New Product Management
PGDBM/IT/HR/IB
Rajat Gera
What Is a New Product?
• New-to-the-World Products
– Polaroid camera, Sony Walkman, wordprocessing software
• New Category Entries
– Hewlett-Packard PCs, Hallmark gift items, Tata
Passenger cars (Indica)
• Additions to Product Lines
– line extensions or flankers
• Product Improvements
– Wagon-R, Windows 98, plain-paper fax
• Repositionings
• Cost Reductions
Product Newness
What Is a Successful New Product?
Percent of Products that Fail
90
90
80
70
60
50
40
30
20
10
0
40
10
Sometimes Quoted
in Press
Research Reports
Sometimes Claimed
Although you may hear much higher percentages, careful
studies supported by research evidence suggest that about
40% of new products fail -- somewhat higher for consumer
products, somewhat lower for business-to-business products.
The Conflicting Masters of New
Products Management
• Three inputs to the new
products process: the
right quality product, at
the right time, and at the
right cost.
• These conflict with each
other but may have
synergies too.
• Issue: how to optimize
these relationships in a
new product situation.
Quality
Value
Time
Cost
New Product Development
Imperatives-1
Breakthrough
Platform
Maintenance
A Bubble Diagram at a Hewlett-Packard
Division
The Basic New Product Process
Phase 1: Opportunity Identification/Selection
Phase 2: Concept Generation
Phase 3: Concept/Project Evaluation
Phase 4: Development
Phase 5: Launch
The Impact of Simultaneous Operations on
the Product Development Process
Phase 1: Opportunity
Identification/Selection
Active and passive generation of new product
opportunities as
• spinouts of the ongoing business operation.
• New product suggestions,
• changes in marketing plan,
• resource changes,
• and new needs/wants in the marketplace.
Research, evaluate, validate, and rank them (as
opportunities, not specific product concepts).
Give major ones a preliminary strategic
statement to guide further work on it.
Activities that Feed Strategic Planning
for New Products
• Ongoing marketing planning (e.g., need to
meet new aggressive competitor)
• Ongoing corporate planning (e.g., senior
management shifts technical resources
from basic research to applied product
development)
• Special opportunity analysis (e.g., a firm
has been overlooking a skill in
manufacturing process engineering)
Sources of Identified Opportunities
• An underutilized resource (a
manufacturing process, an operation, a
strong franchise)
• A new resource (discovery of a new
material with many potential uses)
• An external mandate (stagnant market
combined with competitive threat)
• An internal mandate (new products used
to close long-term sales gap, senior
management desires)
Phase 2: Concept Generation
Select a high potential/urgency opportunity, and
begin customer involvement. Collect available
new product concepts that fit the opportunity and
generate new ones as well.
Phase 3: Concept/Project Evaluation
Evaluate new product concepts (as they begin to
come in) on technical, marketing, and financial
criteria. Rank them and select the best two or
three. Request project proposal authorization
when have product definition, team, budget,
skeleton of development plan, and final PIC.
Stages of Concept/Project Evaluation
•
•
•
•
Screening (pretechnical evaluation)
Concept testing
Full screen
Project evaluation (begin preparing
product protocol)
The first stages of the new products process are sometimes
called the fuzzy front end because the product concept is
still fuzzy. By the end of the project, most of the fuzz should
be removed.
Phase 4: Development
(Technical Tasks) Specify the full development
process, and its deliverables. Undertake to
design prototypes, test and validate prototypes
against protocol, design and validate production
process for the best prototype, slowly scale up
production as necessary for product and market
testing.
(Marketing Tasks) Prepare strategy, tactics, and
launch details for marketing plan, prepare
proposed business plan and get approval for it,
stipulate product augmentation (service,
packaging, branding, etc.) and prepare for it.
Phase 5: Launch
Commercialize the plans and prototypes from
development phase, begin distribution and sale
of the new product (maybe on a limited basis)
and manage the launch program to achieve the
goals and objectives set in the PIC (as modified
in the final business plan).
