IM43001 Product Development

(With Project) 2-0-3 4

Basic Concepts, Alternative Product Strategies, Steps
in new product development, Technology forecasting,
Sales forecasting, Product design, Life Testing, Quality
and Reliability considerations, Manufacturing and
maintenance, Defining product market structure,
Consumer perception and product positioning.

Project: Design, Development, and Entrepreneurship

of a new product right from the stage of idea generation
 Books on Product Development
1. Product Development and design for manufacturing
- John W. Priest, Jose M. Sanchez
2. Engg. & Product Development Management
- Stephen C. Armstrong
3. Product Design and Manufacturing
- A.K. Chitale and R.C. Gupta
4. Essentials of New Product Management
- Glen L. Urban, John R. Hauser, Nikhilesh Dholakia
5. Problems of Product Design and Development
- C. Hearn Buck
6. Hand book of New Product Development
- Peter Hilton
7. Product design and development
- Ulrich, K T and S D Eppinger
 Some Success History
• In 1910 dominant mode of urban transportation in Europe was street car railway-
fast, reliable, cheaper
• Henry Ford designed a personal car- slightly higher cost, more flexible – great
success-automotive industry was born
• Michelin, French tire maker – radial tires- with tough quality standard, aggressive
marketing campaign- great success
• When US started producing radial tires, Michelin reduced the price, and
diversified to heavy duty ($ 2 bn) applications
• Communications: AT&T was leader. 1980 MCI Communications introduced low
cost long distance call services, immediately captured 4% Market (in 3 months)
• Medical Diagnosis: General Electric-USG has almost replaced usage of harmful
X-rays
• $ 5 bn Shampoo market:
– 1970s-Johnson&Sons-Agree Crème Rinse to “stop greasiness”
– Gillette-For Oily Hair Only shampoo- (12-24 age group), For oil replenishment, hair
loss, styling-Mint oil shampoo (19-49 age group)
– 1980s, Gillette-Silkience-self adjusting shampoo
 Product Development
•Industrial Product
•Consumer Product
•Why PD ?
–Make More Profits
–Effective Competition in dynamic market
–Needs and desires of consumers are not static
–Technology changes
–Success of any product is only temporary
•This depends on
Finding, screening, producing, testing, packing & marketing
new products
 Why to go for PD ?

1. Excess Capacity of production system

2. Scientific Advances
3. Consumers want change
4. Business needs have changed
- cost cutting
- new material, process, machines
5. World competition, Travel, Growth of global
communication
6. Dynamic market
 Assignment
1. Discuss about 2 new products which you have seen in
the last 5years. Write one paragraph on each product
and its substitute. How is the new product better than
the one used previously ?
2. What is the possible next product development in each
of the above cases?
3. What are the technological changes/developments in
the last 5 years?
4. Find out 2 consumer products that were developed on
technological ground in the last 5 years.
5. What were the substitutes for these products before?
Date of submission:August 09 (1&2),August 23(3-5)
Late submission will not be accepted.
 How do a product succeed?

Winning features
• superior
• cheaper
• distinctive
• marketing strategy
This requires innovative ideas
 Product Life Cycle

