BRAND MANAGEMENT AND
NEW PRODUCT DEVELOPMENT
SECTION 6
Brand Management and the Firm
New Product Development: Risk Assessment
ALAN L. WHITEBREAD
REASONS FOR NPD
• Capitalize on existing
market[s]
• Capitalize on new
technology
• Erect competitive barriers
• Establish a market
presence
• Expand the product
offering
• Improve the company’s
image
• Increase market
penetration
• Preemptive move in an
emerging segment
• Lower cost / higher value
product
• Offset a seasonal cycle
• Utilize excess capacity
• Customer demand
• …
HOW IMPORTANT ARE NEW PRODUCTS TO
YOU FUTURE SUCCESS
Business Week and BCG 2007-9
New to the world products – beware, they are
using a very broad definition of this
New products and services that allow
expansion to new customers
65-73%
85%
New products and services for existing
customers
88-92%
Minor changes to existing products and
services
55-65%
Cost reductions for existing products and
services
64-73%
NEW PRODUCT DEVELOPMENT [NPD]
• NPD is risky and expensive.
– More than 9 out of 10 new products fail in the first
year.
• Food Industry 1997 first year failure rate
– Top 20 firms success rate is 76% [failure rate is 24%!]
– Food industry failure rate is nearly 80%
– Large firm vs. small firm NPD performance
• Medicines: Of 5,000 initial ideas
– Only 5 make it to clinical trials
– Only 1 is approved for patient use
• U.S. 2007 Fortune 1000 firms
– Spend more than $60 billion in new product failures each year.
– Even if a product survives its first year, it is likely to
fail in the second year [not meet its original business
plan].
18 MAJOR INVENTIONS SINCE WWII
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1946 Haloid license → Xerox copier [1949] IBM
1947 Raytheon microwave
1948 Bell Laboratories transistor
1948 Cable TV
1958 Integrated circuit [TI / Fairchild Semiconductor] INTEL
1958 Brookhaven National Laboratory “Tennis for Two” video game
1960 Hughes Research Laboratories laser
1964 Xerox Long Distance Xerography [fax machine]
1968 IBM DRAM
1971 Intel microprocessor
1973 ARPANET [internet]
1975 Altair 8800
1977 Cell phone, Apple II 8-bit computer Apple, Samsung
1992 Philips CD player
1995 Industry consortium DVD
2001 Apple iPod
2003 Treo cell phone/PDA/camera [2007 Apple iPhone]
2005 YouTube
NEW PRODUCT DEVELOPMENT [NPD]
• New product development is crossfunctional
– Marketing identifies unfilled customer needs
– Marketing specifies the type of product that is
needed
– R&D [design engineering] develops
conceptual alternatives for marketing to
approve
– R&D, engineering, and production develop
the product with marketing’s guidance
– Finance verifies the estimated cost and
profitability
MITIGATING RISK
• Companies are faced with increasing levels of risk in today’s
market.
• Speed to market
– You must develop and introduce products faster!
– Competitors have speeded up their NPD cycles.
– Customers demand new product faster to get ahead of their
competitors.
• Time
– Product life cycles are shortening, increasing risk because:
• more new products must continually be in development, and
• there is less time to capture development costs and generate profits.
• Cost
– New product development is expensive.
– A large percentage of all quality problems stem from poor design.
– Most of a new product's cost is determined during the design
stage.
KEYS TO NEW PRODUCT SUCCESS
“THE DIMENSIONS OF INDUSTRIAL NEW PRODUCT SUCCESS AND FAILURE”, R.
G. Cooper, Journal of Marketing, Vol. 43 (Summer 1979), pp. 100-101.
• Product uniqueness and [perceived] superiority
– Bill Gates video
• Market knowledge and marketing proficiency
• Technical and production synergy and
proficiency
And never forget, there must be a real need in
the marketplace!
CRITICAL GENERAL SUCCESS
FACTORS FOR NEW PRODUCTS
• Differentiated products Steve Jobs Think Different video
• Exceptional product quality
– Quality leader
• Superior to competitors perceived ability to meet
a need or solve a problem
• Unique benefits that are highly visible, easily
understood, and useful to the customer
• Solution perception + Unique benefits = Superior
value
CRITICAL SUCCESS FACTORS:
PROJECT LEVEL
•
•
•
•
Unique [perceived] superior products
Market-driven, customer-focused orientation
Market research
Clear, early, and stable project and product
definitions
• Planning and resourcing the launch
• Excellent execution from idea forward
• Maximize speed to market
CRITICAL SUCCESS FACTORS:
PEOPLE AND THE ENVIRONMENT
• Organizing the right project team
• Strong team chemistry
• Outstanding leadership
– Howard Schultz – Innovation – founder of Starbucks video
QUALITIES PROMOTING CREATIVITY
“A MODEL OF CREATIVITY AND INNOVATION IN ORGANIZATIONS”, Teresa M. Amabile,
Research in Organizational Behavior, Vol. 10, pp. 128-129. 1988.