The Life Cycle of a Concept
Rate of Use of NPD Steps among
PDMA Members
Concept searching
Concept screening
Concept testing
Business analysis
Product development (technical)
Use testing/market testing
90%
76%
80%
89%
99%
87%
Opportunity Identification and
Selection
Strategic Planning for New
Products
Opportunity Identification and Selection
Opportunity Identification:
Finding Greenfield Markets
•
•
•
•
Find another location or venue. Once McDonald’s had taken up the
best locations for traditional fast-food restaurants, it continued its
U.S. expansion by placing stores inside Wal-Marts, in sports arenas,
and elsewhere. Starbucks Coffee complemented coffee-shop sales
by selling its coffee beans and ice creams in supermarkets.
Leverage your firm’s strengths in a new activity center. Nike has
recently moved into golf and hockey, and Honeywell is looking into
casino opportunities.
Identify a fast-growing need, and adapt your products to that need.
Hewlett-Packard followed the need for “total information solutions”
that led it to develop computing and communications products for
the World Cup and other sporting events.
Find a “new to you” industry: P&G in pharmaceuticals, GE in
broadcasting (NBC), Disney in cruises, Rubbermaid in gardening
products – either through alliance, acquisition, or internal
development.
Source: Allan J. Magrath, “Envisioning Greenfield Markets,” Across the Board, May 1998, pp. 26-30.
Why Does a Firm Need a New
Products Strategy?
• To chart the group’s/team’s direction
– What technologies?/what markets?
• To set the group’s goals and objectives
– Why does it exist?
• To tell the group how it will play the game
– What are the rules?/constraints?
– Any other key information to consider?
Corporate Strengths
New products in this firm will:
• Use our fine furniture designers (Herman Miller)
• Gain value by being bottled in our bottling system (CocaCola)
• Utilize innovative design (Braun)
• Be for babies and only babies (Gerber)
• Be for all sports, not just shoes (Nike)
• Be for all people in computers (IBM)
• Proliferate our product lines (Rubbermaid)
• Be almost impossible to create (Polaroid)
• Use only internal R&D (Bausch & Lomb)
• Not threaten P&G (Colgate)
Product Platform Planning
Many firms find that it is not efficient to develop a
single product.
Platform: product families that share similarities in
design, development, or production process.
• Car industry: $3 billion price tag on a new car platform is
spread out over several models.
• Sony: four platforms for Walkman launched 160 product
variations.
• Boeing: passenger, cargo, short- and long-haul planes
made from same platform.
• Black & Decker: uses a single electric motor for dozens
of consumer power tools.
Other Platforms-Brand, Category, SBU, Trade Channel
What is the Product Innovation Charter
(PIC)?
• It is the new product team’s strategy.
• It is for Products (not processes).
• It is for Innovation (think of the definition of
new product).
• It is a Charter (a document specifying the
conditions under which a firm will operate).
The Contents of a Product Innovation
Charter
Background
Key ideas from the situation analysis; special forces such as managerial
dicta; reasons for preparing a new PIC at this time.
Focus
At least one clear technology dimension and one clear market dimension.
They match and have good potential.
Goals-Objectives
What the project will accomplish, either short-term as objectives or longerterm as goals. Evaluation measurements.
Guidelines
Any "rules of the road," requirements imposed by the situation or by upper
management. Innovativeness, order of market entry, time/quality/cost,
miscellaneous.
A Sample PIC for a Chemical Product
Focus: The XYZ Company is committed to a program of innovation
in specialty chemicals, as used in the automobile and other
metal finishing businesses, to the extent that we will become the
market share leader in that market and will achieve at least 35
percent ROI from that program on a three-year payout basis.
We seek recognition as the most technically competent
company in metal finishing.
Goals-Objectives: These goals will be achieved by building on our
current R&D skills and by embellishing them as necessary so as
to produce new items that are demonstrably superior technically,
in-house, and have only emergency reliance on outside
sources. The company is willing to invest funds, as necessary,
to achieve these technical breakthroughs.
Guidelines: Care will be taken to establish patent-protected
positions in these new developments and to increase the safety
of customer and company personnel.
