New product development (NPD) or Innovation is the term used to describe the complete process of bringing a new product or to find out whether the new concept can be implemented in practical or not from technical and commercial point of view.
“A new product is a product that opens up an entirely new market, replaces an existing product, or significantly broadens the market of an existing product”.
– Arch Paton
“Who should ultimately design the product? The customer, of course.”
Kotler
“Innovation is the ability to create and capture economic value from invention.”
Business Week, August 2005
“Innovation is fresh thinking that creates value.”
Goldman Sachs
There are two processes which are involved in the development of a new product. The first one is idea generation, product designing and detailed engineering. The second one is market research and analysis. Companies/organizations consider this the first step to commercialize any new products in the overall strategic process of product life cycle, this enables them to increase or maintain market shares.
A product is new to the world, the market, the producer, seller, or some combinations of these.
McDaniel/Lamb/Hair
The Stages of New Product Development(NDP)
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Idea Generation
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Idea Screening
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IDEA
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Concept Development and Testing
Business Analysis
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Beta Testing and Market Testing
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Technical Implementation
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New Product Pricing
Idea Generation
Ideas for new products can be obtained from researches such as SWOT analysis (Strengths, Weaknesses, Opportunities & Threats), consumer trend and company’s R & D (Research & Development) department, focus groups, employees/workers, salespersons, trade shows, corporate spies, competitors, or ethnographic discovery methods (gathering information for consumer patterns and habits) and market may also be used to get an insight of product features or new product lines.
Idea Screening
Prior to deploying resources, there are few questions which must be asked:
Will the customer in the targeted market segment benefit from the new product?
What is the size and growth forecasts of the targeted segment?
What is the expected or competitive pressure for the new product idea?
What trends is the product idea based on?
Is it technically feasible to manufacture the product?
Will the product be profitable at the target price?
Concept Development and Testing
Concept development: – It is a process driven by target product specifications and customer needs, which are then converted into potential technological solutions and conceptual designs. This gives an approximate description of the product form, its working principles, and features. These are often accompanied by experimental prototype and design models which help in the final selections.
Concept testing: – At this stage the prototype or product concept is presented to appropriate target consumers to get their reactions or feedback.
Business Analysis
Estimating the likely selling price based upon customer feedback and competition, sales volume based on the size of the market or tools such as the Fourt-Woodlock equation, the profitability and breakeven points provides the necessary analysis about the a business.
In this step efforts are made to establish whether the new product will be suitable or not?
Future sales estimation: – For business analysis, first the future sales of the product is estimated.
Future cost estimation: – Different elements of costs involved are analyzed, which will help measuring the profitability of the product.
Future profit estimation: – An estimate to find out whether the forecasted profits will provide desired rate of return on capital invested or not. On these bases an idea is considered or dropped.
Beta Testing and Market Testing
A mock-up or physical prototype of the new product is produced to test the typical usage and its packaging. A focus group based on trade shows or customer interviews provides details for making necessary changes or improvements to the product. A market test run of the product is initiated to determine customer acceptance of the product.
Technical Implementation
The various steps involved in the technical implementation are listed below.
Initiation of new programs
Finalizing quality management system
Estimation of resources
Publication of requirement
Publishing technical communications, such as data sheets
Engineering operations planning
Scheduling of departments
Collaboration of suppliers
Logistics plan
Resource plan publication
Reviewing and monitoring of the program
Contingencies – what-if planning
New Product Pricing
A new product must be priced, based on value analysis (both internal & external), potential competition and alternative competitive technologies, differing value segments (such as price, needs and values) and product costs (both fixed & variable). Pricing also depends on the impact it has on the entire product portfolio and forecast of unit volumes, profit and revenue.
Concept Generation and Market Structure Identification
Concept Screening
Market Structure Analysis
An
Quantification of Product Concepts
Sales Potential
Idea Generation
Preliminary Product Feasibility and Development
Fact Book
Advertising Development
Creative Testing and selection
Creative Development
Strategy Development & Evaluation
Advertising Development
Final Product Usage, Formulation and Testing
Detailed Product Profiling
Testing
National Launch/Regional Roll out
Purchase Lab
Test Market
Strategies adopted by various organizations
Case Study http://media.cnbc.com/i/CNBC/Sections/News_And_Analysis/__Story_Inserts/graphics/__COMPANY_IMAGES/E-G/ge_logo_new.jpg
One of Jack Welch’s trademark messages to managers: “Discover where the best ideas are, and implement them”. Creating, nourishing and building is part of learning culture at GE. Welch says, any idea, if it’s a good one, is worth pursuing and adopting – no matter where it comes from either within GE, or outside GE, wherever. He calls it “legitimate plagiarism.”
