DON HONORIO VENTURA STATE UNIVERSITY COLLEGE OF BUSINESS STUDIES

Capturing the
Product/Market fit

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Learning Module
in
Product Management

Preface
Product Management is becoming an important function of marketing. With the passage
of time, product management has undergone many changes. It is no more a department of
churning out promotional materials but is has now become the nerve center of the organization.
Effective product management is a practical, purposeful and positive approach of improving the
company results, through the efforts of a competent and committed team, coordinating
manufacturing, marketing and sales. In short, it can be said that product management involves.
Product management is business-oriented product or service management. The goal is to
maximize the benefits and the value your product or product portfolio generates throughout its
product lifecycle.

The focus of this course is on decisions about how a company can build and manage its
products so that they are profitable to the company and at the same time adequately meet target
customers' needs and wants. The course aims to synchronize product and brand management
processes.

The easiest way to understand product management is to look at the product lifecycle
model and think about what kind of measures are needed at each stage. Unlike project

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management, product management is an ongoing activity, which from time to time also involves
discontinuing the old and commercializing new ideas.

Table of Content

MIDTERMS COVERAGE
Chapter 1: A Look at Competition and Product Strategy
 What Links Competitiveness, Marketing and Product Strategy
 Marketing and Competitive Success
 Environmental Change
 Managing Competition: Product Strategy is Central
 Product Strategy and Management
 The Process of Innovation
 Summary
 Questions To Answer and Activity/ies

Chapter II. Understanding Product and Product Portfolios in Theory and Practice
 What is a Product
 Product Classification
 Objective Versus Subjective Selection Criteria
 Branding
 Classifying New Products
 The Buygrid Analytical Framework
 The Concept of the Product Portfolio
 Factors Influencing Product Portfolio
 Summary
 Questions To Answer and Activity/ies

Chapter III. Product Life Cycle in Theory and Practice

 The Product Life Cycle
 The Seven Stages of the Product Life Cycle
 Managerial Applications of the Product Life Cycle Concept
 Criticisms of the Product Life Cycle
 Summary
 Questions To Answer and Activity/ies

Chapter IV. A look at the Importance, Nature and Management of the New Product
Development Process
 New Product Development Models
 Overview of the Stages of the New Product Development Process
 The Usefulness of the Process Models
 Factors Affecting Success and Failure of New Product Development
 Implications of the Success and Failure Literature for the Process: Focusing on the Process
and the People
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 Summary
 Questions To Answer and Activity/ies

FINALS COVERAGE
Chapter V. Examining New Product Strategy
 The Need for Product Innovation Strategy
 The Components of New Product Strategy: Technologies and Markets
 Technological Newness
 Market Newness
 Summary
 Questions To Answer and Activity/ies

Chapter VI. The Idea Management for New Product Development

 The Objective of Idea Generation
 Sources of Information for New Product Ideas
 Techniques for Activating Sources of Information
 Managing Creativity
 Summary
 Questions To Answer and Activity/ies

Chapter VII. A look at Commercialization: Test Marketing and Launching the New
Product
 Test Marketing
 Time to Market
 Breaking Into the Market
 Reprise
 Summary
 Questions To Answer/Activity/ies

Chapter VIII. Growth Management

 Resistance to Change
 Levering New Product Growth
 Sustaining Differentiation
 Managing Growth
 Summary
 Questions To Answer/Activity/ies

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Chapter 4

A look at the Importance, Nature and

Management of the New Product Development
Process

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Learning Objectives

This chapter is concerned with how New Product Development (NPD) can be managed within
companies to create successful, profitable products. Its specific objectives are:

1. To describe and contrast the models commonly used to guide new product success.

2. To reflect upon whether or not models can and do act as a useful managerial guide.

3. To review the research literature which tries to distinguish factors leading to successful
and unsuccessful new products.

4. To discuss newer models which attempt to integrate the key success factors into their
prescriptions for the process.

5. To consider the kinds of organizational structures which are best suited to the new
product processes that are successful.

On completion of this chapter, you will:

1. Understand the various approaches to modelling the development of new products.

2. Be able to explain in their usefulness and limitations as managerial tools.

3. Appreciate the more recent developments in thinking about how to model new product
development.

4. Understand the major factors contributing to success and failure of new product
development.

5. Appreciate the importance of managing the steps in the process and the people who carry
out the steps.

6. Be able to present a plan for the organization of people involved in the development of a
new product.

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INTRODUCTION

The chapter attempts to give an overview of the tasks required to generate new product
ideas and launch them successfully into the market. The chapter contains three sections. The first
traces the history of NPD models in order to outline activities needed to be managed; the second
provides a brief résumé of what has become a vast area of academic and practitioner research,
namely, the factors associated with success and failure in developing new products; the third
discusses ways in which the models might be developed to reflect the lessons to be learned from
studies of success and failure and provides an overview of the organizational structures which
might be best suited to managing these processes.

NEW PRODUCT DEVELOPMENT MODELS

New product development (NPD) models are usually templates or maps which can be
used to describe and guide those activities required to bring a new product from an idea or
opportunity, through to a successful market launch. Like all models, they attempt to capture the
essence of the tasks required to complete a project, they are therefore general in their orientation
and often criticized for not being applicable to specific situations. Often they described the NPD
process by focusing on the departments or functions that hold responsibility for various tasks
carried out. In a business to business, technology- based context, the ideas were are often
assumed to arise in the R&D department; design of the new product carried out by the design
department with the engineering function responsible for prototyping, followed by production
who tended the manufacturing problems, in front of marketing which planned and carried out the
launch. These representations are rather outmoded. It is now accepted that the 'pass-the-parcel' or
´relay' approach to NPD from one department to the next is not only unnecessarily time
consuming, but does nothing to foster ownership of, or strategic responsibility for, new products,
and there is nothing in the way of market feedback, since marketing is presented with the product
to market.

