NEW PRODUCT DEVELOPMENT

CHANGE IS THE ONLY CONSTANT IN TODAY'S MARKETPLACE

New Product Development

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Table of Contents
Introduction Major Stages in New-Product Development

Idea generation ...

Idea screening ..... Concept Development and Testing Product Idea .... Product Concept ..... Product Image.. Marketing strategy development Business analysis. Test marketing. Commercialization...

Key success factors in New Product Development

Operating Philosophy..
Organization Structure. The Experience Effect.. Management Style ...

The Product Life Cycle

Product development .
Introduction ... Growth ... Maturity.. Decline ...

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New-Product Failures 1. 2. 3. 4. 5. Faulty Product Idea ... Distribution Related problems .. Poor Timing of Launch .... Improper Positioning Others ...

Case study of nano car as new product development

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Introduction
What is a new product? A product that opens an entirely new market. A product that adopts or replaces an existing product. A product that significantly broadens the market for an existing product. An old product introduced in a new market. An old product packaged in a different way. An old product marketed in a different way.

Types of new product

Innovative products New product lines to allow the firm to enter an existing market Addition to product line to supplement the firms existing product line Improvements and revisions of existing product Repositioned products existing products targets at new market Cost reduction new product that provide similar performance at lower cost

Examples of new products

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New to the world high definition TV, iPod, flat screen TV, Probiotic Ice Cream Product improvement & replacement :SPEED by BPCL
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New product can be used to

Increase/defend market share by offering more choice or updating older products Appeal to new segments Diversify into new markets Improve relationship with distributors Maintain the firms reputation a leading edge company Even out peaks and troughs in demand Make better use of the organization's resources

Why develop New Product?

To create stars and cash cows for the future To replace declining product To take advantage of new technology To defeat rivals To maintain/increase market share To keep up with rivals To maintain competitive advantage To fill gap in the market

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New product development

In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market There are two parallel paths involved in the NPD process: The idea generation, product design, and detail engineering; Involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share.

OR
Development of original products Product improvements Product modifications New brands through the firms own R & D efforts

OR
New product development is a process which is designed to develop, test and consider the viability of products which are new to the market in order to ensure the Growth or survival of the organization.

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Major Stages in NPD

There are 7 Stages of New Product Development

The "fuzzy front end" of the New Product Development process

IDEA GENERATION

Idea Generation is the Systematic Search for New Product Ideas Obtained Internally From Employees and Also From:

Ideas for new products can be obtained from basic research using a SWOT analysis (OPPORTUNITY ANALYSIS), Market and consumer trends, company's R&D department, competitors, focus groups, employees, salespeople, corporate spies.

Process to spot good ideas and drop poor ones

IDEA SCREENING

Many companies have systems for rating and screening ideas which estimate: Market Size Product Price Development Time & Costs Manufacturing Costs
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OR
The screeners must ask these questions:

Will the customer in the target market benefit from the product? What is the size and growth forecasts of the market segment/target market? What is the current or expected competitive pressure for the product idea? What are the industry sales and market trends the product idea is based on? Is it technically feasible to manufacture the product? Will the product be profitable when manufactured and delivered to the customer at the target price? Then, the idea is evaluated against a set of general company criteria.

Concept Development and Testing

Develop the marketing and engineering details

Product Idea: idea for a possible product that the company can see itself offering. Product Concept: detailed version of the idea stated in meaningful consumer terms. Product Image: the way consumers perceive an actual or potential product.
Purposes of Concept Testing

To identify very poor concepts so that they can be eliminated. To estimate (at least crudely) the sales or trial rate the product would enjoy (buying intentions, early projection of market share). To help develop the idea (e.g. make tradeoffs among attributes).