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It is Welch’s ability to get others excited about those good ideas, which explains his phenomenal results. Of all his management secrets, his extraordinary ability to communicate, to engender employee enthusiasm, is the greatest. He is an excellent communicator. He knows that it is not enough to simply raise an idea with employees. It has to be kept repeating until it finally sinks with every employee.
With Work-Out as part of its DNA, GEs become one of the most profitable, innovative, and admired companies on earth. At its core, Work-Out is a very simple concept based on the premise that those closest to the work know it best. When the ideas of those people, irrespective of their functions or job titles, are solicited and turned immediately into action, an unstoppable wave of creativity, energy, and productivity is unleashed throughout the organization. At GE, Work-Out “Town Meetings” gave the corporation access to an unlimited resource of imagination and energy of its talented employees.
Case Study http://intellistickoilcondition.files.wordpress.com/2009/04/harley-davidson.jpeg
Harley-Davidson designs, manufactures, and markets heavy-weight motorcycles, motor parts, accessories, collectibles and riding apparels. Harley-Davidson’s management has been recognized worldwide for its successful use of progressive cutting-edge management techniques. One specific area in which Harley-Davidson’s management has received acclaim is its use of cross-functional team to design a new product. To some extent, cross-functional advice has always been considered within the new product design process at Harley-Davidson. Representatives from manufacturing, engineering, purchasing and marketing divisions have always has influenced the future direction of new products.
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Management of Harley has underscored its commitment to cross-functional teams for designing new products by opening a new Product Development Center (PDC) near its plant in Wauwatosa, Wisconsin. For years the motorcycle maker has been consistently moving toward emphasizing more on using cross-functional teams for new product development. The PDC accelerated this move by locating purchasers, design engineers, manufacturing personnel, and other crucial players in a single building. These team members work daily together on a full-time basis and are totally dedicated towards the new product development process.
Case Study http://www.ipack.com/central_media/ips/cats/img/400×400/4191.jpg
Leaders of 3M established a successful approach to a dilemma of new product development by favouring independent R&D programs. When William McKnight CEO of 3M declared a company’s rationale 50 years ago said, “As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage men and women to exercise their initiative. Mistakes will be made, but if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it is dictatorial and undertakes to tell those under its authority exactly how they must do their jobs.”
The success of innovation at 3M relied on long-term, individually directed research projects. The management at 3M is governed by two maxims for such projects: “Hands off!” and, “Don’t ask, don’t tell!” When the shareholders’ concerns changed, 3M was forced to expand its toolkit of innovations. This involved more systematic approaches towards innovation and the methods which included more direct links with the management.
One of the approaches of 3M called the Lead User System has reaped profitable new products, services and strategies.
Eric von Hippel from MIT was the first to develop the System. This system balances the management and the shareholders needs, against “fuzzy front-end” innovation developers.
Lead User Teams is formed by four to six individuals with diverse skills. It is necessary to have team members from functions like marketing and technical. Depending on the teams focus, members would be added from different areas like manufacturing, procurement or other necessary functional area to the team. All team members are educated with the techniques to come out with profitable solutions to the customer needs.
Lead User Teams are instructed to welcome uncertainty and ambiguity. They focus on areas where there is a great possibility of discovery. It’s important for the team to learn to recognize gaps to identify prime locations for the generation of new concepts and products.
The teams are equipped to seek value and capture ideas that are not part of the “business as usual,” be it new technology, or applications, or strategic relationships, partnership, or service offered.
Because opportunities are remote from every-day experiences, team members would have to begin by getting acquainted to “what is not known.” The members of the team has to work towards improving their knowledge at an accelerated pace, primarily with the “Lead Users Team.”
The cross-functional teams has to channel through a set of phases, beginning with retrieving information from a specific sources and then collaborating this by create new products, new strategies and services.
This team then looks out for information that focuses on what the customer would need in future.
The greatest challenge of all is to find the right Lead Users Team. Enlisting involvement is always a non-issue, as the individuals are rarely involve with Lead User teams in a creative collaboration. These Users are professionals who work with leading cutting edge applications that help them study customer problem. They then develop a prototype solution for those problems.