Through the 1980s and 1990s, numerous models based, not on departments, but on
activities were refined, a widely known example being that of Booz, Allen and Hamilton (1982),
which is shown in Figure 6.1.

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Company Business Developme Commercial Product

Exploration Screening Testing
Objective Analysis nt ization Success

Figure 6.1 The Booz, Allen and Hamilton model of new product development
These processes consist of stages of activity, followed by review points, or gates, where
the decision to continue (or not) with the development is made. This approach clarifies the reality
and importance of feedback loops, which although not impossible within the framework of the
simpler activity-stage models, are usually not highlighted either. With the decision-stage models,
each stage is viewed in terms of its potential output.

These types of approach have also been criticized for promoting a pass-the-parcel
approach to NPD since the activities, and in some cases the decisions, were originally seen to be
the responsibility of separate departments or functions but now most of them emphasize the
importance of multi-functional teams.

OVERVIEW OF THE STAGES OF THE NEW PRODUCT DEVELOPMENT PROCESS

Strategy

Beerens et al. (2004) in a report for Booz, Allen Hamilton, found that most companies
have difficulty in controlling their product development activities. Symptoms included
ignorance of the NPD roles and responsibilities, frequent reprioritizing of projects and the
discovery of projects by top management previously unknown to them, lack of robustness in the
process and its management. In other words, a lack of a strategic focus on product innovation.
The ramifications of practices like these include working on projects that are unlikely to make
money, overloading R&D people, not meeting schedules and increasing the chances of failure.
Setting a clear strategy for new product development, on the other hand, not only provides
guidelines for resource allocation, but also sets up the key criteria against which all projects can
be managed through to the market launch. The well-known assault by Komatsu on Caterpillar
through the 197Os and 1980s was comprised of numerous strategies, amongst which featured the
frequent launch of new products developed to extend the product lines, future new products
based on envisioning programs and a period of matching increased product variety with
efficiency gains. New product strategy, which has also been called the Product Innovation
Charter (Crawford, 1984) and Protocol (Cooper, 1993).

Idea generation
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This is a misleading term, because, in many companies, ideas do not have to be

‘generated’. They do, however, need to be managed. This involves identifying sources of ideas
and developing means by which these sources can be activated. The aim of this stage in the
process is to develop a bank of ideas that fall within the parameters set by ‘new product
strategy’. Sources of new product ideas exist both within and outside of the firm. Inside the
company, technical departments such as research and development, design and engineering work
on developing applications and technologies which will be translated into new product ideas.
Equally, commercial functions such as sales and marketing will be exposed to ideas from
customers and competitors. Otherwise, many company employees may have useful ideas: service
mechanics, customer relations, manufacturing a warehouse employees are continually exposed to
‘product problems’ which can be translated into new product ideas. Outside the company,
competitors, customers, distributors, inventors and universities are fertile repositories of
information from which new product ideas come. All sources of ideas, however, may have to be
organized in such a way as to extract ideas. In short, the sources have to be activated. A myriad
of techniques may be used to activate sources of new ideas.

Screening

The next stage in the product development process involves an initial assessment of the
extent of demand for the ideas generated and of the capability the company has to make the
product. At this, the first of several evaluative stages, only a rough assessment can be made of an
idea, which will not yet be expressed in terms of design, materials, features or price. Internal
company opinion will be canvassed from R&D, sales, marketing, finance and production, to
assess whether the idea has potential, is practical, would fit a market demand and could be
produced by existing plant, and to estimate the payback period. The net result of this stage is a
body of ideas which are acceptable for further development.

Concept development and testing

Once screened, an idea is turned into a more clearly specified concept and testing this
concept begins for its fit with company capability and its fulfilment of customer expectations.
Developing the concept from the idea requires that a decision be made on the content and form
of the idea. All these concept variations may be specified and then subjected to concept tests.
Internally, the development team needs to know which varieties are most compatible with
current production plant, which require plat acquisition and which require new supplies, and this
needs to be matched externally, in relation to which versions are more attractive to customers.
The latter involves direct customer research to identify the appeal of the product concept or
alternative concepts to the customer. Concept testing is worth spending ne and effort on,
collecting sufficient data to provide adequate information upon which the full business analysis
will be made.

Business analysis

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At this stage, the major 'go-no go’ decision will be made. The company needs to be sure that
the venture is potentially worthwhile, as expenditure will increase dramatically after this stage.
The analysis is based on the fullest information available to the company thus far. It
encompasses:

1. A market analysis detailing potential total market, estimated market share within specific
time horizon, competing products, likely price, break-even volume, identification of early
adopters and specific market segments.
2. Explicit statement of technical aspects, costs, production implications, supplier
management and further R&D.
3. Explanation of how the project fits with corporate objectives.

The sources of information for this stage are both internal and external, incorporating any
market or technical research carried out thus far. The output of this stage will be a development
plan with budget and an initial marketing plan.

Product development and testing

This is the stage where prototypes are physically made. Several tasks are related to this
development.

