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New Product Development

Objectives and Overview of the Topic

I have multiple objectives for this topic (Exhibit 1):
Define what is meant by the term 'new product.'
Examine the different types or categories of new products and the importance of
bringing new products to the marketplace.
Explore some if the major reasons why new products fail.
Discuss the steps in the new product development process, and,
Review the mechanisms by which new products are adopted by social groups.
What is a New Product?
The term 'new product' means different things in different contexts. From the consumer's
perspective a new product is generall! a product that is new to the mar"etplace. #uch products can
var! from simple modifications of existing products (such as a new flavor of $cean #pra! fruit
drin") to a major new innovation such as the introduction of the television or personal computer.
From the compan!'s perspective new products generall! are ta"en to be products that are new to
the firm but not necessaril! new to the mar"et.
Types of New Products
There are six categories of new products. In other words there are six distinct meanings for the
term new product.
The Discontinuous Innovation
The %discontinuous innovation% is the most dramatic form of new product. This is the %new to the
world% product that is based on generall! a major new technolog!. &xamples of discontinuous
innovations include the automobile the personal computer the television the cellular phone and
the cop! machine.
The Cateory !"tension
The %categor! extension% is a product that is new to the firm but not necessaril! new to the
mar"etplace. 'n example of a categor! extension is the introduction of disposable lighters or
disposable ra(ors b! )ic. )ic's initial product line focused on disposable pens. The addition of
disposable lighters and disposable ra(ors too" )ic into product categories where it had not before
had a presence. )ic*s decision to mar"et products in these new areas was based on its desire to
capitali(e on its strong image for producing inexpensive and disposable products.
The #ine !"tension
' %line extension% is similar to a categor! extension with the exception that the new product occurs
in the same product categor! as existing products manufactured and mar"eted b! the firm. +rocter
and ,amble continuall! adds new products to its existing lines of detergents coffee bar soaps and
other personal care products. &ach additional product added to these lines is referred to as a line
extension. -ost new products are line extensions.
The Product Improvement
#imple product improvements constitute the fourth categor! of new products. These are simpl!
%new and improved% versions of existing products that amount to reformulations modifications or
enhancements made to these products. &xamples of new products in this categor! are numerous.
.rest regularl! promotes %new and improved% versions of its toothpastes for which the fluoride
formula has undergone simple modifications. $ther product improvements include new and
improved laundr! detergents and new and improved motor oils.
$epositioned Products
/epositioned products are those that have undergone a change in image but the ph!sical product it
self ma! not have changed. +roducts are commonl! repositioned when existing mar"ets for the
product prove to be unprofitable. The image is modified to ma"e the product appeal to a different
and hopefull! a more profitable mar"et. .lassic examples of repositioned products include
-arlboro cigarettes and -iller 0igh 1ife )eer as discussed in earlier topics.
#ower Priced Product
The final categor! is the lower priced product which is often a scaled down version of existing
products made b! the same firm. These products generall! offer fewer features are of somewhat
reduced 2ualit! or function somewhat differentl! than there higher priced counterparts. These
products are designed to appeal to more price sensitive segments.