PIC Special Guidelines
• Degree of Innovativeness
– First-to-market
– Adaptive product
– Imitation (emulation)
• Timing
– First
– Quick second
– Slow
– Late
• Miscellaneous
– Avoidance of competition with certain firms
– Recognition of weaknesses
– Patentability
– Product Integrity
Dimensions for Assessing
Strategic Fit
• Strategic goals (defending current base of products
versus extending the base).
• Project types (fundamental research, process
improvements, or maintenance projects).
• Short-term versus long-term projects.
• High-risk versus low-risk projects.
• Market familiarity (existing markets, extensions of current
ones, or totally new ones).
• Technology familiarity (existing platforms, extensions of
current ones, or totally new ones).
• Ease of development.
• Geographical markets (North America, Europe, Asia).
Strategic Buckets Model for
One SBU in Exxon Chemical
Low Product Newness
Medium Product Newness
High Product Newness
Low Market Newness
High Market Newness
Improvements to Existing Products
(35%)
Additions to Existing Product Lines
(20%)
Cost Reductions
(20%)
New Product Lines
(15%)
Repositioning
(6%)
New-to-the-World Products
(4%)
Source: Adapted from Robert G. Cooper, Scott J. Edgett, and Elko J. Kleinschmidt. Portfolio Management
for New Products, McMaster University, Hamilton, Ontario, Canada, 1997, p. 63.
Concept Generation
Required Inputs to the Creation
Process
• Form (the physical thing created, or, for a
service, the set of steps by which the service will
be created)
• Technology (the source by which the form is to
be attained)
• Benefit/Need (benefit to the customer for which
the customer sees a need or desire)
Technology permits us to develop a form that
provides the benefit.
Some Patterns in Concept Generation
Customer need
firm develops technology
produces form
Firm develops technology
finds match to
need in a customer segment
produces
form (Newton message Pad)
Firm envisions form
develops technology to
product form
tests with customer to see
what benefits are delivered
Note: the innovation process can start with
any of the three inputs.
What is a Product Concept?
• A product concept is a verbal or prototype
statement of what is going to be changed
and how the customer stands to gain or
lose.
• Rule: You need at least two of the three
inputs to have a feasible new product
concept, and all three to have a new
product.
New Product Concepts and the
New Product
C
Need
Form
C
C
“C”=
Concepts
Technology
New
Product
The Soft Bubble Gum Example
• Benefit: “Consumers want a bubble gum that
doesn’t take five minutes to soften up.”
• Form: “We should make a softer, more flexible
bubble gum.”
• Technology: “There’s a new chemical mixing
process that prevents drying out of food and
keeps it moist.”
Why would each of these taken individually not be
a product concept?
What a Concept Is and Is Not
“Learning needs of computer users can be met
by using online systems to let them see
training videos on the leading software
packages.” (good concept; need and
technology clear)
“A new way to solve the in-home
training/educational needs of PC users.”
(need only; actually more like a wish)
“Let’s develop a new line of instructional videos.”
(technology only, lacking market need and
form)
Methods for Generating Product
Concepts
Two Broad Categories of Methods:
• Gathering Ready-Made Product Concepts
• Using a Managed Process Run by the New
Products Team
Best Sources of Ready-Made New
Product Concepts
• New Products Employees
– Technical: R&D, engineering, design
– Marketing and manufacturing
• End Users
– Lead Users
• Resellers, Suppliers, Vendors
• Competitors
• The Invention Industry (investors, etc.)
• Miscellaneous (continued)
Problem-Based Concept Generation
Problem Analysis: General Procedure
1. Determine product or activity category for
study.
2. Identify heavy users.
3. Gather set of problems associated with
product category.
– Avoid “omniscient proximity” -- rate
importance of benefits and levels of
satisfaction.
4. Sort and rank the problems according to
severity or importance.