 First, the finished product will be assessed regarding its level of functional performance.
Until now, the product has only existed in theoretical form or mock-up. It is only when
component parts are brought together in a functional form that the validity of the
theoretical product can be definitively established.
 Second, it is the first physical step in the manufacturing chain. Whilst manufacturing
considerations have entered into previous deliberations, it is not until the prototype is
developed that alterations to the specification or to manufacturing configurations can be
designed and put into place.
 Third, the product has to be tested with potential customers to assess the overall
impression of the test product. Some categories of product are more amenable to
customer testing than others. Capital equipment, for example, is difficult to have assessed
by customers in the same way as a chocolate bar can be taste-tested, or a trial. One
evolving technique in industrial marketing, however, is called ‘Beta-testing’, practiced
informally by many industrial product developers.

TEST MARKETING

Objectives of Test Marketing – What to look for?

There could be both primary and secondary objectives for test marketing. The primary
objectives are estimation of sales and feedback for product or marketing strategy improvement
(if any). The ff. are the other insights the test marketing could be design to give.

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1. Insights into buyer characteristics

2. Trial and usage rates of the product
3. Purchase frequency (repeat purchase)
4. Product application
5. Response to alternative marketing mix. This could be accomplished by choosing different
test markets to test different marketing mixes.
6. Response of the intermediaries like the distributor, retailer, etc. to the new product.

It is to be noted that repeat purchase rate needs to be tracked while measuring the
performance of a product in a test market. This parameter plays an important role when it comes
to fast moving consumer goods and other product with a short buying cycle. Hence, number of
repeat purchases occurring in the test market should be tracked separately.

PROS AND CONS OF TEST MARKETING

Some of the advantages of test marketing are listed below:

1. It facilities testing of alternatives marketing strategies.
2. It gives insight to the new segments that the product cater to
3. It points out the sources of sales
4. Any unanticipated opportunities or problems have a high chance of being brought to
the forefront

Some of the difficulties encountered could be due to the longer testing time it takes or
cost involved in the process. It is also worthy to mention that test marketing apart from giving
valuable lessons to the firm also gives notable clues to the competitors on the product
development that the firm is carrying out. These disadvantages caution us to conduct the test
marketing with lots of care. It also needs to be observed that the product launches with relatively
lesser risk, it is not necessary to carry out test marketing.

DECISION VARIABLES FOR THE TEST MARKETS

Location and time period plays a critical role in determining the success of test
marketing. The place should be representation of the target segment. The following guidelines
would be useful to choose a test market.

1. The market chosen as test market should reflect the target market in terms of
distributions channel and media for communication.
2. Market with unusual demographic profiles should not be selected. For example,
areas like college, towns and entertainment areas are suitable place for testing
product.
3. Especially the city that is chosen for test market should have the diversity of the
nation as a whole.

The next important factor is the duration for which the test marketing is carried out. Time
and costs are inversely related greater the duration higher are the costs though it might provide

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good results. Also longer period always carries risks of the marketing activities exposed to
competitors. Another crucial aspect is the kind of information that one needs to collect from a
test market. Commonly suggested data are those related to concept of the product, its designed,
size, price, etc.
Reaction to advertising campaign can also be measured if that forms a part of the main objective.
Also it is advisable to note the size of the retail outlet in which the product is tested, the shelf
allotted kind of display given, stocks, etc. Data collection should begin after the product has
been in the market for a sufficient period of time. Substitute product or competitors sale can
also be tracked.

Test marketing approaches

There are three basic approaches to carry out test marketing –sampling for replication,
experimentation and behavioral model based approaches. These strategies having varying
degrees of risk and different trials that could be carried out with the marketing strategies

Sampling for Replication

Here the chosen test markets are samples of the national environment and care is taken to
choose the city-cities to match the characteristics of national population. All the planned
marketing variables for the national level are skill down to the test market level. Media spending
is based on GRPs (No. of exposure per person X percentage the campaign would reach). In case
of consumer goods, store sales is tracked either through audit of the inventory in retail stores or
through shipment from wholesalers. The market share is tracked for a period of 9 to 12 months.
This method is simple and consumes less cost. But on the darker side, the errors could occur due
to sampling. Also number of different set of marketing mixes could not be tested easily by this
method.

Experimentation

These are controlled store test in which the marketing strategies are varied within the
cities. This is achieved by sampling or couponing only the section of market, and by varying the
prices and promotion across the retail stores. The variation in dependent variables like sales,
market share is tracked with respect to changes in the marketing strategies such as price,
promotion, and the like. Unlike the previous method the result of this method is complex to
analyze though it gives enough scope for carrying out different marketing strategies.

BEHAVIORAL MODEL BASED ANALYSIS

This approach compensates for the problem in the ‘sampling for the reflection approach’
and in the experimentation approach ‘. A detail behavioral model identifies and analyzes the

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differences in the consumer behavior in test market with that of the national market. The model
then suitably adjusts the forecast to obtain a more accurate data.

TYPES OF TEST MARKETING PROCEDURES

Standard of Test Markets

Here the test markets are chosen and retail outlets are stocked and restocked at regular
intervals by the sales personnel. A combination of the four different P’s (product, price, place,
promotion) is employed in this market and tested. It needs to be noted that the product here is
sold through regular distribution channel

Controlled Test Markets

INFORMAL SELLING -the basic idea of informal selling is that the buyer is expected to have
heard about the product and make purchase. The buyer is made to know about the product either
through sales call or in trade shows or through special outlets set for this purpose or be a regular
outlets. Here true selling is done but the communication in an informal way.