• Personality traits
– Persistence, curiosity, energy, and intellectual
honesty
• Self-motivation [3M intrapreneurship]
– Self-driven and committed to the idea
• Cognitive abilities
– General problem-solving, tactics for creative
thinking
QUALITIES PROMOTING CREATIVITY
“A MODEL OF CREATIVITY AND INNOVATION IN ORGANIZATIONS”, Teresa M. Amabile,
Research in Organizational Behavior, Vol. 10, pp. 128-129.
• Risk-orientation [Norm Dion, Dysan Corp.]
– Unconventional, attracted to challenge, do
things differently
• Expertise in the area [Al Shugart, Finis Conner]
– Talent, experience, and knowledge in a field
• Qualities of the group
– Synergy of intellectual, personal and social
qualities of the group
QUALITIES INHIBITING CREATIVITY
“A MODEL OF CREATIVITY AND INNOVATION IN ORGANIZATIONS”, Teresa M. Amabile,
Research in Organizational Behavior, Vol. 10, p. 129.
• Unmotivated
– Not challenged by the problem, pessimistic,
complacent, lazy, do not believe in the idea
• Unskilled
– Lack of ability or experience in the problem
area
• Inflexible
– Opinionated, unwilling to do things differently
ENVIRONMENTS FOR CREATIVITY
“A MODEL OF CREATIVITY AND INNOVATION IN ORGANIZATIONS”, Teresa M. Amabile,
Research in Organizational Behavior, Vol. 10, pp. 146-147.
• Freedom of what to do or how to do
– #2 for inhibiting creativity
• Good project management
• Sufficient resources
• Organizational characteristics
– Cooperation and collaboration
– Failure is not fatal
• #1 for inhibiting creativity
THE POWER OF VISUALIZATION
• On the internet find any or all of the
following to appreciate visualization.
– Futurism
• 1920’s What the Future Will Look Like video
• DHL Five Visions of the World in 2050 video
• http://futuretimeline.net/
CRITICAL SUCCESS FACTORS:
PEOPLE AND THE ENVIRONMENT
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Organizing the right project team
Strong team chemistry
Outstanding leadership
Provide a supportive corporate
environment
– Climate
– Culture
• Top management support
STRATEGIC CRITICAL SUCCESS
FACTORS
•
A product and technology innovation strategy
for the firm
•
Leverage core competencies
–
•
Excellent portfolio management
–
•
Canon $40 billion 2012: Precision mechanics - fine optics – microelectronics
Project selection, project focus, project decisions
Provide all the necessary resources
B2C TARGET MARKET SEGMENT
CRITERIA
1. Measurable
- Is it quantifiable ?
2. Substantial
- Is it the right size for my firm?
3. Accessible
- Does it use our existing channels of distribution?
4. Heterogeneous
- Is it differentiable? Are there obvious customer benefits?
5. Actionable
- Does my firm have a committed long-term desire to succeed?
B2B TARGET MARKET SEGMENT
CRITERIA
1. Measurable
– The degree to which you can measure buyer
characteristics
2. Accessible
– The ability to focus on target market
segments [sales]
3. Substantial
– The degree to which target market segments
are large enough and potentially profitable
enough to pursue
B2B TARGET MARKET SEGMENT
CRITERIA
4. Compatible
-The extent to which marketing and business
strengths compare to current and expected
competitive and technology states
5. Responsive
-The extent to which target market segments
respond to elements of the marketing mix
WHAT IS A NEW PRODUCT?
• Product improvements and modifications.
– A different
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Size
Color
Style
Specifications
Package
A new product family or product line
A new SBU
Products that require a new technology
…
NPD TYPES
• First generation
– New to the firm
– New to the world [rare]
• Incremental product improvement
– Improve product performance
– Add needed features and benefits
• Product redesign
– Extend or add technology to address
additional market needs
NPD TYPES
• Product improvement
– Material changes to the product are required
due to environmental and/or market factors
• Competitive product improvement
– Offset competitive product introductions
• Cost reduction
• Switch to another technology
LARGE
P
R
O
FIVE TYPES OF DEVELOPMENT
PROJECTS
HARDEST
R&D ADVANCED
DEVELOPMENT
PROJECTS:
GENETIC
ENGINEERING
MORE
C
NEW CORE
PRODUCT
E
S
S
ALLIANCES
PARTNERSHIPS
PROJECTS
NEW CORE
PROCESS
R&D JOINT
VENTURE
NEXT GENERATION
PROCESS
PRODUCT CHANGE
NEXT GENERATION
PRODUCT
ADDITION TO
PRODUCT FAMILY
LESS
DERIVATIVES AND
EXTENSIONS
BREAKTHROUGH
PROJECT:
NEW FAMILY OF
DRUGS
C
H
A
SINGLE
DEPARTMENT
UPGRADE
N
G
PLATFORM
PROJECT:
APPLE iMAC:
TRANSLUCENT
PLASTIC
COLORATION
TECHNOLOGY
INCREMENTAL
CHANGE
E
SMALL
For more information see Creating Project Plans to Focus Product Development, Harvard Business Review, Vol. 70, No. 2, p.74.