The Bothersomeness Technique
List of pet owners' problems:
Need constant feeding
Get fleas
Shed hairs
Make noise
Have unwanted babies
A
Problem Occurs
Frequently
98%
78
70
66
44
B
Problem is
Bothersome
21%
53
46
25
48
AxB
.21
.41
.32
.17
.21
Problem Analysis: Sources and
Methodologies
• Experts
• Published Sources
• Contacts with Your Business Customers or
Consumers
– Interviewing
– Focus groups
– Observation of product in use
– Role playing/Product Function analysis
Scenario Analysis
• “Extending” vs. “leaping”
• Using seed trends for an “extend“ scenario
• Techniques:
– Follow “trend people”/”trend areas”
– “Hot products”
– Prediction of technological changeover
– Cross-impact analysis
Relevance Tree Form of
Dynamic Leap Scenario
Wild Card Events and
Their Consequences
• No-Carbon Policy: Global warming may cause governments
to put high taxes on fossil fuels, shifting demand to alternative
sources of energy. This changes the allocation of R&D
investment toward alternative energy, possibly causes new
“energy-rich” nations to emerge, and ultimately may lead to a
cleaner environment for everyone.
• Altruism Outbreak: This is the “random acts of kindness”
movement – solve social problems rather than leaving it up to
the government. Schools and other institutions will revive due
to community actions, and perhaps inner cities would be
revitalized.
• Cold Fusion: If a developing country perfects free energy, it
becomes prosperous overnight. It gains further advantages
by becoming an energy exporter.
Solving the Problem
• Group Creativity Methods/Brainstorming
• Principles of Brainstorming:
– Deferral of Judgment
– Quantity Breeds Quality
• Rules for a Brainstorming Session:
– No criticism allowed.
– Freewheeling -- the wilder the better.
– Nothing should slow the session down.
– Combination and improvement of ideas.
Analytical Attribute Analysis
What are Analytical Attribute
Techniques?
• Basic idea: products are made up of
attributes -- a future product change must
involve one or more of these attributes.
• Three types of attributes: features,
functions, benefits.
• Theoretical sequence: feature permits a
function which provides a benefit.
Gap Analysis
• Determinant gap map (produced from
managerial input/judgment on products)
• AR perceptual gap map (based on
attribute ratings by customers)
• OS perceptual map (based on overall
similarities ratings by customers)
A Determinant Gap Map
Obtaining Customer Perceptions
Rate each brand you are familiar with on each of the following:
Disagree
1. Attractive design
2. Stylish
3. Comfortable to wear
4. Fashionable
5. I feel good when I wear it
6. Is ideal for swimming
7. Looks like a designer label
8. Easy to swim in
9. In style
10. Great appearance
11. Comfortable to swim in
12. This is a desirable label
13. Gives me the look I like
14. I like the colors it comes in
15. Is functional for swimming
Agree
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
1..2..3..4..5
Snake Plot of Perceptions (Three Brands)
Ratings
5
4.5
4
Aqualine
3.5
Islands
3
2.5
Sunflare
2
1.5
1
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 Attributes
2
Comfort
The AR Perceptual Map
Aqualine
Gap 1
Islands
Molokai
Fashion
-2
Splash
Sunflare
Gap 2
-2
2
Failures of Gap Analysis
• Input comes from questions on how brands differ
(nuances ignored)
• Brands considered as sets of attributes;
totalities, interrelationships overlooked; also
creations requiring a conceptual leap
• Analysis and mapping may be history by the
time data are gathered and analyzed
• Acceptance of findings by persons turned off by
mathematical calculations?
Trade-Off (Conjoint) Analysis
• Put the determinant attributes together in
combinations or sets.
• Respondents rank these sets in order of
preference.
• Conjoint analysis finds the optimal levels
of each attribute.
Conjoint Analysis Input: Salsa Example
Thickness
Spiciness
Color
Actual
Ranking*
Regular
Regular
Regular
Regular
Regular
Regular
Thick
Thick
Thick
Thick
Thick
Thick
Extra-Thick
Extra-Thick
Extra-Thick
Extra-Thick
Extra-Thick
Extra-Thick
Mild
Mild
Medium-Hot
Medium-Hot
Extra-Hot
Extra-Hot
Mild
Mild
Medium-Hot
Medium-Hot
Extra-Hot
Extra-Hot
Mild
Mild
Medium-Hot
Medium-Hot
Extra-Hot
Extra-Hot
Red
Green
Red
Green
Red
Green
Red
Green
Red
Green
Red
Green
Red
Green
Red
Green
Red
Green
4
3
10
6
15
16
2
1
8
5
13
11
7
9
14
12
17
18
* 1 = most preferred, 18 = least preferred.