Direct marketing-Here, the product is sold to the consumers using the direct marketing route to
obtain instant and straight feedback from the consumer.

Mini marketing- There are similar to standard test markets, the only difference being that in
standard test markets the whole city is mapped, whereas in mini markets the test market limited
only to a store. The disadvantage here is that the shop person may give greater attention to new
product.

SIMULATED TEST MARKET

In stimulated test marketing a sample of consumers are exposed to advertisements of the

products and are given free samples or an opportunity to purchase them. They are then
interviewed on the aspect of the product, their satisfaction levels, repurchase cycle, intention to
buy it again, etc. This method has been found to be effective for packaged goods. It is found to
be less time consuming and more cost effective. In this case the test market is carried out for a
period of about three months.

Premarketing testing

Premarket testing, a group of respondents are chosen and invited for test marketing in a
selected supermarket. The respondents are shown a set of advertisement in which one of them
would pertain to the new product under test. The respondents are then given money (fake or real)
and ask to make purchases in a stimulated store in the mail. After this stage, the respondent is
taken for a focused group discussion or through personal interviews. This method involves 300-
600 people and it is done for period of 8-14 weeks.

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Full Sale

In this method, the product sales are carried as in real marketing situation but in a limited
way to know the pulse of the consumer.

STATISTICAL MODELS FOR ANALYZING TEST MARKET DATA

Data Projection Method

Sale is obtained by considering two components trial sales and repeat sales. The data is
obtained by tracking the purchase pattern of consumers. The tracking is done electronically at the
point of purchase. The following graph shows the trial and repeat purchase pattern of new
product with their some being shown as sales curve.

Figure 7.1 Sale pattern showing trial and repeat purchase, and total sales

As it can be observe, the number of trial purchases come down with time considerably. In many
cases, the sales rate drops although the trial is high since repeat purchase is low sales pattern can
also be express as shown in the fig. 7.2 as cumulative trial and
COMMERCIALIZATION OR LAUNCH

This final stage of the initial development process is very costly. Decisions such as when
to launch the product, where to launch it, how and to whom to launch it will be based on
information collected throughout the development process. With regard to timing, important
considerations include:
 Seasonality of the product
 Whether the launch should fit any trade or commercial event
 Whether the new product is a replacement for the old one
 Whether it is advantageous to be first to market (much debate exists regarding this
decision).

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repeat rate

Location will, for large companies, describe the number of countries into which the
product will be launched and whether national launches will be simultaneous or roll out from one
country to another. For smaller companies the decision will be restricted to a narrower
geographical region. The factors upon which such decisions will be based depend upon the
required lead-times for product to reach all the distributive outlets and the relative power and
influence of channel members.

Launch strategy encompasses any advertising and trade promotions necessary. Space
must be booked, copy and visual material prepared, both for the launch proper and for the pre-
sales into the distribution pipeline. The sales force may require extra training in order to sell the
new product effectively.

The final target segments should not, at this stage, be a major decision for companies
who have developed a product with the market in mind and who have executed the various
testing stages. Attention should be more focused on identifying the likely early adopters of the
product and on focusing communications on them. In industrial markets, early adopters tend to
be innovators in their own markets. The major concern of the launch should be the development
of a strong, unified message to promote to the market. Once accepted by the market, the
company will elicit feedback to continue the improvement and redevelopment of the product.

THE USEFULNESS OF THE PROCESS MODELS

The usefulness of the process models, such as that by BAH, lies in the way in which they
provide an indication of the magnitude of the project required in order to develop and launch a
new product. The process of developing a new product is inherently risky, plagued as it is by
uncertainty at every stage. Over the process, the uncertainty is reduced - be it regarding
technology, make-ability or potential customer response. The whole procedure has been
described as one of information processing (see Hart, et al. 2004), so it is of value if those
executing the task of developing new products are given guidance regarding what information is
required, where it might reside and to what use it might be put. Table 6.1 analyses the BAH
process model, to clarify its implications for information search, source and use.

Stage of Information needed for Sources of Likely output of stage in

Development stage: nature of information light of information
information
Explicit statement of Preliminary market and Generated as part of Identification of market (NB
new product strategy, technical analysis: company continuous MIS and not product) opportunities to
budget allocation objectives corporate planning be exploited by new
products.
Idea generation (or Customer needs and Inside company: Body of initially accepted
gathering) technical developments in salespeople, technical ideas

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previously identified markets functions. Outside

company: customers,
competitors,
inventors, etc.
Screening ideas: Assessment of whether there Main internal Ideas which are acceptable
finding those with is a market for this type of functions: fir further development
most potential product, and whether the - R&D
company can make it. - Sales
Assessment of financial - Marketing
implications: market - Finance
potential and costs. - Production
Knowledge of company
goals and assessment of fit.
Concept Explicit assessment of Initial research with Identification of key
development: turning customer needs to appraise customers. Input attributes that need to be
an idea into a market potential. Explicit from marketing and incorporated in the product,
recognizable product assessment of technical and technical functions major technical costs, design,
concept, with design requirements. target markets and potential
attributes and market
position identified
Business analysis: Fullest information thus far: Main internal Major go-no go decision:
full analysis of the - Detailed market functions Customers company needs to be sure the
proposal in terms of analysis venture is worthwhile as
its business potential - Explicit technical expenditure dramatically
feasibility and costs increases after this stage.
- Product implications Initial marketing plan.
- Corporate objectives Development plan and
budget specification.
Product development: Customer research with Customers Explicit marketing plans
crystalizing the product: Production production
product into semi- information to check ‘make-
finalized shape ability’ of product or service
design
Test marketing: Profile of new product Market research: Final go-no go for launch.
small-scale tests with performance in light of production, sales,
customers competition, promotion and marketing technical
marketing mix variables people
Commercialization Test market results and As for test market Incremental changes to test
report launch full-scale launch