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Procedure for a Concept Test

Prepare concept statement Clarify specific purposes Decide format(s) Select commercialization Determine price(s) Select respondent type(s) Select response situation Define the interview Conduct trial interviews Interview, tabulate, analyze

Essentially a pattern or plan that integrates your organization's major goals

Marketing Strategy Development

Includes development of three part strategy plan

Describes Overall

Describe the markets size, structure, and behavior, the planned product positioning, and the sales, market share, and profit goals for first few years.
Describes Short-Term

Outlines the planned price, distribution strategy, and marketing budget for the first year
Describes Long-Term

Describes the long-run sales and profit goals and marketingmix strategy over time

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Estimate likely selling price based upon competition and customer feedback

Business Analysis

Business analysis is the discipline of identifying business needs and determining solutions to business problems. Solutions often include a systems development component, but may also consist of process improvement or organizational change or strategic planning and policy development. The person who carries out this task is called a business analyst or BA There are a number of techniques that a Business Analyst will use when facilitating business change & in NPD there are two important techniques used names MOST & SWOT
MOST

This is used to perform an internal environmental analysis by defining the attributes of MOST to ensure that the project you are working on is aligned to each of the 4 attributes. The four attributes of MOST Mission (where the business intends to go) Objectives (the key goals which will help achieve the mission) Strategies (options for moving forward) Tactics (how strategies are put into action)
SWOT

This is used to help focus activities into areas of strength and where the greatest opportunities lie. This is used to identify the dangers that take the form of weaknesses and both internal and external threats. The four attributes of SWOT Strengths - What are the advantages? What is currently done well? Weaknesses - What could be improved? What is done badly? Opportunities - What good opportunities face the organization? Threats - What obstacles does the organization face ?

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There come two Conditions after reviewing this analysis If No, Eliminate Product Concept If Yes, Move to Product Development

Test Marketing
Involves placing a product for sale in one or more selected areas

Test Marketing is the Stage Where the Product and Marketing Program are Introduced into More Realistic Market Settings

In this we also Produce a physical prototype or mock-up Test the product (and its packaging) in typical usage situations Conduct focus group customer interviews or introduce at trade show Make adjustments where necessary Produce an initial run of the product and sell it in a test market area to determine customer acceptance

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Commercialization
Considered post-New Product Development

Commercialization is the Introduction of the New Product into the Marketplace Must decide on timing (i.e., when to introduce the product). Must decide on where to introduce the product (e.g., single location, state, region, nationally, internationally). Must develop a market rollout plan. Each successive set of consumers behaves differently New Product Adoption Process is also known as the Diffusion Process. The Consumer-Adoption Process/ Innovation diffusion process

Adopters of new products move through five stages

Awareness

Interest

Evaluation

Trial

Adoption

Commercialization involves implementing a total marketing plan and full production Launch the product Produce and place advertisements and other promotions Fill the distribution pipeline with product Critical path analysis is most useful at this stage
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Key Success Factors in NPD

Operating Philosophy Organization Structure The Experience Effect Management Style

Operating Philosophy

Successful companies are more committed to growth through new products developed internally. They are more likely to have had a formal new product process in place for a longer period of time than unsuccessful companies. They are more likely to have a strategic plan that includes a certain portion of company growth from new products.
Organization Structure

Successful companies are more likely to house the new product organization in R&D or engineering and are more likely to allow the marketing and R&D functions to have greater influence on the new product process
The experience Effect

Experience in introducing new products enables companies to improve new product performance. New product development costs conform to the experience curve: The more you do something, the more efficient you become at doing it. This experience advantage stems from the acquisition of knowledge of the market and of the steps required to develop a new product.

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NEW PRODUCT FAILURE

In this era of tight competition from domestic and global firms the firm who don't come out with new products are putting themselves at great risk because their existing products are prone to changing customer needs, shorter product life cycles, new technologies and increased competition. Despite years of research and huge capital being pumped in to understanding the consumer, making a launch successful is still a difficult task. The new product largely depends on the product quality and the marketing tactics of the firm, there are many occasions were the product failed miserably even after using the best technology and quality the reason is that the new product is not worth for the customers. The prime factor for the new product success is - customer value. Value is what the customer thinks is value. The major reasons for product failure are:
Faulty product idea

The product often fail because faulty of product idea. A good idea can revolutionize the market but a bad idea may prove bitter to the firm or it may backfire Eg: Polar industries in 1991 launched "COOL CATS" fan -decorated with cartoon characters meant primarily for children. The fan was priced at premium; the idea was that children's were increasingly becoming influencers in purchase decisions and to attract the kids with the cartoon creatures and to position the product exclusively for kids. The product failed miserably in spite of its huge advertising budget because when the fan was put on it didn't have any color effect and the customer did not justify its premium price.
Distribution related problems

The new product fails if the product is unable to meet the channel requirements. While developing the product the channel requirements must be given adequate consideration.

