 e.g. Honda develop small petrol engines and
apply this technology to wide variety of market
application from lawn mowers to motorcycles,
outboard motors for boats to chainsaws.

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Product Development
Opportunities
Incremental improvements to existing products
 Involve adding or modifying features of
existing products to keep the product line
current and competitive.
 e.g. improve packaging or changing design
slightly may have significant impact on sales.

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Product Development
Opportunities
Fundamentally new products
 Production technologies taking the firm to
new and unfamiliar markets
 More risky but may help to secure long term
future of the firm
 e.g. Gore and Associates original portfolio of
products were medical, electronic and
industrial, developed breathable fabric ‘Gore-
Tex’ which enabled them to enter new fabric
based markets.
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Product Strategy
Competitive Strategy – Short Term(tactic)
 Filling out product lines with different product
variants, sizes or added features to deter new
entrants to market, to boost market share.
 Minor product changes can be employed to
secure distributors' loyalty rather than stocking
rival offerings
 Unlikely to employ full NPD process
 Limited research or market testing
 Limited to determining acceptable price levels or
alternative advertising messages
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Product Strategy
Competitive Strategy – Long Term
 Seek more profound contribution from new
products
 New product categories to be develop within the
same, related, or new technology areas
 New products may appeal to traditional customer
base or seek new customer segments
 Radical product development through marketing,
technical research, development and testing
 New product may become learning function for
firm
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Product Strategy
Product Portfolios
 Analyzing the organizations total collection as a
portfolio
 Initiated by share growth matrix or Boston Matrix
 Clustering of the portfolio in one quadrant (e.g.
high share/high growth) can be viewed as
unhealthy.
 Different portfolio models: To give the strategist
an overview that could reveal current or potential
problems or opportunities in product strategy

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Boston Consulting
Group (BCG) share-
growth matrix

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Unilever BCG matrix

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The Competitive Environment
Speculation of the external environment
deals with the following issues:
1. Estimates would be needed about what would
be changed
2. How the industry competitive structure may
alter
3. How regulatory framework may evolve
4. Customer needs may be a further area in which
to speculate

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Differentiation and Positioning
Differentiation
 Value for money proposition
 Based upon superior quality
 Better materials
 Better performance
 New features
 Uncommon availability
 Better service

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Product Differentiation
Levitt’s idea of product augmentation
 The core product- comprise the essential basics
needed to compete in a product market. Car: wheels,
engine, chassis.
 The expected product - adds in what customers have
become accustomed to as normal in the product market
 The augmented product- offers features, services or
benefits that go beyond normal expectations
 The potential product would include all the features
and services that could be envisaged as beneficial to
customer

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Product Positioning
 Refers to the perceptions customers have about the
product relative to rival products.
 Founded on how customers discriminate between
alternative products and the factors used to judge or choose
between products.
 How customer see the brand’s ‘personality’ e.g. Innovative,
functional, old fashioned, exclusive, frivolous, fun
 Selecting an appropriate positioning can make a difference
to success or failures. It determines what the organization
tells the market about the product
 E.g. P&G: Two identical product (deodorants) positioned
very differently. “Sure” target young males 18 to 25 and
“Secret” target young females 12 to 24.
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Product Positioning
Positioning studies
1. Begin with determining a relevant set of products
2. Products selected may be perceived by customers
to be choice alternatives
3. List determinant attributes is generated
4. Identify the list of attributes that are most
important to customers
5. This form framework to survey for customers’
feelings about each attribute, showing location of
the brand against the attribute.
6. This will show level or positions of products
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Product Strategies
Product Firm How
Strategy
Product Honda On entering the European motorcycle market
Proliferation Honda offered an enormously wide range of
engine sizes
Value Toyota Offer a high quality product with emphasis
on reliability
Design Sony/ Emphasize good design in all of their
Apple products, frequently pioneering unique
styles and offering elegance and easy to use
products
Innovation 3M Develop reputations for product innovation
with strong technology culture
Service American Forefront of service development and
Express pioneering many service offerings
Source: Deschamps & Nayak, (1995) Product Juggernauts. HBS. MA.
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Product Performance Factors
objective (measurable) / subjective (intangible)
1. Performance in operation 10. Ease of maintenance
2. Reliability 11. Parts availability and cost
3. Sale price 12. Attractive
4. Efficient delivery appearance/shape
5. Technical sophistication 13. Flexibility and adaptability
6. Quality of after sales in use
service 14. Advertising and promotion
7. Durability 15. Operator comfort
8. Ease of use 16. Design
9. Safety in use 17. Environmental impact

Source: Baker & Hart. (1989) Product Strategy & Management. Prentice Hall Harlow.
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Managing brands
 A successful brand combines an effective
product, distinctive identity and added values
as perceived by customers
 Brand manager decide how much to invest
and develop brand. Involving all aspects of
marketing mix (4 Ps).
 Buyers consider benefits and values being
promoted and make choices - buyer behavior.
 Choices affect firm revenue and future
investment decisions – brand performance
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Brand Extension
 The use of an established brand name on a new
product in the same product field or in a related field
 Eg, a new unconventional size, with a prefix on the
original brand name: giant, jumbo, fun
 Attempting to attract new market segment: modified
design or added words for target market.
 Take advantage of carry-over effects from the
original brand. Pool of goodwill among consumers
and distributors
 Philips: electrical and electronic devices, Canon
market cameras and copiers.
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Brand Extension
Carry-Over Effect
1. Expertise- Original product had established and
maintained itself, the product is likely to have a reputation
for high level competence in its field. Users therefore feel
comfortable and assured in making repeat buys
2. Prestige- Some customers believe that brand’s images
confer status on those that use of them. Brands benefit
from particular kinds of associations and symbolism
which they may have become
3. Access- Well established original product have access to
the best suppliers and distributors. An extension would
capitalize on these relationship may have better reception
to its initial launch
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Market Entry
 Decisions about how and when to enter a market can
make or break an innovation.
 Entry Timing- “Pioneer” or “First mover advantage”
 ‘Pioneers’ can set the standards, establish a
distinctive quality position, take the lead in the
continuing evolution of technology, and gain valuable
experience in manufacturing and distribution (Buzzell
and Gale, 1987)
 A weak, tentative ‘first mover, without the motivation
or resources to grow the market, can spend years
making losses only to be superseded by a stronger
follower. (Green et al, 1995)
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Launch and Continuing Improvement
An innovation is not a success until it has established and fixed
its place in the market, depends on how it is launched, its
reception by customers and continuing improvement.
1. Product platform evolution and brand extensions –
What is the next generation of the product? Can the basic
product platform be enhanced and should this lead to
brand extension?
2. Market evolution – Will there be a lengthy introductory
period before any rapid growth? Will new market segment
become apparent or can they be created? How should the
geographic scope be widened?
3. Competitive Evolution – How soon will competitors
arrive? How predictable is their entry? What distinction will
they bring? What entry barriers are in place to deter rivals?
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Withdrawing Products
 Chronic poor sales performance is a good
indicator of withdrawing products
 Investigation should focus on how organization
managed its efforts
 Exit cost would feature strongly e.g. Contract
with suppliers/distributors/lease
 Consider active commitment to stay in declining
industry in anticipation of increasing market
share

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New product flops
April 23, 1985, New Coke was introduced
to the world
On June 11, 1985, less than three months after the
introduction of New Coke, the Coca-Cola company
announced a return to the original formula. It is a
reflection of the power behind the feelings of the people

iMAC

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Case studies

1982 case of Johnson & Johnson’s


Tylenol painkiller

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Tutorial

Would you agree that product portfolio


analysis is too simplistic to be of much
value?

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