Table 6.1 Analysis of the NPD process based on Booz, Allen, and Hamilton (1982)

CRITICISMS OF PROCESS MODELS

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Despite its apparent usefulness, the BAH model, and, by implication, its derivatives have
been criticized on a number of counts.

Idiosyncrasy

The NPD process is idiosyncratic to each individual firm and to the new product project
in question. Its shape and sequence depend on the type of new product being developed and its
relationship with the firm's current activities (Cooper, 1988; Johne and Snelson, 1988). In
addition to the need to adapt the process to individual instances, it should be stated that in real
situations there is no clear beginning, middle and end to the NPD process. For example, from
one idea, several product concept variants may be developed, each of which might be pursued.
Also, as an idea crystallizes, the developers may assess the nature of the market need more easily
and the technical and production costs become more readily identified and evaluated.

Iteration

The iterative nature of the NPD process results from the fact that each stage or phase of
development can produce numerous outputs which implicate both previous development work
and future development progress. Using the model provided by Booz, Allen and Hamilton, if a
new product concept fails the concept test, then there is no guidance as to what might happen
next. In reality, a number of outcomes may result from a failed concept test, and these are
described below.

A new idea

It is possible that although the original concept is faulty, a better one is found through the
concept tests; it would then re-enter the development process at the screening stage.

A new customer

Alternatively, a new customer may be identified through the concept testing stage, since
the objective of concept testing is to be alert to customer needs when formulating a new product.
Any new customers would then feed into the idea generation and screening process. Figure 6.3
shows these and other possibilities and illustrates how, viewed as linear or sequential, the BAH
model is inadequate, particularly regarding up-front activities.

Related strands of development

A further point in relation to the sequencing of product development tasks is the existence
of related strands of development. A further point in relation to the sequencing of product
development tasks is the existence of related strands of development. These related strands of
development

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FACTORS AFFECTING SUCCESS AND FAILURE OF NEW PRODUCT

DEVELOPMENT

Major themes in the NPD success literature

NPD is a thriving activity, but success rates reported are still variable. In the PDMA best
practices research, for example, 59% of products in development made it to market and of these,
60% are commercially successful. In Cooper (2001) a market success launch of 15% is quoted,
whilst in 2001, Hultink, Hart Robben and Griffin (2001) reported an average 60% successful
launch rate in the US, the UK and the Netherlands and in 2004, Cooper, Edgett and Kleinschmidt
report success rates of 60% on average. In short, much new product development effort goes to
waste. In this section, attention is given to factors affecting success and failure. Previous reviews
of the literature (Craig and Hart, 1992, Montoya-Weiss and Calantone 1994, Eisenhardt, 1995)
have identified key themes in the NPD literature as being crucial to the success of NPD
activities. Figure 6.5 presents these themes, which are briefly discussed in this section. These
themes are not directly comparable, as they relate to different levels in a company, namely,
whether they are strategic or operational. Of course, these might be related, but in order to
categorize the themes, those which refer to the way in which an organization is managed overall,
for example its top managers styles, the overall structure and strategy are seen as 'strategic
themes'. They have a vital contribution in setting the scene for new product development and can
and do have a profound effect on the outcomes of development programs. Operationally, any one
particular project may be successful or fail, depending upon how it is handled. Therefore there
exists a host of 'task' factors, which although influenced by the strategic issues, exert their own
influence on the outcome of the NPD project. This brief review, therefore, summarizes findings
on success and failure in NPD into two categories: the strategic- and the task- related issues.

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STRATEGIC ISSUES

Corporate strategy

The strategy of a company dictates how it will operate internally, and how it will
approach the outside world. To be successful, NPD must be guided by, that is be derived from,
the corporate goals of the company, and therefore there is a need to set clearly defined objectives
for new product development projects. A new product strategy ensures that product innovations
become a central facet of corporate strategies, that objectives are set and that the 'right' areas of
business are developed. Thus, a critical success factor for NPD is the extent to which a specific
strategy is set for guiding NPD efforts. The way in which the strategic focus or intent of product
development is formed can be seen as a function of three aspects: technology and marketing
inputs, product differentiation, synergy and risk acceptance. One of the most prevalent themes
running