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E.g.: when NESTLE launched its new chocolates the product and promotion was ok but the product failed in the distribution side because the company stipulated the product to be stored in refrigerators. The product faced two problems in the distribution side because it meant excluding a number of retail outlets as they didn't have this facility and secondly the chocolate was not picked by the customers as it was not seen upfront in the retail shops. Finally Nestle had to reformulate the product according to channel requirements.
Poor timing of launch

Too early or late entry into the market is a common cause of failure. Kinetic Merlin was launched in pune in 1991.It was a 3 in 1 set consisting of a color television, a stereo with detachable speakers and a home computer. The product was targeted at the Indian consumers who are fond of sophisticated gadgets to immediately adopt such an innovative idea but in reality the idea was too advanced for the customers to digest at that time because they were not exposed to such type of products before.
Improper Positioning

Positioning means putting the product into the predetermined orbit Improper positioning may affect the product success. Eg: Titan Tanishq introduced their 18 carat jewellery and the product was positioned at elite segment but there was a contradiction as to why these elite segment should go in for a low carat gold because the norms for gold in India at that time was 22 carat. The product failed miserably in retrospect Titan had to introduce 22-carat jewellery Some Other Reasons for product failure are: Lack of differential advantage Poor planning Technical problems in the product Competitors fighting back harder than expected Poor market research The watchwords for new product success are
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EXAMPLES CASE STUDIES

1st Example: Development of products based on existing ones The Gillette company started its business activity as a manufacturer of razors and shaving blades. However, it realised that it could provide its customers with much more. Therefore, it developed products such as shaving foam, various gels, as well as after-shave skin care products. Furthermore, the company proceeded in the elaboration of the changing shaving-blades technique, those blades however only fit in razors manufactured by the same company. The above development is an example of those companies that were not based on the development of brand new products, but of products that came as a natural continuance of an already successful product. 2nd Example: The need of strategic planning during new product development The following is a typical example of the need for strategic planning for the development or improvement of services or products of a company: A grocery story in a large city center lost 50% of its profits and its customers when a large supermarket opened in the same area. Initially, the grocery store manager reduced the prices of the products, by reducing his profit margin and increased the variety of his products in an attempt to recapture the customers he had lost However, this had the opposite effect than the one expected. Thus, he turned to strategic planning in order to better develop the provision of his products and services. By studying the market, that is to say his customers, he came to the conclusion that they only spent a specific percentage of money on specific products. In addition, by using a simple questionnaire, he realised that many consumers would be attracted by new provisions. As a result, he introduced services such as free home delivery of the products within a specific distance, the dispatch of small gifts to customers during the holiday seasons, as well as the sale of new products such as freshly baked bread, newspapers and cigarettes. This way, not only did he regain his lost customers, but also acquired new clientele. 3rd Example: Participation of the suppliers in new product development Philips Medical Systems (PMS) is part of the Royal Philips Electronics company in Holland. It is involved in the development of products such as X-ray equipment, ultrasound devices, etc. In an attempt to reduce the new product development cost, it introduced the participation of the suppliers of the various parts forming its products,
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during the new product development procedure within the research and development department.

This led to a significant reduction of the new product development time and cost. In order to achieve its goal, it studied the relationship between the participation of its Suppliers and its products. It examined the degree to which participation was Necessary , at which point of the development it would prove most profitable, what would be the quickest means of communication with the suppliers, etc. The study was conducted with the use of questionnaires and through constant contact with the suppliers, the company technicians and the customers.

Case study of nano car as new product development

Idea Generation At Affordable Price NANO I observed families riding on twowheelers the father driving the scooter, his young kid standing in front of him, his wife seated behind him holding a little baby . This could be very dangerous in night travel or in stormy weather. [Problem] It led me to wonder whether one could conceive of a safe, affordable, all-weather form of transport for such a family[Dream]Tata Motors engineers and designers gave their all for about four years to realize this goal. Today, we indeed have a Peoples Car, which is affordable and yet built to meet safety requirements and emission norms, to be fuel efficient and low on emissions[Criteria]We are happy to present the Peoples Car to India and we hope it brings the joy, pride and utility of owning a car to many families who need personal mobility.[Success] Idea GenerationTo create safe, affordable, all weather form of transport for a familyTo create an option for people who want to move from 2 wheeler to 4 wheeler in affordable price (As little as 2 Wheelers) Idea Screening A scooter with 2 extra wheels at the back for extra stability?An AutoRikshaw with 4 wheels?4 Wheeler car made of Engineering Plastics?4 wheeled rural car?But Market Wanted a Car and It should be like a CarNot something that people will say, Ah! Thats just a Scooter with 4 wheels and not really a car!

