Marketing 7

Lecture 4
The Strategic
Elements of Product
Development
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Why Study New Products?

It is big business billions of dollars annually on
technical development alone.
The challenge of creating radical innovation
(totally new product categories) is viewed by
business consultant Gary Hamel as the most
important business issue of our time.
Accelerating innovation and business growth
through innovation are the top business
challenges according to the Industrial Research
Institute.
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But the New Products Process

is Difficult!

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.
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Best Practices in New Products

For every 100 ideas,
Fewer than 70 make it though initial screening
Fewer than 50 pass concept evaluation and testing
A little more than 30 make it through development
About 30 make it through testing
About 25 are commercialized
15 of these 25 (about 60%) are successful.
Success rate is lower in consumer goods (51%) and as
high as 65% in healthcare.
Source: Comparative Performance Assessment Study, PDMA, 2003.
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Comparing the Best New

Product Firms vs. the Rest
For the top new product firms, about 49%
of company sales and profits come from
products that were introduced in the last
five years.
For other firms, this average is about 21%.
Lesson: firms that maintain their
commitment to new products are rewarded
with sales and profits!
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Globalization and New Product

Development
Top firms deploy over 50% of their R&D spending in
foreign countries.
Global product teams allow firms to leverage their new
product skills across their subsidiaries.
Design, R&D, and manufacturing may occur in different
subsidiaries around the world.
Difficulties: coordinating the efforts across multiple
countries to launch a successful new product.
Having a global innovation culture being aware of
differences in business and cultural environments and
being open to global markets is important to success.
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Firms With a Global Innovation

Culture
Procter & Gamble products are developed globally in the
firms 22 research centers located in 13 countries.
Market research and testing of the Swiffer occurred in the
U.S. and France.
Apple did product design and customer requirement
definition in the U.S. and Japan in developing the iPod.
Ikea identifies unmet customer needs and commissions
in-house and outsourced designers to compete for the
design. Worldwide manufacturing partners compete for
the manufacturing rights. The firm also has excellent
global logistics for product delivery to stores and
customers.
Source: Loida Rosario, Borderless Innovation: The Impact of Globalization on NPD Planning in
Three Industries, Visions, June 2006.

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The New Products Process is

All About Teams
The new products team is a cross-functional
team with personnel from marketing, R&D,
engineering, manufacturing, production, design,
and other areas.
All members of the team make a contribution to
the new products process and the success of
the team depends on how well they interact.
Try to avoid narrow functional viewpoints and
stereotypes.
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Not All New Products Are Planned

Microwave ovens
Aspartame (NutraSweet)
ScotchGard fabric protector
Teflon
Penicillin
X-rays
Dynamite
In each case, an accidental discovery but someone knew
they had something when they saw it!
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What Is a New Product?

New-to-the-world (really-new) products (10% of new products):

Inventions that create a whole new market. Ex.: Polaroid camera, Sony
Walkman, Palm Pilot, Rollerblade skates, P&G Febreze and Dryel.
New-to-the-firm products (20%): Products that take a firm into a category
new to it. Ex.: P&G brand shampoo or coffee, Hallmark gift items, AT&T
Universal credit card, Canon laser printer.
Additions to existing product lines (26%): Line extensions and flankers
that flesh out the product line in current markets. Ex.: Tide Liquid, Bud
Light, Apples iMac, HP LaserJet 7P.
Improvements and revisions to existing products (26%): Current products
made better. Ex.: P&Gs continuing improvements to Tide detergent, Ivory
soap.
Repositionings (7%): Products that are retargeted for a new use or
application. Also includes retargeting to new users or new target markets.
Ex.: Arm & Hammer baking soda sold as a refrigerator deodorant; aspirin
repositioned as a safeguard against heart attacks; Marlboro retargeted as
a mans cigarette.
Cost reductions (11%): New products that provide the customer similar
performance but at a lower cost. May be more of a new product in
terms of design or production.
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Easier Said Than Done?

Top innovators such as Intel and Gillette stay focused and
committed to innovation as a long-term strategic goal.
Without such focus, firms can fall back to tweaking
existing products and relying on minor product
improvements, instead of true product innovation that
results in new-to-the-world products or really new product
lines.
The best new product firms do not give in to this temptation,
but continue to commit to innovative products.
The biggest factor contributing to success is having a
unique, superior product that adds value for the customer.

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The Strategic Elements of

Product Development
The New Products Process (This chapter and Chapter 2)
A phased process that takes the new product idea through concept
development, evaluation, development, launch, and post-launch.
The Product Innovation Charter (Chapter 3)
A strategy for new products that ensures that the team develops products in
line with firm objectives and marketplace opportunities.
The Product Portfolio (Chapter 3)
A way to assess which new products would be the best ones to add to the
existing line, given financial and strategic objectives.

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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

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So, Does All Of This Actually Work?

Check the efforts of the best product developers
in the business: the Outstanding Corporate
Innovator award winners as selected by the
Product Development & Management
Association
Recent winners: Hewlett-Packard, Dow
Chemical, Maytag, Harley-Davidson, Corning,
Royal DSM, Bausch & Lomb.
All have had a sustained commitment to
innovation, with remarkable results in terms of
new products.
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