 Technology and marketing throughout the contributions on strategic orientations is the

merging of the technical and marketing strategic thrust. The emphasis on a balance
between the technological and the marketing orientations in the strategy literature reflects
an overall trend away from arguing the benefits of one orientation above the other,
towards an acceptance that there should be a fusion between technology-led and market-
led innovations at the strategic level (Johne and Snelson, 1988; Dougherty, 1992). The
examples of both Komatsu and Canon above show how, at various times in their pursuits
to topple the market leaders, both market and technology orientations have played their
part. Similarly, problems can be found if one approach is allowed to dominate, despite
competitive market and technological conditions. Companies such as Kodak, although
dominant in analogue photography have been less able when making the change to digital
camera technology. The literature refers to new product strategies which
 Product differentiation emphasize the search for a differential advantage, through the
product itself (Cooper, 1984). Product advantage is of course a subjective and multi-
faceted term, but may be seen as comprising the following elements: technical
superiority, product quality, product uniqueness and novelty, product attractiveness and
high performance to cost ratio (Hultink and Hart, 1998). In their attempt to rise to the
competitive challenge of IT-based play products, the makers of iconic board games such
as Scrabble and Monopoly, Hasbro, has launched Hasbro Interactive. This new format
began by converting Hasbro products to an interactive format and went on to develop
video games bought on license from TV shows before finally investing in a new Internet
platform, games.com (Govindarajan and Trimble, 2005).
 Synergy A fourth consideration for those developing new product strategies, identified in
the literature, is the relationship between the NPD and existing activities, known as the
synergy with existing activities. High levels of synergy are typically less risky, because a
company will have more experience and expertise, although perhaps this contradicts the
notion of pursuing product differentiation. With Hasbro, for example, the switch to
interactive technology at first kept some synergies by sticking to the traditional games for
which the company was known. Once the new interactive versions were successful, the

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company could then move to unfamiliar (less synergistic) games, before combining the
completely new games with a new technological platform. Even then, there was a need
for learning, as the corollary of less synergy is lack of knowledge. The Hasbro
management team did not know whether it could turn other companies' video games into
successes as it had done with its own games, nor did the team have any knowledge of
how quickly video-game players might switch to the Internet (Govindarajan and Trimble,
2005).
 Risk acceptance finally, the creation of an internal orientation or climate which accepts
risk is highlighted as a major role for the new product strategy. Although synergy might
help avoid risk associated with lack of knowledge, the pursuit of product differentiation
and advantage must entail acceptance that some projects will fail. An atmosphere that
refuses to recognize this tends to stifle activity and the willingness to pursue something
new. Again, the Hasbro example reveals some insights here. The original switch to
interactive platform took place back in 1997, and results for 1997/98 were strong. On the
basis of early successes, the investment in the new platform was initiated but results in
both 1999 and 2000 were disappointing. Risk was accepted, but almost blindly, since
according to Govindarajan and Trimble (2005), there was a reluctance to make
predictions, or plan, based on the idea that both would be wrong anyway, and that first-
to-market was the key to success. There was therefore a lack of planning and learning,
which meant that little attempt was made to ditch the initiatives that were not succeeding
and focusing more resources on those that were doing well.
 Strategic management some research attention has focused on the role of top
management in the eventual success of NPD. Over twenty years ago, the well-cited
Stanford Innovation Project (Maidique and Zirger, 1984) found new product successes to
be characterized by a high level of top management support, as did the work of Hart and
Service (1988). They surveyed attitudes and opinions of company managers to product
design, and identified the managerial orientations which are most consistent with
successful performance. A 'balanced' managerial orientation which combines technical
and design commitment with marketing inputs is found to be most closely associated
with superior competitive performance. Diageo hired an 'innovation director' to lead a
drive in new product development which covers brand development (Marketing Week,
January 2005, p.8. Cooper and Kleinschmidt (1987) found less proof of top management
influence, discovering that new product failures often do have the support of top
management too. An example of this is the case of Essilor, the company responsible for
Varilux lenses, first launched in 1959. In the 1970s, the firm started to develop a
composite glass and plastic material which, if successful, would be lightweight, shatter
resistant and light sensitive. This project, which was technic- ally difficult from the outset
and costly, had the full backing of the CEO. Despite early technical difficulties, much
money was poured into the project which failed early pilot tests, experienced higher than
predicted production costs and frustrated opticians, the key customer group. The entire
project was allowed to drift on until September 1990, when it was finally withdrawn after
investment of more than $50m (Royer, 2003). One of the most important roles which top
management have to fill is that of climate setting by signaling the nature of the corporate
culture to the rest of the organization (McDonough, 1986; Gupta, Raj and Wilemon,
1986; Gupta and Wilemon, 1988; Goltz, 1986). In some cases it is necessary for the firm

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to change its philosophy on NPD, in turn causing a change in the whole culture. Nike's
NPD process changed dramatically during the 1990s. Previously they believed that every
new product started in the lab and the product was the most important thing. This
developed into the belief that it is the consumer who leads innovation and the specific
reason for innovation comes from the marketplace. The reason for this change was the
fierce competition that has developed in recent years within the athletic shoe industry so
that product innovation no longer led to sustained competitive advantage. More emphasis
was then put on research and targeting smaller groups of individual customers, with the
emphasis changing from push to pull NPD. More recently, research by Wei and Morgan
(2004) in China has shown that the relationship between organizational climate and new
product performance is in fact increased if climate affects market orientation. In other
words, the climate of the firm affects how those responsible for NPD respond to the
changing market conditions, which in turn affects the performance of NPD. An example
of the importance of climate affecting how companies' innovation unfolds is that of
Polaroid. Although the company recognized the threat of digital technology and, indeed,
began to invest in the area in the early 1980s, the climate for R&D and engineering
remained one where long product development cycles were prevalent (Andrew and
Sirkin, 2003). In addition, Polaroid made all components of their cameras, requiring skills
that were irrelevant for the digital market. The first digital camera was launched in 1996,
the PDC-2000. It was technically sophisticated and aimed at commercial photographers,
but retailing at between three and five times the price of competitors' products. Based on
its own high-cost manufacturing borne of a climate of a long product development and
life cycle which required in turn, long periods to return the investment, the market entry
price was too high to sustain.