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Concept testing And Developing Mr. GirishWagh talked with customers3 Wheeler men inevitably insisted on cheap and dependable truckBut he still kept asking Why do u want a 4 wheeler?Finally he got the answer, If I had a 4 wheeler, I would have better marriage prospects in my village.4 wheels have emotional appeal, not just practical So What Type of New Product To Be Developed? Car to cost Rs. 1 lakh on roadCar to be built on different platform than conventional onesIt must meet all the safety and regulatory requirementsIt has to be built on a scale which is double than the earlier launchesA Truly Peoples car: Low cost, Safe, Fuel Efficient , Business AnalysisCost: What makes the Nano so cheap? Important Decisions Establish a factory in a tax free zoneGet the tax advantage on infrastructure developmentGet the suppliers to establish base near the factoryGet special concessions from state govt.In short select a Manufacturing location where all the advantages could be achieved DEAL OF TATA NANO (@Gujarat) A loan of Rs. 9750 Crore at 0.1% simple rate of interestRepayment of this loan @ 0.1% over 20years.They got 100% exemption on electricity dutyThe 1100CroresLand has been given with high subsidies without any stamp duty registration and transfer chargesThe payment for land would be made in eight equal annual instalment at a compound interest of 8% p.a. Total Sales EstimationDemand for peoples car shall be at least twice that of demand for Maruti 800Initial projections were 500000 cars per yearAssumption: 10% of 9 million 2 wheeler market transit to 4 wheelers and that will explode the demand Product Design & DevelopmentDesign Inputs from Institute of Development in Automotive Engineering, ItalyConstant Design changesDesign adaptations from Daewoo Matiz and Tata Indica37 patents associated with the design of NanoModular Design Revolution: The Nano is constructed of components that can be built and shipped separately to be assembled in a variety of locations Gandhian Engineering Approach i.e. More from less for more and more peopleMuch spacious than Maruti 800 (20 % more)Use of Aluminum Engine to reduce weight and costUse of light weight steel wherever possible

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Prototype DevelopmentFirst Prototype: Vehicle which had bars instead of doors and plastic flaps to keep out the monsoon rains. It was closer to a Quadricycle than a car, and the first prototypeEngine Issue: 540 CC engine when fitted on the prototype, lacked the necessary power. So its capacity was increased by 9%, then by another 9%, finally settled to a 623 CC engineFoot pedal had to be realigned to create more legroomThe body had to be changed because Ratan Tata, over six feet tall himself, wanted it to be easy for tall people to get in and out of the car"Imagine the pain of the body designer -- he went through hundreds of iterations, then at the last minute the car length was increased by 100 millimeters!" Testing Crash testing , Testing On Torture Tracks ,Testing On Torture Tracks Production Manufacturing facility located at Sanand, Gujarat725 acres (for TATA) + 375 acres vendors parkAt the vendors park 41 vendors allocated plotsAbout 80% of the value of components to be sourced from the parkBegan with a capacity of 2.5 lakhscars/annum (Expandable up to 3.5 lakhs cars/annum) Resource estimationEngineering operations planningDepartment schedulingSupplier collaborationLogistics planProgram review and monitoringContingencies Commercialization Launch the productProduce and place advertisements and other promotionsFill the distribution pipeline with product Marketing of Tata Nano The TATA NANO innovation was not just in technology ;It was in mindset change.

The problems
1) From the outset, the Nano had many problems. Firstly, the cars manufacture was delayed . 2) Instead of selling the Nano openly, Tata introduced a lottery booking system. 3) In mid-2010 there were widely published reports about the Nano catching fire. The reputation of the car was tarnished. 4) The large number of initial orders led to overconfidence. Significantly, Tata failed to put in place an effective advertising strategy, meaning that when sales dwindled, the company had no plan to reach its potential customer base

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