• Introduction
• growth
• maturity
• decline
 Product Life Cycle

No. of
Profits falls
products

Redesign superior products

New product

time
 Product Life Cycle

1. Competition
2. Technological changes Make products
obsolete
3. Market shifts
4. Innovation by competitors

If new products are not developed sales & profit decline

Innovation Risky but Important
 Some Failure Cases
• Ford motor company – Edsel – lost 100M$
• GM – abandoned Wankel Rotary engine- 100M$
invested
• Bowmar – calculators –
• DuPont –corfam substitute for leather-400M$
• General Mills – Bugles, Daisies, Butterflies-M$
• Gillette – Happy face – M$
• Osborne – first portable PC – went bankrupt 1983
• IBM – stopped PC Jr.-heavy losses
 There is also risk !
• 20-25% of Industrial products fail
• 30-35% of consumer products fail
Expenditure
•R&D
• Engg. & Tech. - before products introduction
• Marketing - some time products are not actually
introduced
•1 out of 7 only materialize
• 46 % of resources on new PD are allocated to failed
products in the market
 Initiating Factors for PD
1. Financial Goals
- Profit/earning per share to increase with NPD
Old Products : cost increase
earnings stabilized/declined
opening of market & competition
saturated demand
Example : land phones
2. Sales Growth
- NP Developed to maintain/increase S.G.
- SG reduces per-unit costs
3. Competitive Position
Market share changes (even 1%) are critical US auto manufactures
had spend b$ on R & D to compete regain with Japanese auto
companies
 Initiating Factors for PD
4. Product Life Cycle :

5. Technology :
- Rapid change of Technology
- High rewards for NPD with high-tech
6. Invention :
Example : Polaroid instant camera
A new invention of scientific principle  NPD
 Initiating Factors for PD….
7. Regulation
Government regulation/deregulation  NPD
Example:Auto (LPG/NG) from Petrol/Diesel to protect Environment
8. Material cost and Availability
Change of  Products must be revised/dropped
9. Demographic & Life style changes
ITC  Tobacco to Foods
PEPSI  soft drinks to diet decaffeinated cola & Pepsi foods
Nuclear family  Small washers/drivers, ovens, ready to eat
foods, small family products
Health consciousness  jogging & work out equipment,
low cholesterol high fiber foods
 Initiating Factors for PD….
10. Customer Requests :

11. Supplier initiatives :

- Supplier can also force innovation
- An industry producing refills can motivate a pen
industry for better design
- A packaging industry can motivate a soft
drink/food industry to develop a new product
 Nature of Initiating Forces
Internal forces : Financial goals, sales growth
External : Competition, life cycle, technology,
invention, regulation, material costs
Opportunities : Demographic changes, request supplier
initiatives
• Proactive approach and (not Reactive approach) gives
advantage to an industry
• Potential rewards of NPD should be high
• Risks of NPD should be Acceptable level
Proactive Strategy: More Crucial in Future
1. The cost of capital will be high
2. Competition will be tough and global in scope
3. Organizations will be searching into areas outside current
operations
4. Industrial nations will be increasingly aggressive in
supporting high-technology, growth-oriented businesses
5. Markets will become increasingly mature and saturated
6. Consumer lifestyles will continue to change
7. Buyers will become more sophisticated
8. Technological change will be rapid
9. Product life cycles will shorten
10. Environmental pressures from government, consumers,
and labor will increase, and
11. Shortages of resources and fluctuating prices of critical
raw- materials will make cost control very difficult
 Product Strategy and Innovation Process
 Products are added to the product portfolios of firms in
a variety of ways
 Strategies to add new products/adjust existing products
- Innovative and imitative
- offensive and defensive
- entrepreneurial and bureaucratic
- internal development and external acquisition
 Turbulent and risky environment for decision
 Risk and uncertainty
 Rewards : profits, market dominance, customer loyalty,
invulnerability to external forces
 Corporate, Market and Product Strategies
Corporate Strategy :
- overall direction-giving framework for an organization
- In a competitive world, C.S. should confer on the firm
a unique differential advantage
- careful analysis of products and markets
- diversification
- appropriate market
Range of Strategic Responses
To make intelligent strategic responses, we must know
our capabilities and the environment in which we
operate
Corporate, Market and Product Strategies
Setting Strategic Goals:
Start with an audit of companies capabilities and its environment.
- What are our strengths/weaknesses?
- What are our competitors’ strengths/weaknesses?
- What are our present products and Life cycles?
- R.M. availability, cost
- What technological changes are expected?
- What Government regulations affecting us?
- What consumption change can we exploit?
- Fix our business goals after analyzing these
- Quantify the goals to monitor progress
- Gap analysis to put additional effort to achieve goals
 Setting Strategic Goals….
• A large private firm:
10% growth in earning/share, 20% increase in sales, at least
5% market share and Rs. 100 crore revenue/year for
launching a NP
• A small, high tech entrepreneur:
50% sales growth achieved through products with less than
Rs 100 million sales per year and less than 1% of the
market
• A public mass transfer service:
Reverse the decline in ridership over 5 years and reduce the
deficit by 5% per year
 Alternative Product Strategies
Reactive or Proactive ?
Reactive : Wait until the competitors introduce a product copy it
if it is successful
Proactive : First to introduce a NP and exploit the opportunities
Each one is appropriate under certain condition
Reactive Proactive (taking initiative)
Defensive- against a NP R&D
by competitor Marketing - find consumer needs
-get time for Entrepreneurial- a person-entrepreneur
development has an idea- make this happen
Imitative Acquisition- purchase other firms with
Second but better products new to the acquiring firm
Responsive- reacting & market
to customers requests
Reactive vs Proactive Strategies