IMPORTANT CULTURAL FACTORS TO ENCOURAGE NPD

In general an entrepreneurial culture is most effective in achieving successful NPD.

According to Peter Senge (1990), a management expert at MIT, several factors must be present
in the culture to encourage 'generative learning' as he calls NPD.

1. Encourage experimentation.
2. Make specialists generalists.
3. Break down hierarchies.
4. Unstick information.
5. Make time to think.

All these strategies concentrate on process rather than product - if organizations are set up
to create rather than react, new products should follow. Closely aligned to the notion of climate
creation is the responsibility which top management has for the overall organizational structure,
which is a research theme in its own right and will be discussed in the next section.

ORGANIZATIONAL STRUCTURE

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In this section the overall or strategic structures of an organization are of concern, rather
than the specific team structures that might be put in place for a given program of new product
development. Similarly, in considering organizational styles, Rothwell and Whiston (1990) lean
toward flexibility, advocating an organic style of organization which:
 is free from rigid rules is participative and informal
 has many views aired and considered
 has face-to-face communication: little 'red tape'
 has interdisciplinary teams: breaking down departmental barriers
 puts emphasis on creative interaction and aims
 is outward looking: willing to take on external ideas
 has flexibility with respect to changing needs, threats and opportunities
 is non-hierarchical
 has information flowing downwards as well as upwards.

Project- (task-) related issues

The brief review of strategic issues above shows how the way in which the whole
organization functions can have an effect on the success or failure of new products. However, the
way in which any one specific project is executed, the people involved and the role of
information are instrumental in its outcome.

NPD process

The process of new product development involves the activities described above. Over
the past 25 years or so, much research has been conducted to identify what steps comprise the
efficient execution of the development process, or particular activities within the development
process which are critical to new product success (Cooper, 1979, 1980; Cooper and
Kleinschmidt, 1987; Maidique and Zirger, 1984; National Industrial Conference Board, 1964;
Rothwell et al., 1972, 1974; Griffin, 1997). While it may be desirable to have a complete process
of NPD, each additional activity extends the overall development time and may lead to late
market introduction. There can be a price to pay for late market introduction as it allows
competitors to establish a foothold in the market. Therefore a trade-off has to be made between
completing all the suggested activities in the NPD process and the time which these activities
take, an observation which has led to modifications of the models of process to allow them to be
undertaken with greater speed. In the 1980s the concept of 'parallel processing' was put forward
(Cooper, 1988, p. 246) with advantages such as the reduction of time-to-market, a smoother
transition between phases and therefore avoidance of the bottlenecks which often occur in a
sequential process (Takeuchi and Nonaka, 1986), and a number of 'soft' advantages relating to
those involved, such as shared responsibility, cooperation, involvement, commitment, sharpened
problem-solving focus, initiative, diversified skills and heightened sensitivity toward market
conditions.

People

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People involved in the NPD process and the way in which they are organized are critical
factors in the outcome of new product developments. As far back as the ‘The Stanford
Innovation Project, Maidique and Zirger (1984) identified functional co-ordination as a critical
factor contributing to the development of successful new products. Support for the importance of
functional co-ordination continues in the work of, among others, Pinto and Pinto (1990), Maltz
and Kohli (2000) and Maltz et al. (2001). The close relationship between functional co-
ordination and an integrated set of NPD activities has already been emphasized, including the
reduction of the development cycle time, cost savings and closer communication so that potential
problems are detected very early on in the process. One particular interface has attracted much
attention in NPD research: the R&D/Marketing Interface (Bond et al., 2004).

A host of issues are mentioned in the literature which relate to the integration of the R&D
and marketing functions. These include the organizational climate (Gupta, Raj and Wilemon,
1986); the need for R&D and marketing personnel to be more adaptive to each other (Lucas and
Bush, 1988) for which 'role swapping' may play an important part (Souder, 1988). The key
notion within all of the methods of achieving R&D/marketing integration is that R&D and
marketing managers must work together to solve the disharmony in their relations. An interesting
contribution from Souder (1988) presents seven ways they should: in which the managers should
try to achieve integration. In Souder's words
1. make personnel aware that interface problems naturally occur
2. make personnel sensitive to the characteristics of disharmony
3. give equal praise to both functions
4. continuously reinforce their desire for R&D and marketing collaboration
5. use teams of R&D and marketing personnel at every opportunity
6. solve personality clashes ASAP
7. avoid complacency - too much harmony is a bad thing.

The precise mechanisms that might be used to enhance cross-functional integration will
be given attention later in the chapter but one major factor in integration is the sharing of
information.
Information

The role which information can play in facilitating an efficient NPD process and
achieving functional co-ordination is implicit in the literature on success in NPD. This is the last
factor from Figure 6.5 which emerges as crucial to successful NPD projects.