Lead User Experts has knowledge of advanced applications and its important attributes. Lead User teams look for experts who work in the target market and the analog industries. These analog industries contain markets which share their knowledge of an important problem or solutions, for the future market. The Experts and Users from the analog industries do not have an insight on the complete problem or entire solution, but they have an insight of hard-to-find solutions of particular problem under study.
Lead User Team members are often led away from their existing networks and towards an unknown and unexpected people and organizations. These team members then conduct interviews in stages.
Each new contact offers new opportunities to redefine important attributes of the future market demand or innovative problem solving approaches.
At every point or stage during their interview, the team looks for professionals who are ahead of any general adoption/diffusion cycle. These users normally tend to work in smaller segments or pockets of activity and are sometimes hard to find. The bonding between the Lead Users and Lead Use Experts calls for them to become co-creators and understand that innovations can emerge from their interactions.
Lead User Teams obtains information by watching, listening reading, questioning, and through shadowing other Lead User’s. The teams then concludes their work by gathering the Lead Users and Lead User Experts together with the development specialists of 3M for a workshop dedicated to work collectively on solution designs. Post these workshops, the teams get back and finalize their prioritized plan to move from concept to the development stage.
Innovation is More Than “Just” a New Product.
The experiences of 3M have shown that the Lead User System success is not only from the product-orientation point of view, but because of their higher plane to create a comprehensive business model. Many Lead User Teams at 3M were exposed to these strategy-level developments where they uncover huge and profitable future markets, for new products and new technologies.
But for 3M to profitably drive and enter those markets a completely new strategy was required. These teams had to face question like, “What do we do if these lucrative new future markets do not fit within our existing business market strategies?”
With the 3M management support, the Lead User Teams developed new business models and strategies that provided the right fit. This team would then develop services, product families, novel approach towards channel partnerships and product/service toolkits for customer.
The team brought about changes in 3M’s business culture, and is currently the greatest cause of excitement among 3M managers because they support and encourage higher levels of innovation within the organization. Innovation is now viewed as a collaboration of cross-functional unit focused on market, dependent on relationships and activities beyond the boundaries of companies.
The Lead User System is now one of the most productive and cost-efficient innovation methods adopted by the company today. The services and products system created a watchword for 3M “change the basis of competition,” which is novel.
Case Study http://gadgetsteria.com/wp-content/uploads/2009/05/intel_logo.jpg
Based on the margins Intel makes from existing products, Intel uses innovation portfolio approach to control the rate at which they introduce new microprocessors. “Their portfolio provides visibility across products and product generations, enabling them to maximize the profits they reap from each other.”
Successful new products
Case 1
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Case 2
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iRobot Corp. (iRobot) put in efforts which helped them develop and market their innovative product – the iRobot Roomba, a floor-cleaning robot. Efforts were undertaken by the founders of the company to develop robots, which could be of use in military, researches and commercial environments. The focus later shifted to commercial robots which were eventually led to the innovation of the Roomba. The company marketed the product, and later released many version of the Roomba as an open hardware platform for further robotic development.
Case 3 Volkswagen
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In August 2006, Europe’s largest automaker Volkswagen, unveiled the Iroc concept at a special event in Berlin, Germany. The Iroc was a prototype of the third generation model of the Scirocco, a sports coupé launched in the 1970s.. The Iroc, which was expected to hit the market in 2008, was an attempt to fill the gap in its product line and targeted a niche market of Scirocco enthusiasts. Analysts opined that the Iroc would help boost the image of Volkswagen. They also felt that Volkswagen had few emotional brands targeted in the US customers, and the new Scirocco would help fill that void. Iroc became a cult car in the US and Europe
Case 4
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When Suzuki Motor Corporation thought on a car like Swift, they sent a team of approximately 40 – 50 engineers and designers into Europe, which is a booming market of Europe for small car segment. The Swift was first showcased in 2002 Paris Motor Show as a concept car and then in 2004 at Auto Expo in India.
The Swift was not loaded with all that Maruti was known for. But instead it offered an elegant style, classy interiors and compelling performance. It stirred up passions in the car industry and kicked up an unprecedented level of hype in favour of Maruti. The Swift looks radical with its overall design theme is a brilliant fusion of opposites that appeals at a first look. The rounded, jellybean-like lower half and the almost ‘Boxy’ top-half have drawn comparisons to the BMW Mini. Like the Mini, the Swift’s “A” pillar arms and midline have also been blacked out to give the car a floating roof look.