Ranking as
Estimated
by Model
4
3
10
8
16
15
2
1
6
5
13
11
7
9
14
12
18
17
Conjoint Analysis: Graphical Output
Thickness
Spiciness
Color
2
1
0
-1
-2
Regular
0.161
Thick
0.913
Ex-Thick
Mild
-1.074 1.667
Medium-Hot
0.105
Ex-Hot Red
Green
-1.774 -0.161
0.161
Conjoint Analysis:
Relative Importance of Attributes
0
20
40
Spiciness
80
59.8%
Thickness
Color
60
34.6%
5.6%
100 %
Some Qualitative Attribute
Analysis Techniques
• Dimensional Analysis
• Checklists
• Relationships Analysis
– There are many others.
A Dimensional Attribute List
•
•
•
•
•
•
•
•
•
•
Weight
Rust resistance
Length
Color
Water resistance
Materials
Style
Durability
Shock resistance
Heat tolerance
•
•
•
•
•
•
•
•
•
•
Explosiveness
Flammability
Aroma
Translucence
Buoyancy
Hangability
Rechargeability
Flexibility
Malleability
Compressibility
An Idea Stimulator Checklist
for Industrial Products
• Can we change the physical/chemical properties of
the material?
• Are each of the functions really necessary?
• Can we construct a new model of this?
• Can we change the form of power to make it work
better?
• Can standard components be substituted?
• What if the order of the process were changed?
• How might it be made more compact?
• What if it were heat-treated/hardened/cured/plated?
• Who else could use this operation or its output?
• Has every step been computerized as much as
Relationships Analysis
• Force combinations of dimensions (features, functions,
and benefits) together.
• Techniques:
– Two-dimensional matrix
– Multidimensional (morphological) matrix
• Two-dimensional example: person/animal insured and
event insured against.
• Household cleaning products example used six
dimensions:
– Instrument used, ingredients used, objects cleaned,
type of container, substances removed, texture or
form of cleaner
Other Methods:
Lateral Search Techniques
•
•
•
•
•
•
Free association
Creative stimuli words
Studying “big winners”
Use of the ridiculous
Forced relationships
Analogy
Concept/Project Evaluation
The Evaluation System
Cumulative Expenditures Curve
% of
expenditures
Many high-tech
products
Many consumer
products
Time
Launch
Risk/Payoff Matrix at Each
Evaluation
Decision 
A
Stop the Project Now
B
Continue to Next Evaluation
A. Product would fail if
marketed
AA
BA
B. Product would succeed if
marketed
AB
BB
• Cells AA and BB are “correct” decisions.
• Cells BA and AB are errors, but they have different
cost and probability dimensions.
Planning the Evaluation
System: Four Concepts
• Rolling Evaluation (tentative nature of new
products process)-Risk management via
acceptance or mitigation)
• Potholes
• People
• Surrogates
Rolling Evaluation (or,
"Everything is Tentative")
• Project is assessed continuously (rather than a single
Go/No Go decision)
• Financial analysis also needs to be built up continuously
• Not enough data early on for complex financial analyses
• Run risk of killing off too many good ideas early
• Marketing begins early in the process
• Key: new product participants avoid "good/bad"
mindsets, avoid premature closure
Potholes
Know what the really damaging problems
are for your firm and focus on them when
evaluating concepts.
Example: Campbell Soup focuses on:
• 1. Manufacturing Cost
• 2. Taste
People
• Proposal may be hard to stop once there
is buy-in on the concept.
• Need tough demanding hurdles, especially
late in new products process.
• Personal risk associated with new product
development.
• Need system that protects developers and
offers reassurance (if warranted).
