BRAND MANAGEMENT AND NEW PRODUCT DEVELOPMENT

SECTION 6Brand 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

65-73%

New products and services that allow expansion to new customers

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• 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 cross-functional– 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• 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 – Canon $40 billion 2012: Precision mechanics - fine optics – microelectronics

• Excellent portfolio management– 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

• 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

FIVE TYPES OF DEVELOPMENT PROJECTS

R&D ADVANCED DEVELOPMENT

PROJECTS: GENETIC

ENGINEERING

 NEW CORE PRODUCT

NEXT GENERATION PRODUCT

ADDITION TO PRODUCT FAMILY

DERIVATIVES AND EXTENSIONS

ALLIANCES PARTNERSHIPS

PROJECTS

NEW CORE PROCESS

BREAKTHROUGHPROJECT:

NEW FAMILY OF DRUGS      

R&D JOINT VENTURE

NEXT GENERATION PROCESS

       

 SINGLE

DEPARTMENT UPGRADE

   

PLATFORM PROJECT:

APPLE iMAC: TRANSLUCENT

PLASTIC COLORATION TECHNOLOGY  

 INCREMENTAL

CHANGE     

DERIVATIVE PROJECT:

SIMPLE SIZE CHANGE

MORE PRODUCT CHANGE LESSP

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For more information see Creating Project Plans to Focus Product Development, Harvard Business Review, Vol. 70, No. 2, p.74.

EASIEST

HARDEST

SMALL

LARGE

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. Development activities4. Testing and validating5. 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 / …

– Demographics– Problems– Competition– Market research– Technology

NEW PRODUCT IDEA STRATEGIES

Original Products

Original Products

ProductImprovements

ProductImprovements

ProductModifications

ProductModifications

NewBrands

NewBrands

AcquireCompanies

AcquireCompanies

Acquire Patents

Acquire Patents

AcquireLicenses

AcquireLicenses

METHODS OF IDEA GENERATION

• METAPHOR BUILDING [Figurative or non-literal sense]

TOP 10 METAPHORS OF 2005

– "...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 → ? +

• 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 / MARKETEXPANSION GRID

NEW

EXISTING

PRODUCTS

EXISTING NEW

MARKETS

PRODUCT GENERATION MAP:HP PRINTERS

DeskJet

DeskJet Plus

DeskJet 500C

DeskJet 550C

DeskJet 300

DeskJet 560C

Cost reduction

Quality improvement

Swap color and black cartridges

One color and one black cartridge

Portable with small footprint

Cost reduction

TIME

TECHNOLOGY ROADMAP

Technology

area

Last year

This year

+1 year

+2 years

Vision

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

Voice interface

Audio quality

Video quality

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 unitsProjected net revenue [including elasticity]Projected cost schedulesProjected profitabilityRisk assessment – the potential to make

considerably more or less than the projection[s]