To select any strategy we must understand the situations:

1. Growth opportunities
2. Probable protection for innovation
3. The scale of the market
4. The strength of the competition
5. The organization’s position
 Growth Opportunities
There are 4 possibilities
Existing Products New Products
1. Market 3. Product
Existing Markets
Penetration Development
2. Market 4. Diversification
New Markets
Development

1 Increase market share, sales & production, better distribution

NW. Reactive strategy in best. PD only when competition is
expected. Defensive strategy
2,3,4 Proactive strategy- innovation, R&D, marketing are more
suitable
 Protection for Innovation

- Patenting to get ROI on PD

- Enduring market share to the pioneering brand
- Mc Donald’s, Surf, Philips, about 60% M. Share
Be Proactive

- If the innovative/first product can be easily copied,

protection is difficult
Better be Reactive
 Scale of Market
Market size & Margin are important

Large Markets: Mass production, distribution,

marketing dominance, good returns
- be proactive

Small Markets: Better be reactive

- produce what the customers want
Example: Process machinery, boilers, engines
tailor the design/customer made
 The strength of the competition
• Competitive environment reactive strategy is
sometimes feasible
• Time To Copy: is short, no patent protection,
better imitate
• A small firm: vulnerable to competitive
reaction so better be reactive,
no innovation
• A big firm: proactive to protect its level and
image
- no imitation
- innovation to keep leadership
Example: GE in home appliances
 The organization’s position
Position in Vertical system
- In a distribution chain (S.C) one firm may be
proactive while others reactive to support it
- Also depends on relative positioning/power

Synthesis and Recommendations

- All organization do not have to innovate new products
- Reactive strategy may be best for some organizations
 Reactive Strategies:
Organizational Characteristics
1. Require concentration on existing products or
makes
2. Can achieve little protection for innovation
3. Are in markets too small to recover
developmental costs
4. Are in danger of being overwhelmed by
competitive imitation
5. Are in distribution chains dominated by
another innovator
 Proactive Strategies:
Organizational Characteristics
1. Overall policy of growth
2. Willingness to enter new products and markets
3. Capability of achieving patent or market
penetration
4. Ability to enter high-volume or high-margin
markets
5. Resources and time necessary to develop new
products
6. Competition unable to rapidly enter with a
second-but- better strategy
7. Reasonable power in the distribution channel
 Marketing Vs R&D
A proactive strategy must integrate
• R&D: US Fed. Govt. $50bn
Private Industry $60bn
• 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 Needs Opportunitie
s
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
 Commercial Outcome for
Chemical Laboratories

Source of Idea Increase in Sales Caused by Innovation

None Small Medium Large

Projects Laboratory 66% 17% 17% 0%

Marketing 58 14% 14 14

Customer 33 33 13 20
The Proactive Innovation Process
• Control of risks
• Encouragement of creativity
Management must develop a proactive strategy for this