Surrogates
• Surrogate questions give clues to the
real answer.
Real Question
Will they prefer it?
after
Will cost be competitive?
Will competition leap in?
Will it sell?
Surrogate Question
Did they keep the prototype
product we gave them
the concept test?
Does it match our
manufacturing skills?
What did they do last time?
Did it do well in field testing?
An A-T-A-R Model of Innovation
Diffusion
Profits = Units Sold x Profit Per Unit
Units Sold = Number of buying units
x % aware of product
x % who would try product if they can get it
x % to whom product is available
x % of triers who become repeat purchasers
x Number of units repeaters buy in a year
Profit Per Unit = Revenue per unit - cost per unit
The A-T-A-R Model: Definitions
• Buying Unit: Purchase point (person or
department/buying center).
• Aware: Has heard about the new product with some
characteristic that differentiates it.
• Available: If the buyer wants to try the product, the effort
to find it will be successful (expressed as a percentage).
• Trial: Usually means a purchase or consumption of the
product.
• Repeat: The product is bought at least once more, or
(for durables) recommended to others.
A-T-A-R Model Application
10 million
Number of owners of Walkman-like CD
players
x 40%
Percent awareness after one year
x 20%
Percent of "aware" owners who will try
product
x 70%
Percent availability at electronics retailers
x 20%
Percent of triers who will buy a second
unit
x $50
Price per unit minus trade margins and
discounts ($100) minus unit cost at the intended
volume($50)= $5,600,000 Profits
Getting the Estimates for
A-T-A-R Model
Item
Market Units
Awareness
Trial
Availability
Repeat
Consumption
Price/Unit
Cost/Unit
Market
Research
XX
Concept Test
X
X
XX
Product Use
Test
X
X
X
X
X
XX
X
X
Component
Testing
X
X
X
X
xx: Best source for that item.
x: Some knowledge gained.
X
X
Market Test
X
X
X
XX
X
XX
XX
XX
Concept Testing
Many Ideas Are Eliminated Before
Concept Testing
• PIC eliminates most new product ideas even
before they are developed into concepts.
• Ideas of the following types are excluded:
– Ideas requiring technologies the firm does not
have.
– Ideas to be sold to customers about whom the
firm has no close knowledge.
– Ideas that offer too much (or too little)
innovativeness.
– Ideas wrong on other dimensions: not low
cost, too close to certain competitors, etc.
Suggested Questions for the
Initial Reaction
• Market Worth: what is the attractiveness of
the new product to the targeted customer
population?
• Firm Worth: Is the new product project
viewed positively by management? Does
this new product project enhance the
firm’s competencies?
• Competitive Insulation: Can the product’s
advantage be maintained against
competitive retaliation?
What Is a Product Concept
Statement?
• A statement about anticipated product
features (form or technology) that will yield
selected benefits relative to other products
or problem solutions already available.
• Example: “A new electric razor whose
screen is so thin it can cut closer than any
other electric razor on the market.”
Purposes of Concept Testing
• To identify very poor concepts so that
they can be eliminated.
• To estimate (at least crudely) the sales
or trial rate the product would enjoy
(buying intentions, early projection of
market share).
• To help develop the idea (e.g. make
tradeoffs among attributes).
Procedure for a Concept Test
•
•
•
•
•
•
•
•
•
•
Prepare concept statement
Clarify specific purposes
Decide format(s)
Select commercialization
Determine price(s)
Select respondent type(s)
Select response situation
Define the interview
Conduct trial interviews
Interview, tabulate, analyze
Mail Concept Test -- Verbal Description
Here is a tasty, sparkling beverage that quenches thirst, refreshes, and
makes the mouth tingle with a delightful flavor blend of orange, mint,
and lime.
It helps adults (and kids too) control weight by reducing the craving for
sweets and between-meal snacks. And, best of all, it contains
absolutely no calories.
Comes in 12-ounce cans or bottles and costs 60 cents each.
1. How different, if at all, do you think this diet soft drink would be
from other available products now on the market that might be
compared with it?