It is a combination of Italian flair and French quirkiness. Though initially Swift was designed for the European markets, Maruti Udyog realised the modified version with the Indian conditions in their mind. Necessary modifications were made, without touching the essential aesthetics (the raised bonnet line that matches the new European pedestrian safety norms). Keeping in mind harsher Indian conditions, the suspensions were strengthened, an upgraded Esteem engine and gearbox was brought in, tyres with more traction were used and the quality of the paint was also changed.
The Swift’s biggest plus point is its price. The Swift was introduced at Rs. 3.87 lakh for the base model, which was Rs. 50,000 less than when compared to their competitor. Even the top-end version of swift was Rs. 70,000 cheaper than its main competitor the Hyundai Getz GLS.
The factor behind the Swift’s success was its combination of carefully thoughts: the product design, marketing strategy and the mentality of Indian buyers with respect to price.
Maruti Swift has been a tremendous success in Indian market and car of the year 2006, Swift got its absolute commercial success.
Challenges in New-Product Development
There are various challenges which can lead to the failure of a new product. Some the observations are listed below;
When a high level executive forces a favourite idea through, even when the research finding is negative.
When size of the targeted market is over estimated, in spite of a good idea.
When the product is not designed well.
When the product is positioned incorrectly in the market, or not advertised effectively or when overpriced.
When a product fails to gain sufficient distribution coverage or support
When the cost involved in the development of the product exceeds the estimation
When competitors fight back harder than expected.
Factors which hinder the development of new product when:
There is a shortage of ideas in certain important areas
The market is fragmented
There is a social or Government constraints
Shortage of capital.
Shorter life cycle of the product
Time constraints
If the product manager continues with a bad idea and subsequently launches products based on the bad idea, then he is likely to become a failure or make a ‘go error’. In contrast dropping a good idea can lead to loss of an opportunity; the product manager is likely to make ‘drop error’. The focus group discussion will lead to the development of market research where the product concepts can be quantified and preliminary product feasibility and development of the product can be tested. This stage is crucial for the product manager as she/he can take an idea from the stage of ‘abstraction’ to a valuable product proposition.
Case 1
Vanilla coke
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In April 2004, Coca-Cola India launched its new product the Vanilla Coke, The Company’s first flavour extension in India. Vanilla Coke was expected to boost Coca-Cola’s sales in India, which had taken a plunge following the pesticide contamination controversy in the year 2003.
Blind tests done before the launch of the product revealed that consumer liked the taste. The concept of ice-cream floats in cola was quite common in urban restaurants in India. The company targeted Vanilla Coke of the urban teens, the young adults from the high and middle income groups.
The new coke carried the tag line “Ice Creamy Thanda”. The India campaign took a cue from the “hip-hop” commercial used in Hong Kong, where it was a successfully launch earlier. The jingle in the commercial stressed: “No more conventions” and started with the word “Wakaw” meaning cool and different. The 60 second ad was played on youth-centric channels like MTV, Channel [V], HBO and AXN and even regional channels like Sun TV. With a retro-Bollywood theme, the ad attracted the young consumers to “try something new and different”.
A relatively new celebrity, Vivek Oberoi was chosen for the ad. For the promotion of the product, Coke activated key accounts, started promotional activities in shopping malls, colleges and launched a retrospective music album.
Retailers reported slow off take of Vanilla Coke. According to retailers in south Mumbai, the product’s sales were rapidly dropping. ‘Irrelevant’ advertising was one of the reasons for failure. The other issues pointed out by the respondents included “wrong positioning”, “no proper research” and that there was a “mismatch of targeted group and communication”. Thus Vanilla Coke failed to excite the Indian palate.
The television commercial and outdoor promotion was successful in generating hype and awareness of the product. But, Vanilla Coke’s target market, the young consumers felt that the commercial itself was out of context and had no connection with the brand.
Conclusion
Most of the industry leaders look at innovation as a proactive procedure where resources are deployed by observing changes in the market and seize new opportunities even before they occur (this in contrast to a reactive strategy where no action is taken until problems arise or until the competitor introduces a new product).
Many leaders of the industry view innovation as an ongoing process (i.e. continuous development) where the entire organization is always on alert and on hunt of opportunities.
The process of new product development plays a crucial role in deciding the future of the organization. Whatever may be the size and nature of operation of a firm, product planning and development is necessary for its survival and growth in the long run.
Therefore, efforts must be made to develop a unique superior product marketed at a reasonable price in an effective manner.
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