7 Steps for Proactive ….

1. Opportunity Identification
2. Design
3. Prototype production, evaluation
4. Mass Production
5. Testing
6. Introduction
7. Life Cycle Management
 Opportunity Identification
R&D indicate  technological opportunities
integration with market demand
Put effort  to find market: growing, profitable, vulnerable
find opportunities to match
 strength and weakness of our organization
 tap our technological potential
 creative ideas to be generated
 integrate creative Engg., R&D, marketing
Ideas  concepts products  marketable products
 Design
Ideas: Evaluate & refine ideas to create products with
physical and psychological attributes indicating
high probability of success in the market

Develop- marketing strategy

- R&D specifications
- Engineering development: process, material
- Iterative cycles of evaluation and refinement.

Concept-prototype-pilot production-sales support

 Testing & Marketing
Testing
- product testing for Q, R, P
- Package, transportation
- marketing, advertisement, testing
Test marketing
- best known step in PD
- scaled-down version of a national introduction
- prevent national failure
- not simply to see success/failure of a product
- customer response, company’s production/distribution system
improvement in advertising, promotion, pricing distribution,
product performance
- input for national level launching, strategy for profit- maximizing
 Testing & Marketing……
Test Marketing is
1. expensive
2. delay national introduction
3. tip off competitor to a high-potential idea
Pretest Market Models
1. to conduct pre-test studies
2. simulation for market study
3. improve test marketing
4. identify major needs for improvements
5. prevent costly pilot test programs
 Testing & Marketing……
Introduction
Successful test  introduction nationally
Quick national introduction  depends competitors ability,
Distribution, Availability of funds
Production Rate, Easiness in
imitation
Otherwise market-by-market introduction
Test Market
- need not indicate success in national introduction
- change of consumer tastes
- unanticipated competitor response
- troublesome channels of distributions
- national economic or social crisis
 Product Life Cycle Management
- Much money is spent on PD & marketing
- Returns on investment must be good
- price, advertising, sales effort, and promotion
strategies require updating to improve profit &
length of L.C.
- New competitors may enter defensive strategy?
Should we change direction & magnitude ?
1. Price
2. Advertising budget
3. Product position
4. Characteristics
5. Distribution
 Product Life Cycle Management

After mature phase:

1. Repositioning
2. Manage decline
3. Tap remaining profit potential
4. Redesigns & revitalization of product L.C
New Product Development Process
OPPORTUNITY IDENTIFICATION
Market Definition; Idea Generation
No
Go

DESIGN
Perceptual Mapping; Product Positioning
Concept Forecasting; Product Engineering; and Marketing Mix
No
Go

TESTING
Advertising and Product Testing; Pretest Market Forecasting;
Test Marketing
No
Go

INTRODUCTION
Launch Planning; Tracking
No
the Launch
Go

LIFE CYCLE MANAGEMENT

Market Response Analysis; Competitive Defense;
Innovation at Maturity; Product Portfolio Management
Harvest/Terminate
 NPD – Plan versus Reality
Our Process as we say we Our process as it has
should do it happened
Idea Generation Exultation
Screening and Refinement Disenchantment
Test Marketing Confusion
National Search for the Guilty
Punishment of the innocent
Distinction for the
Uninvolved
 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
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
• Changes in environmental constraints
Drastic change in key environmental factor
• 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, time, risk of NPD
Cost : Limited resources
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

High cost : Testing & Introduction

Introduction
Conclusion 5000 -20000
: 1. Early phase is less risky 1000-10000
TOTAL INVESTMENT 6300-28000 1850-18200
2. Eliminate failures early before they lead to higher
investment
 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 4-8

Design 2 -15
Testing
- Pretest 2 -05
- Test market 6 -12
Introduction 2-6
 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

Major Break through : Many years

Xerox  15 years
Penicillin  15 years
TV  55 years
 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 products only succeed