DERIVATIVE
PROJECT:
SIMPLE SIZE
CHANGE
EASIEST
NPD
• New product development begins with the
recognition of
– an unmet customer need or want and
– a potential market [segment] that is large enough to
justify exploration.
• NPD proceeds either in a sequential or
concurrent fashion.
– Sequential [completing one step before proceeding to
the next] NPD is the traditional method.
• It is time consuming, thus slow.
• The lack of speed to market results in either not as much of a
lead over competitors or it trails them further in the market.
Either way, the firm does not realize as much profit from NPD
as it could.
NPD: A STAGE-GATE PROCESS
1.
Fuzzy Front End [FFE]
-Idea generation and screening
2.
Gain project approval after
-Conducting necessary research [discovery]
-Determining the type of project [scoping]
3.
4.
5.
Development activities
Testing and validating
Launch and commercialization
The stage-gate process provides a series of
checkpoints to verify the original goals and
objectives can still be met.
WHERE DO IDEAS COME FROM?
• MARKET RESEARCH / CUSTOMERS /
PROSPECTS / EMPLOYEES
• SUPPLIERS
• ACQUISITIONS
• UNDERSTANDING TRENDS / ISSUES / …
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Demographics
Problems
Competition
Market research
Technology
NEW PRODUCT IDEA STRATEGIES
Acquire
Companies
Original
Products
Acquire
Patents
Product
Improvements
Acquire
Licenses
Product
Modifications
New
Brands
METHODS OF IDEA GENERATION
• METAPHOR BUILDING [Figurative or non-literal sense]
TOP 10 METAPHORS OF 2005
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"...political fallout from the scandal.“
"Unfolding the road map to peace.“
"A tidal wave of generosity.“
"A fusion of technology and personality.“
"New Orleans became filled with a toxic gumbo.“
"Sprite ReMix Aruba Jam.“
"The Gulf Coast is a catcher's mitt for hurricanes.“
"I've got a thousand songs in my iPod.“
"The housing bubble has burst.“
"A storm of controversy."
METHODS OF IDEA GENERATION
• METAPHOR BUILDING
• FREE ASSOCIATION
– Fruit → Banana → Yellow → ? +
– Fruit → Banana → Orange → ? +
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BRAINSTORMING
CATALOG TECHNIQUE
ATTRIBUTE LISTING
THINKING OUT OF THE BOX
Techniques for creative thinking
–
http://members.optusnet.com.au/~charles57/Creative/Techniques/
ANSOFF’S PRODUCT / MARKET
EXPANSION GRID
P
R
O
D
U
C
T
S
N
E
W
E
X
I
S
T
I
N
G
EXISTING
NEW
MARKETS
PRODUCT GENERATION MAP:
HP PRINTERS
DeskJet
560C
Cost reduction
DeskJet
300
DeskJet
550C
DeskJet
500C
DeskJet
Plus
Swap color and
black cartridges
Cost reduction
DeskJet
Quality
improvement
TIME
One color and
one black
cartridge
Portable with
small footprint
TECHNOLOGY ROADMAP
Technology
area
Last
year
This
year
+1
year
+2
years
Weight/size
16-bit chip
Micro
controller
Integrated
unit
Single chip Soft radio
Ease of use
4 line
screen
10 line
screen
VGA
Touch
screen
Audio quality
Video quality
Vision
Voice
interface
CONCEPT SCREENING
• Sort and classify by type of project
• Concept Screening: Does it fit with the
portfolio?
– Form, function, design, aesthetics
–?
• Risk analysis
– Technological
• Technology demands, engineering, operations,
and quality
– Business
• Business analysis
THREE KEY QUESTIONS
1. What does the market need or want?
Who?
What?
Where?
Why?
When?
How?
How is it differentiated?
THREE KEY QUESTIONS
2. Can we make it?
Utilizing which core competency[ies]?
Utilizing which key success factor[s]?
Using which operating model?
How will it be made?
What are the key hurdles?
THREE KEY QUESTIONS
3. Will it be profitable enough for my firm?
Projected units
Projected net revenue [including elasticity]
Projected cost schedules
Projected profitability
Risk assessment – the potential to make
considerably more or less than the
projection[s]