Very different ( ) ( ) ( ) ( ) Not at all different
2. Assuming you tried the product described above and liked it,
about how often do you think you would buy it?
More than once a week ( ) ( ) ( ) ( ) ( ) ( ) Would never
buy it
Purposes of the Full Screen
• To decide whether technical resources should
be devoted to the project.
– Feasibility of technical accomplishment -- can we
do it?
– Feasibility of commercial accomplishment -- do we
want to do it?
• To help manage the process.
– Recycle and rework concepts
– Rank order good concepts
– Track appraisals of failed concepts
• To encourage cross-functional
communication.
Screening Alternatives
• Judgment/Managerial Opinion
• Concept Test followed by Sales
Forecast
(if only issue is whether consumers will like it)
• Scoring Models
A Simple Scoring Model
Factors:
Degree of Fun
Number of People
Affordability
Capability
Student's Scores:
Fun
People
Affordability
Capability
Totals
4 Points
Much
Over 5
Easily
Very
Skiing
4
4
2
1
11
3 Points
Some
4 to 5
Probably
Good
Boating
3
4
4
4
15
Answer: Go boating.
Values
2 Points
Little
2 to 3
Maybe
Some
Hiking
4
2
4
3
13
1 Point
None
Under 2
No
Little
Source of Scoring Factor
Models
A Scoring Model for Full Screen
Note: this model only shows a few sample screening factors.
Factor
Score (1-5)
Score
Technical Accomplishment:
Technical task difficulty
Research skills required
Rate of technological change
Design superiority assurance
Manufacturing equipment...
Commercial Accomplishment:
Market volatility
Probable market share
Sales force requirements
Competition to be faced
Degree of unmet need...
Weight
Weighted
The Scorers
• Scoring Team:
Major Functions (marketing, technical, operations, finance)
New Products Managers
Staff Specialists (IT, distribution, procurement, PR, HR)
• Problems with Scorers:
May be always optimistic/pessimistic
May be "moody" (alternately optimistic and pessimistic)
May always score neutral
May be less reliable or accurate
May be easily swayed by the group
May be erratic
Alternatives to the Full Screen
•
•
•
•
Profile Sheet
Empirical Model
Expert Systems
Analytic Hierarchy Process
A Profile Sheet
Empirical Screening Model
(This example is based on Project NewProd
database.)
Eight Significant Factors
•
•
•
•
•
•
•
•
Product superiority
Overall firm/resource compatibility
Market need, growth, and size
Economic advantage of product to end user
Technological resource compatibility
Product scope (mass vs. narrow specialty)
Market competitiveness (-)
Newness to the firm (-)
Why Financial Analysis for New
Products is Difficult
• Target users don’t
know.
• If they know they
might not tell us.
• Poor execution of
market research.
• Market dynamics.
• Uncertainties about
marketing support.
• Biased internal
attitudes.
• Poor accounting.
• Rushing products to
market.
• Basing forecasts on
history.
• Technology
revolutions.
Handling Problems in Financial Analysis
• Improve your existing new products
process.
• Use the life cycle concept of financial
analysis.
• Reduce dependence on poor forecasts.
– Forecast what you know.
– Approve situations, not numbers (recall
Campbell Soup example)
– Commit to low-cost development and marketing.
– Be prepared to handle the risks.
– Don’t use one standard format for financial
analysis.
The Life Cycle of Assessment
Calculating New Product’s
Required Rate of Return
% Return
Reqd. Rate
of Return
Cost of
Capital
Risk
Avg. Risk
of Firm
Risk on
Proposed
Product
Hurdle Rates on Returns and
Other Measures
Product
A
B
C
Strategic Role or Purpose
Sales
Combat competitive entry
Establish foothold in new
market
Capitalize on existing
markets
$3,000,000
$2,000,000
Hurdle Rate
Return on
Investment
10%
17%
$1,000,000
12%
Market Share
Increase
0 Points
15 Points
1 Point
Explanation: the hurdles should reflect a product’s purpose,
or assignment. Example: we might accept a very low
share increase for an item that simply capitalized on our
existing market position.