New Product Development
Fundamentals
Professor Girish Punj
School of Business Administration
University of Connecticut
New Product Development
Fundamentals
Product strategy is part of the overall
marketing strategy of the firm. Products,
like the other elements of the marketing
mix, need to be managed
Successful product management requires:
– Understanding how consumers perceive
products
– Identifying key product features
– Designing/Managing products around
these features
Products have to be managed in a dynamic
environment--with constantly changing
consumer needs, technology and
competitive forces
New Product Development
Fundamentals
A major part of product management is
new product development (NPD)
– The other part is managing your
product portfolio as your products go
through their product life cycles (PLC)
A PLC consists of 4 stages:
– Introduction, growth, maturity, and
decline (inevitable)
– Hence new product development
(NPD) is necessary for survival and
growth of the firm -- part of strategic
objectives
New Product Development
Fundamentals
NPD offers considerable rewards to
companies which can do it right
– Also, it is very costly if you do it wrong --
can lead to business failure
NPD is risky. Companies need to learn
how to manage this risk--approximately 35
percent of all new products introduced fail.
Many are dropped before introduction (6
out of 7)
Since NPD is risky and offers considerable
rewards, companies need to be mindful of
risk/reward ratio. Also need to keep an eye
on costs.
New Product Development
Fundamentals
Leads to question:
– What is really a “new” product?
» Consumer’s viewpoint
» Firm’s viewpoint
» Both
Due to high incidence of new product
failure, a successful new product has to
“recover” the R&D and introduction costs
of previous product failures
NPD is essential to America’s economic
leadership over the next 10-15 years. Also,
critical for Connecticut’s defense-oriented
industries.
New Product Development
Fundamentals
Factors that either create the need for NPD
or provide impetus for it:
– Financial goals
– Sales growth
– Competitive position
– Product life cycle
– Technology
– Inventions
– Regulation
– Material costs and availability
– Demographic and lifestyle changes
– Customer requests
– Supplier initiatives
New Product Development
Fundamentals
Future of NPD is likely to be influenced by
some major trends -- all these make new
product development even more crucial
– Intense competition (global)
– Mature, saturated markets
– Evolving demographics & lifestyles
– Rapid technological changes
– Increasingly sophisticated buyers
– Environmental, financial, and
governmental constraints
New Product Development
Fundamentals
Successful NPD requires the bringing
together/merging of:
– “Cutting Edge” technology & R&D
– Strategic marketing insights
– Management of creativity/people
– Management of risk
Stated another way, NPD requires
– Basic research & development of new
technologies
– Bringing those new technologies to market
through good management
New Product Development
Fundamentals
SUPPORT SERVICES
COMPONENT
*Installation *Deliveries
PACKAGING
COMPONENT *Warranty
*Instructions *Price
*Trademark
CORE
*Repair and COMPONENT *Quality *Spare
maintenance parts
*Physical product
*Brand
name *Functional *Package
features
*Other
related *Styling
services *Design
features
New Product Development
Fundamentals
Continuum for classifying new products.
Dynamically Discontinuous
Continuous
continuous innovations
innovations
innovations
Least disrupting Some disrupting Requires new consumption
influence on established influence on patterns and the creation
consumption patterns established of previously unknown
consumption patterns products
New Product Development
Fundamentals
Product Strategy and the
Innovation Process
The firm’s corporate strategy provides the
starting point for the formulation of the
company’s product strategy
Corp. Str. Mktg. Str. Prod. Str.
Corporate strategy provides company with
a unique differential advantage (or
sustainable competitive advantage)
Corporate goals (hence also product
strategy goals) are linked to the company’s
unique differential advantage
Difference between product strategy goals
and current performance of company’s
products -- highlights the role of new
product development
Product Strategy and the
Innovation Process
Product strategies may be proactive or
reactive
– New product development (NPD) is best
undertaken with a proactive strategy
(Why?)
Proactive versus reactive strategies
How to choose between proactive and
reactive strategies
– In the course we focus on proactive
strategies--particularly those which
involve an integration of “R&D” and
“Marketing”
A proactive NPD strategy requires
specific systems, structure, and a
systematic process--a 5-step sequential
decision process
Key Success Factors Associated
with New Product Development
Be flexible with costs, but manage them
well
Eliminate poor ideas early, thereby
reducing risk
Time allocation considerations
Manage risk at every stage of the process--
foster and encourage creativity and
innovation--but in a disciplined,
accountable manner
WHAT DO THE EXPERTS SAY?
New Product Development
Fundamentals
“Our process as we say “Our process as it
we should do it” has happened”
Idea Generation Exultation
Screening and
Refinement Disenchantmen t
Test Marketing Confusion
National Search for the
Guilty
New product development Punishment of
processes -- the Innocent
plan versus reality
Distinction for
the Uninvolved
New Product Development
Fundamentals
Alternative Product Strategies
Reactive Strategies Proactive Strategies
Defensive Research & development
Imitative Marketing
Second but better Entrepreneurial
Responsive Acquisition
New Product Development
Fundamentals
Conditions under Which Reactive and
Proactive Strategies are Appropriate
Reactive Strategies Organizations with
are Appropriate for These Characteristics
Organizations That: Should use Proactive Strategies:
Require concentration on Overall policy of growth
existing products or markets
Willingness to enter new products and
Can achieve little protection markets
for innovation
Capability of achieving patent or market
Are in markets too small to penetration
recover developmental costs
Ability to enter high-volume or high-
Are in danger of being over- margin markets
whelmed by competitive
innovation, or Resources and time necessary to develop
new products
Are in distribution chains
dominated by another Competition unable to rapidly enter with
innovator a second-but-better strategy
Reasonable power in the distribution
channel
