NEW PRODUCT DEVELOPMENT Professor Chip Besio Cox School of Business Southern Methodist University

APPLE’S NEW-PRODUCT INNOVATION MACHINE

 Apple’s Innovation Machine  The Evolutionary iPod nano and Revolutionary iPod touch APPLE’S NEW-PRODUCTS

WHAT ARE PRODUCTS AND SERVICES? GOODS, SERVICES, AND IDEAS  Good  Services Nondurable Goods Durable Goods  Product  Ideas

 New to the world  New to the company  Flankers –Line extensions –Brand extensions  Repositioning  Model changes WHAT ARE NEW PRODUCTS?

9 New product development is the most important strategic activity of any firm  However, it is the most risky venture Most new products fail! NEW PRODUCT DEVELOPMENT?

 Failure rates –“…no more than 10% of all new products or services are successful -- that is, still on the market and profitable after three years” - Marketing Management (2003) –95% of new consumer products in US fail;90% of new consumer products in Europe fail - Nielsen BASES and Ernst & Young study (2002)  Costs –Introducing a new national brand can cost $20 million – Marketing Management –New Product News – “It probably costs $100 million to introduce a truly new soft drink nationally and it costs $ 10,000 to introduce a new flavor of ice cream in Minneapolis. Somewhere in between is a worthless 'average' cost to introduce a new product” THE RISKS OF NEW PRODUCTS?

 Study by Assoc. of National Advertisers (2004) --across all types of industries –27% of line extensions failed –31% of new brands introduced in categories where company already had a product failed –46% of new products introduced to new categories failed  Only 1 in 9 new product ideas are carried to the commercialization phase THE RISKS OF NEW PRODUCTS?

NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL Product Line Extension Significant Jump in Innovation True Innovation  Newness: The Organization’s Perspective 10-9

Purina Elegant Medleys What are the potential benefits and dangers of incremental innovation? 10-10

LO3  Newness: The Consumer’s Perspective Continuous Innovation Dynamically Continuous Innovation Discontinuous Innovation NEW PRODUCTS AND WHY THEY SUCCEED OR FAIL

 Poor planning and strategy –Market is not attractive  Poor concept  Poor execution  Poor use of research  Poor technology  Poor timing –Changes in tastes/environment  Bad support from channel WHY NEW PRODUCTS FAIL

 Top-management commitment  Start with the consumer -- not the factory  Intelligent use of research  Find a competitive advantage  Move quickly  Know when to get out  Accept, but manage risk WHY NEW PRODUCTS SUCCEED

The degree of “newness” in a new product affects the amount of learning effort consumers exert to use the product 10-14

WHAT SEPARATES NEW-PRODUCT WINNERS AND LOSERS

How a consumer product is classified affects which products consumers buy and the marketing strategies used

New Product Success Factors 4 Be close to the market 4 Set a strategic direction 4 Play to your strengths 4 Strong organizational support 4 Speed to market

THE SEVEN STAGES IN NEW-PRODUCT DEVELOPMENT

THE NEW-PRODUCT PROCESS STAGE 1: NEW-PRODUCT STRATEGY DEVELOPMENT  New-Product Process SWOT Analysis Conducted  New-Product Strategy Development Type of Strategy to Utilize Strategic Role Identified Protocol Defined

STRATEGIC ROLES OF MOST SUCCESSFUL NEW PRODUCTS

THE NEW-PRODUCT PROCESS STAGE 2: IDEA GENERATION  Idea Generation  Employee and Co-Worker Suggestions  Customer and Supplier Suggestions  Research and Development Laboratories  Competitive Products  Universities, Inventors, and Small Tech Firms Open Innovation

Volvo’s YCC How are new-product ideas generated?

THE NEW-PRODUCT PROCESS STAGE 3: SCREENING AND EVALUATION  External Approach  Internal Approach Customer Experience Management (CEM) Concept Tests

New Product Development Process CONCEPT TESTING  Goal –Use primary market information to better define the product, forecast likely demand, and clarify target buyer  Common tools –Focus Groups –Conjoint Analysis –Information Accelerator

THE NEW-PRODUCT PROCESS STAGE 4: BUSINESS ANALYSIS  Prototype  Business Fit  Capacity Management  Off-Peak Pricing

New Product Development Process BUSINESS ANALYSIS Review Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives Review Product Sales, Costs, and Profits Projections to See if They Meet Company Objectives If Yes, Move to Product Development If Yes, Move to Product Development If No, Eliminate Product Concept If No, Eliminate Product Concept Source: Prentice Hall

THE NEW-PRODUCT PROCESS STAGE 5: DEVELOPMENT  Service Encounters  Brainstorming  Safety Tests

Product Development TESTING NEW PRODUCTS  Advertising testing  Product quality testing  Laboratory tests  Expert evaluation  Customer tests –Single-product evaluation –Blind tests –Experimental variations

THE NEW-PRODUCT PROCESS STAGE 6: MARKET TESTING  Simulated Test Markets (STMs)  Test Marketing  When Test Markets Don’t Work

New Product Development Process TEST MARKETING Standard Test Market Full marketing campaign in a small number of representative cities. Standard Test Market Full marketing campaign in a small number of representative cities. Simulated Test Market Test in a simulated shopping environment to a sample of consumers Simulated Test Market Test in a simulated shopping environment to a sample of consumers Controlled Test Market A few stores that have agreed to carry new products for a fee Controlled Test Market A few stores that have agreed to carry new products for a fee Source: Prentice Hall

SIX IMPORTANT TEST MARKETS – THE WINNER IS WICHITA FALLS, TX

THE NEW-PRODUCT PROCESS STAGE 7: COMMERCIALIZATION  Burger King’s French Fries  Risks with Grocery Products Slotting Fees Failure Fee Regional Rollouts

 Speed as a Factor in New-Product Success Time to Market (TtM) Parallel Development Fast Prototyping THE NEW-PRODUCT PROCESS STAGE 7: COMMERCIALIZATION

Why Speed to Market?  Markets are getting more specialized  Intensified competition  Changing technology  Changing tastes  Rampant copying  Gaining shelf space early

Business Analysis WHEN TO STOP A BAD IDEA  Rule 1: Remember the sunk cost fallacy  Rule 2: Set benchmarks for success beforehand and stick to them  Rule 3: Be sure to plan research so that it will allow you to diagnose the cause of problems

General Mills Fingos Why did this product fail?

Thirsty Dog! and Thirsty Cat! Why did these products fail?

Avert and Hey! There’s a Monster in My Room Why did these products fail?