New Product Development

New Product Development The Federal Trade Commission says: Entirely new or changed significantly May be called “new” for 6 months New Product (innovation) In marketplace: customers perceive it to be new and different from existing products Entirely new or with additional features to make existing product better Ongoing process; success is more difficult Huge R&D costs Increased speed of obsolescence High slotting fees TARGETED Day 1 STOP

New Product Success

Name That Product/Skeptic “I think there is a world market for maybe 5 computers.” Tom Watson, IBM Chairman,1943 “The telephone has too many shortcomings to be seriously considered as a means of communications. The device is inherently of no use to us.” Western Union memo, 1876 “Who the hell wants to hear actors talk?” H.M. Warner, Warner Bros., 1927 “The concept is interesting and well-formed, but in order to earn better than a “C”, the idea must be feasible.” Yale University mgt. professor in response to Fred Smith’s paper proposing a reliable overnight delivery service “We don’t like their sound, and guitar music is on the way out.” Decca Recording Company in rejecting the Beatles, 1962

Innovation & New Products Degree of “newness” affects the amount of learning effort required to use the product

Continuous Innovations Most common form of innovation Change is minimal Mostly in the form of: Line Extensions Product Modifications

Line Extensions Line Extension: a product closely related to existing products in the line but meets different customer needs Less expensive, low risk way to increase sales May focus on the same or a new segment Can be used to counter competing products Many “new products” are really line extensions.

Product Modification A change in one or more characteristics of the product and the elimination of the original product from the product line © Used By Permission.

Quality Modifications Changes related to a product’s dependability, durability, etc. Done by altering materials, production processes, etc. Why do it? Reduce quality (and COGS) to offer a lower price to customers Increase quality to gain a competitive advantage Charge more or provide more for same price © Used By Permission.

Functional Modifications Changes affecting a product’s versatility, effectiveness, convenience, or safety; Usually requiring redesign of the product Why do it? Stronger competitive position within your market Increase appeal and grow the market Achieve/maintain progressive image Reduce possibility of product liability lawsuits

Aesthetic Modifications Changes to the sensory appeal of a product: as taste, texture, sound, smell, or appearance “Improved” aesthetics is subjective Why do it? Increase appeal to current target Generate appeal to a new target Risk: previous buyers may not like the new

Discontinuous Innovation Creates major changes in the way we live Consumers must engage in a great deal of new learning Far more difficult to market than most imagine

Discontinuous Innovation What are the best discontinuous innovations brought to market in since 1910? How did they change the way we live?