New Product Development is important to 1. Follow changing market demands 2. Remain competitive 3. Keep up to changing technology 4.

Replace dying products 5. Diversify product offering to reduce risk

Growth Strategy
Product
Existing New

Market

New Product

A product new to the world, the market, the producer, the seller, or some combination of these.

Categories of New Products

New-to-the-World

Product Line Additions Improvements or Revisions Repositioned Products

Categories of New Products Defined According to Their Degree of Newness to the Company and Customers in the Target Market
High

New product lines

Newness to the company

20%

10%

New-to-the world products

Revisions/ improvements to existing products

26%

26%

Additions to existing product lines

11%

7%

Cost reductions

Low

Repositioning Low High Newness to the market

New Product Development

The development of original products, product improvements, product modifications, and new brands through the firms own R&D efforts Or New products can also come from acquisition of other companies, patents, or licenses

Continuous Innovation

A new product entry that is an improved or modified version of an existing product rather than a totally new product. A continuous innovation has the least disruptive influence on established consumption patterns.

Dynamically Continuous Innovation

A new product entry that is sufficiently innovative to have some disruptive effects on established consumption practices.

Discontinuous Innovation

A dramatically new product entry that requires the establishment of new consumption practices.

The Telephone Has Led to Related Innovations

Discontinuous Innovations Dynamically Continuous Innovations
Telephone answering machines Call forwarding Call waiting Caller ID Banking by telephone Call-prompting systems

Continuous Innovations
Hold button Hold button Line-in-use indicator Line-in-use indicator Redial button Redial button Auto dialing feature Auto dialing feature Touch-tone service Touch-tone service 800 Numbers 800 Numbers 900 Numbers 900 Numbers Silent alert Silent alert Message displays Message displays Build-in alarm clock Build-in alarm clock Interchangeable fashion Interchangeable fashion color cases color cases Plain paper fax Speed dial buttons Delayed send Copy function Paper cutter

Telephone

Pager

Nationwide paging service Stock market quotation devices Sports scores delivery Two-way paging Pager watch Fax modem Mobile fax machines Home office systems (combined fax, copier, computer printer)

Fax Machine

The Development Funnel

New Product Success Factors

Long-term commitment

Company-specific approach

Capitalize on experience

Establish an environment

New-Product Development Process

NewNew-Product Strategy Idea Generation Idea Screening Business Analysis Development Test Marketing Commercialization New Product

Idea Screening
The first filter in the product development process, which eliminates ideas that are inconsistent with the organizations new-product strategy or are inappropriate for some other reason.

Screening

Business Analysis
Demand Considerations in Business Analysis Stage Cost

Sales Profitability

Concept Test
A test to evaluate a new-product idea, usually before any prototype has been created.

Concept Test

Simultaneous Product Development

A new team-oriented approach to new-product development where all relevant functional areas and outside suppliers participate in the development process.

Simultaneous Product Development

Test Marketing
The limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation.

Test Marketing

Commercialization
Production Inventory Buildup Distribution Shipments Sales Training Trade Announcements Customer Advertising

Sequential and Partly Parallel Development Processes

Reduced development time & time-to-market

Organizing for New Product Development

New-Product Committees New-Product Departments Product Managers Venture Teams Task forces

 Idea Generation

Sales force, Customers, Employees, R&D specialists, The competition, Suppliers, Retailers, Independent inventors Screening separates ideas with commercial potential from those that cannot meet company objectives

 Screening

 Business Analysis The business analysis consists of assessing the new products market potential, growth rate, likely competitive strengths, and compatibility of the proposed product with organizational resources

 Development Converting an idea into a physical product Requires interaction among many of the firms departments Prototypes may go through many changes  Test Marketing Introduction of a trial version of a new product supported by a complete marketing campaign to a selected city of television coverage are  Commercialization is stage, the firm establishes marketing strategies, and funds outlays for production and marketing

Crafting Business Strategy First movers advantage or

PROS AND CONS OF FIRST MOVERS

A first-mover is often better off than a fast follower when:

A first-follower is often better off than a first mover when:

It achieves absolute cost

advantage

Rapid technology advances

allow a fast-follower to leapfrog the first mover The first movers offering strikes a chord but is flawed

Its reputation and image

advantages are hard to copy Its customers are locked in (i.e., switching costs exist)

The first mover lacks a key

complement (e.g., channel access) that the follower possesses First-mover costs outweigh the advantages of being the firstmove

Scale of the first move makes

imitation unlikely

A GALLERY OF FIRST-MOVERS AND FAST FOLLOWERS

Product Automated teller machines (ATMs) Pioneer(s) DeLaRue (1967) Docutel (1969) Imitators/fast followers Diebold (1971) IBM (1973) NCR (1974) Comments The first movers were small entrepreneurial upstarts that faced two types of competitors: (1) larger firms with experience selling to banks and (2) the computer giants. The first movers did not survive The pioneers disappeared when the fad first ended in the late 1940s. Parker entered 8 years later. Bic entered last and sold pens as cheap disposables The pioneers rushed to market with a jet that crashed frequently. Boeing and Douglas (later known as McDonnell-Douglas) followed with safer, larger, and more powerful jets unsullied by tragic crashes The first mover was undercapitalized in a business in which money is the key resource. American Express entered last with funds and name recognition from its travelers check business The first mover could not match the distribution advantages of Coke and Pepsi. Nor did it have the money or marketing expertise needed for massive promotional campaigns

Ballpoint pens

Reynolds (1945) Eversharp (1946) DeHaviland (1952)

Parker (1954) Bic (1960) Boeing (1958) Douglas (1958)

Commercial jets

Credit cards

Diners club (1950)

Visa/MasterCard (1966) American Express (1968) Pepsis Patio Cola (1963) Cokes Tab (1964) Diet Pepsi (1964) Diet Coke (1982)

Diet soda

Kirschs No-Cal (1952) Royal Crowns Diet Rite Cola (1962)

A GALLERY OF FIRST-MOVERS AND FAST FOLLOWERS Imitators/fast followers Miller Lite (1975) Natural light (1977) Coors light (1978) Bud light (1982)

Product Light beer

Pioneer(s) Rheingolds and Gablingers (1968) Meister Brau Lite (1967)

Comments The first movers entered 9 years before Miller and 16 years before Budweiser, but financial problems drove both out of business. Marketing and distribution determined the outcome. Costly legal battles, again requiring access to capital, were commonplace

PC operating systems

CP/M (1974)

Microsoft DOS (1981) Microsoft Windows (1985)

The first mover set the early industry standard but did not upgrade for the IBM PC. Microsoft bought an imitative upgrade and became the new standard. Windows entered later and borrowed heavily from predecessors (and competitor Apple), then emerged as the leading interface The market went from boom to bust to boom. The bust occurred when home computers seemed likely to make video games obsolete. Kids lost interest when games lacked challenge. Price competition ruled. Nintendo rekindled interest with better games and restored market order with managed competition. Microsoft entered with its Xbox when perceived gaming to be a possible component of its wired world

Video games

Magnavoxs Odyssey (1972) Atans Pong (1972)

Nintendo (1985) Sega (1989) Microsoft (1998)