hy Do !ew "roducts #ail$
's important as it is to engage in continuous product development man! of these new products will
fail. 3ew product failure rates have been recorded that are as high as eight! percent and as low as
fift! percent. 4hich figure we believe is dependent upon how 'failure' and 'new product' are
defined. There also are man! reasons wh! new products fail. This section defines what is meant b!
the term 'failure' and summari(es the major reasons normall! offered for wh! products do fail.
Types of Product %ailures
There are two common interpretations of what is meant b! a 'new product failure.' &ach
interpretation has implications for which product failure rates are more believable.
The &bsolute %ailure
The first t!pe of failure is referred to as %the absolute% failure. This failure is one that does not
generate sufficient revenue to allow the firm to brea" even on its new product investment.
The $elative %ailure
The less severe %relative% product failure generates sufficient product revenues to brea" even.
0owever profit objectives are not achieved. In other words this product ma"es mone! 55 it just
does not ma"e as much mone! as management hoped.
The instances of relative product failures probabl! are substantiall! higher than the numbers of
absolute failures. I suspect that the higher failure rates that have been reported in the literature refer
to relative product failures. The number of absolute product failures probabl! is substantiall! less.
The Causes of New Product %ailure
'n important 2uestion is wh! do new products fail6 4hat are the causes of failure6 #everal factors
contribute to the high failure rates for new products in toda!*s highl! competitive mar"etplace
(Exhibit 1).
#ac' of $elative &dvantae
The first and probabl! most important reason for failure is simpl! that the new product does
nothing reall! new or uni2ue for the consumer. This essentiall! means that the new product possess
little relative or differential advantage over existing products alread! on the mar"et.
Inade(uate Plannin
-an! products fail because the manufacturer did not do enough %homewor".% This is to sa! that the
new product planning process was somehow flawed. ,enerall! this means that the mar"et
opportunit! anal!sis (or -$') was not conducted or missed some important information. For
example 'nheuser )usch's 7ewe! #tevens 4ine .ooler failed due to poor planning. In the mid
89:;*s 'nheuser )usch the world's leading beer manufacturer launched 7ewe! #tevens 4ine
.ooler with a poorl! conceived and implemented promotion program that never targeted the right
audience for the product. In its promotional material 7ewe! #tevens alternatel! tried to appeal to
woman calorie counter consumers and more sophisticated upscale consumers. The varied
positioning of 7ewe! #tevens created substantial confusion in the mar"et concerning 7ewe!
#tevens* image.
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' second example is provided b! the test mar"et of &li .utter cigarettes discussed in an earlier
topic. &li .utter probabl! would have failed if it had been commerciali(ed due to its poorl!
conceived positioning strateg!. The brand was positioned directl! against -arlboro the leading
brand in the mar"et with a strong customer following. )etter attention to mar"eting research and
new product planning would have prevented ta"ing &li .utter to test mar"et.
Poor !"ecution of Introduction
+oorl! executed mar"eting programs no matter how well the! are conceived also can result in
product failure. +oor execution entails an improperl! conceived and poorl! implemented mar"eting
mix. The product ma! have been promoted incorrectl! priced either too high or too low or
distributed in inappropriate outlets. This is primaril! a mar"eting failure.
Technical Problems Durin Introduction
Technical problems can also plague new product introductions leading to their failure. These
problems are problems with the basic functionalit! of the product that were not uncovered during
earlier functional testing and<or test mar"eting.
Poor Timin of Introduction
+oor timing of introduction can lead to failure. Introducing products during economic down5turns
or at about the same time as competitors are introducing similar products can severel! limit sales.
+rocter and ,amble introduced &ncaprin in the mid 89:;*s as an extra strength pain reliever. 't
introduction &ncaprin faced ver! intense competition both from 'dvil and 3uprin which also were
recentl! introduced as arthritis pain relievers. 'dvil and 3uprin together had in excess of a hundred
million dollars in advertising budgets. The net effect was that &ncaprin could not brea" out of the
promotional noise generated b! these two brands.
New Product &doption
The new product adoption process is the set of mental steps customers go through beginning with
first becoming aware of the new product's existence and ending with the decision to adopt the
product for continued and regular use. The process is therefore a t!pe of consumer decision
ma"ing model. The steps in this model as !ou would expect are ver! similar to those associated
with the consumer extensive buying decision discussed in an earlier topic. The steps in new product
adoption consist of awareness interest evaluation trial and adoption.
'wareness is the point at which consumers first become aware of the new product*s existence.
'wareness is a function of and is highl! dependent on mar"eting communications and consumer
word5of 5mouth behavior. .reating awareness and interest in the new product is probabl! the most
critical promotion objective associated with an! new product launch. 'dvertising publicit! and
sales promotions are crucial for creating awareness and interest in new products.
$nce aware of the new product consumers ma! establish an interest in that product if the! perceive
a fit between the benefits the products delivers and their own wants and needs. .onsumers who are
interested in new products will be more attentive to information about those products. For example
consumers interested in a new brand of high performance computer ma! activel! see" information
about that computer from internet sites retail stores and articles in computer maga(ines. The
consumer also will be more attentive to advertising for the brand.
Interest also can be stimulated b! products that possess uni2ue characteristics that cause them to
stand out in the competitive set. 0owever if the consumer does not perceive that the product will
satisf! existing wants or needs he or she is not li"el! to move to the next stage in the adoption
&valuation occurs when a consumer considers the extent to which the new product can fill his or her
needs. This step is essentiall! e2uivalent to the choice process described for consumer decision
ma"ing. The various models of product evaluation that we examined for consumer decision ma"ing
(linear compensator! conjunctive lexicographic etc.) directl! appl! to the evaluation of new
#ales persons often are important sources of information for consumer durable products such as
major appliances and automobiles. #ales persons whom are perceived as "nowledgeable and
credible can facilitate the consumer's evaluation process for such products.
If the evaluation is favorable consumers are more li"el! to ta"e the next step trial. 7uring trial the
product is sampled on a limited basis and further evaluated. Trial can be stimulated b! mar"eting
activities. Free samples and coupons are 2uite effective at stimulating trial as the! effectivel! reduce
the potential ris" surrounding trial for man! consumer non5durable products particularl!
convenience goods.
/educing the ris" of trial is most critical for consumer durable products because these products are
t!picall! more expensive. -ar"eters reduce the perceived ris" of trial for such products b! offering
generous warranties and return policies. #ome products actuall! can be 'test driven' prior to
purchase. $bvious examples are cars and microcomputers.
'doption the final step in the new product adoption process is the commitment to ma"e full and
regular use of the product. If trial has been satisfactor! consumers are more li"el! to ta"e this last
step. This is not necessaril! the end of the process however. .onsumers continue to evaluate the
product with ever! use. 't an! point the! ma! become dissatisfied with the product and
discontinue its use. /etaining customers b! continuall! monitoring customer satisfaction is a critical
component of an! mar"eting program. .ustomers that are lost because of customer dissatisfaction
must be replaced with new customers and this is a ver! costl! endeavor. It is much less costl! and
therefore more profitable to retain existing customers.