New product Development
Given the rapid changes in technology and competition, companies must develop a steady stream of new products and services. A firm can obtain new products in two ways.
One is through acquisition—by buying a whole company, a patent, or a license to produce someone else's product. This is more like inorganic growth and easy to do with cash. But organic growth is the one which gives your customer same product (same family) irrespective of manufacturing location.
The other is through
new-product development in the company's own research and development department. By
new products we mean original products, product improvements, product modifications, and new brands that the firm develops through its own research and development efforts. In this chapter, we concentrate on new-product development.
New products continue to fail at a disturbing rate. Why do so many new products fail? There are several reasons.
· Although an idea may be good, the market size may have been overestimated.
· The actual product was not designed as well as it should have been.
· May be it was incorrectly positioned in the market,
· Priced too high, or advertised poorly.
· A high-level executive might push a favorite idea despite poor marketing research findings.
Sometimes the costs of product development are higher than expected, and sometimes competitors fight back harder than expected because so many new products fail, companies are anxious to learn how to improve their odds of new-product success.
One way is to identify successful new products and find out what they have in common. Another is to study new-product failures to see what lessons can be learned. Various studies suggest that new-product success depends on developing a
unique superior product, one with higher quality, new features, and higher value in use. Another key success factor is a
well-defined product concept prior to development, in which the company carefully defines and assesses the target market, the product requirements, and the benefits before proceeding. Other success factors have also been suggested senior management commitment, relentless innovation, and a smoothly functioning new-product development process.
In all, to create successful new products, a company must understand its consumers, markets, and competitors and develop products that deliver superior value to customers.
So companies face a problem, they must develop new products, but the odds weigh heavily against success. The solution lies in strong new-product planning and in setting up a systematic
new-product development process for finding and growing new products.
1) Idea Generation: New-product development starts with idea generation—the systematic search for new-product ideas. A company typically has to generate many ideas in order to find a few good ones. Major sources of new-product ideas include internal sources, customers, competitors, distributors and suppliers, and others. Using internal sources, the company can find new ideas through formal research and development. It can pick the brains of its executives, engineers, manufacturing, and sales people. Some companies have developed successful "intrapreneurial" programs that encourage employees to think up and develop new-product ideas.
Good new-product ideas also come from watching and listening to customers. Competitors are another good source of new-product ideas.
The search for new-product ideas should be systematic rather than haphazard. Otherwise, few new ideas will surface and many good ideas will sputter in and die. Top management can avoid these problems by installing an idea management system that directs the flow of new ideas to a central point where they can be collected, reviewed, and evaluated. In setting up such a system, the company can do any or all of the following:
- Appoint a respected senior person to be the company's idea manager.
- Create a multidisciplinary idea management committee consisting of people from R&D, engineering, purchasing, operations, finance, and sales and marketing to meet regularly and evaluate proposed new-product and service ideas.
- Set up a toll-free number for anyone who wants to send a new idea to the idea manager.
- Encourage all company stakeholders—employees, suppliers, distributors, dealers— to send their ideas to the idea manager.
- Set up formal recognition programs to reward those who contribute the best new ideas.
The idea manager approach yields two favorable outcomes. First, it helps create an innovation-oriented company culture. It shows that top management supports, encourages, and rewards innovation. Second, it will yield a larger number of ideas among which will be found some especially good ones. As the system matures, ideas will flow more freely. No longer will good ideas wither for the lack of a sounding board or a senior product advocate.
2) Idea Screening: The purpose of idea generation is to create a large number of ideas. The purpose of the succeeding stages is to reduce that number. The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as possible.
3) Concept Development and Testing: An attractive idea must be developed into a product concept. It is important to distinguish between a product idea, a product concept, and a product image. A product idea is an idea for a possible product that the company can see itself offering to the market. A product concept is a detailed version of the idea stated in meaningful consumer terms. A product image is the way customers perceive an actual or potential product.
Marketing strategy development: The next step is marketing strategy development, designing an initial marketing strategy for introducing this car to the market.
The marketing strategy statement consists of three parts.
The first part describes the target market; the planned product positioning; and the sales, market share, and profit goals for the first few years.
The second part of the marketing strategy statement outlines the product's planned price, distribution, and marketing budget for the first year:
The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and marketing mix strategy:
4) Business Analysis: Once management has decided on its product concept and marketing strategy, it can evaluate the business attractiveness of the proposal. Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company's objectives. If they do, the product can move to the product development stage.
To estimate sales, the company might look at the sales history of similar products and conduct surveys of market opinion. It can then estimate minimum and maximum sales to assess the range of risk. After preparing the sales forecast, management can estimate the expected costs and profits for the product, including marketing, R&D, operations, accounting, and finance costs. The company then uses the sales and costs figures to analyze the new product's financial attractiveness.
5) Product development: So far, for many new-product concepts, the product may have existed only as a word description, a drawing, or perhaps a crude mock-up. If the product concept passes the business test, it moves into product development.
Here, R&D or engineering develops the product concept into a physical product. The product development step, however, now calls for a large jump in investment. It will show whether the product idea can be turned into a workable product.
The R&D department will develop and test one or more physical versions of the product concept. R&D hopes to design a prototype that will satisfy and excite customers and that can be produced quickly and at budgeted costs. Developing a successful prototype can take days, weeks, months, or even years. Often, products undergo rigorous functional tests to make sure that they perform safely and effectively.
Mohammad Arif, ME, MIET(UK), CEng