The NPD process is often viewed as one in which uncertainties are inherent (Rothwell
and Robertson, 1973; Goldhar, Bragaw and Schwartz, 1976; Souder and Moenaert, 1992). These
uncertainties require information inputs which are then converted by those involved (ideally the
relevant functions) into information outputs which are deemed to reduce the uncertainty if the
process is to proceed further. Uncertainty has many dimensions, however. At the beginning of
the NPD process uncertainties regarding the optimal technological solution to a particular
problem abound, as does uncertainty about which of the technological solutions will be adopted
by the market. As the NPD process moves on, though, these uncertainties may be somewhat
reduced, although new kinds of uncertainties arise, such as those related to manufacturing,

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delivery and specifics of marketing such as final designs of the product, pricing and so on.
Research by Tzokas, Hart and Saren (2001) identified seven types of uncertainty kinds in their
research:

1. Customer need uncertainty

• How stable is the need in the long run?
• How strongly is it felt by customers?
2. Market-based uncertainty
• Is the market big enough?
• Do we have access to distribution?
• Do we have experience in this market?
3. Technological uncertainty
• Can the chosen technology deliver the benefit?
• Will the chosen technology become the standard?
• Do our people have good knowledge of the chosen technology?
• Which OEMs and/or suppliers should we collaborate with?
4. Competitive uncertainty
• What will be the reaction of our immediate competitors?
• What would be the new competitive products?
• What is the threat of other technologies from other industries?
5. Resource-based uncertainty
• Do we have the resources to complete the project on time?
• Do we have the resources to support the product in the market?
6. Product strategy uncertainties
• What would be the effect on other products in the firm?
• What would be the effect on resources for other NPD projects?
7. Organizational uncertainties
• Do we have the support of top management?
• Are there any interdepartmental conflicts?

Information, therefore, is a base currency of the NPD process; evaluative information is

crucial and must be efficiently disseminated to facilitate communication.
IMPLICATIONS OF THE SUCCESS AND FAILURE LITERATURE FOR THE
PROCESS: FOCUSING ON THE PROCESS AND THE PEOPLE

Why the process and the people involved are crucial

As mentioned above, both are related to three of the most commonly cited critical success
factors in NPD:
1. The need for interdisciplinary inputs. In order to combine technical and marketing
expertise, a number of company functions have to be involved: R&D,
manufacturing, engineering, marketing and sales. As the development of a new
product may be the only purpose for which these people meet professionally, it is
important that the NPD process adopted ensures that they work well and
effectively together.

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2. The need to develop product advantage. Technical and market information, which
are building blocks of NPD, have to be both accurate and timely, and must be
constantly reworked in the light of changing circumstances during the course of
the development to ensure that the product under development does have
competitive advantage in the eyes of the customer. Therefore the people must
deliver the appropriate expert information to inform the process.
3. The need for speed in the process. The NPD process has to be managed in such a
way as to be quick enough to capitalize on the new product opportunity before
competitors do. The extent to which people work together enhances the speed of
the process.

MANAGING THE PEOPLE IN NDP

Our understanding of what makes product successful suggests that developing product
advantage is crucial. Product advantage is achieved not merely by technological progress, but by
making technologies relevant to user needs. Therefore, if new product development were a task
carried out with expertise in marketing only, it might not work properly, whereas if the task were
carried out by R&D only, the resultant product might not meet user needs in any way. It follows,
then, that it is critically important for firms to have structures which allow not only for
professional specialism and expertise, but also for sharing information across disciplinary
boundaries to ensure the development is fulfilling both sides of the success mandate:
technological competence and market relevance.

Bureaucratic control
This is the most formalized and centralized and the least participative mechanism, where
a high-level general manager co-ordinates activities across functions and is the arbiter of
conflicts among functions. Each functional development directives, and therefore most
information flows vertically within each department. In such a mechanism, the different
functional activities work sequentially on the developing product.

Individual liaisons
Individual liaisons their counterparts in other departments. Therefore they supplement the
vertical Individuals within one functional department have to communicate directly with
communication found in bureaucracies.

Integrating managers
In this co-ordination structure, an additional manager is added to the functional structure,
responsible for coordinating the efforts of the different functional departments, but without the
authority to impose decisions on those departments. Thus, such integrating managers have to rely
on persuasion and on their ability to encourage group decision making and compromise to
achieve successful results.

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Matrix structures
Whereas all the previous mechanisms maintain the primacy of the functional
departmental structure, a matrix organization structures activities not only according to product
or market focus, but also by function. Thus, individuals are responsible to both a functional
manager and a new product manager. Beside these, two newer structural forms have appeared in
order to improve the timeliness and the effectiveness of the product development efforts within
rapidly changing environments. These forms are design teams and design centres.

Design teams
Like the matrix structure, design teams are composed of a set of functional specialists
who work together on a specific NPD product. The difference is that such teams tend to be more
self-governing and have greater authority to choose their own internal leader(s) who have more
autonomy to establish their own operating procedures and to resolve internal conflicts.

Design centres
These centres have many of the same characteristics as a design team. However, such a
centre is a permanent addition to an organization's structure, and members of the centre are
involved in multiple development projects over time.

SUMMARY

As an introduction to the section on new product development, this chapter has outlined
the evolution of NPD models and described the main tasks involved in the process of developing
new products. Research on success and failure in new product development was then reviewed in
order to point out those critical issues which developers of new products must manage actively if
their efforts are to be successful. Finally, the chapter discussed some of the key structures used to
organize NPD activities.

QUESTIONS

1. Summarize the evolution of new product development models. What factors have
encouraged this evolution?
2. Argue the case that new product development models are useless as guides for new
product development managers.
3. Summarize the success factors in NPD and choose and justify those you feel are most
important.
4. What lessons from the success factors need to be taken account of when designing new
product processes within a company?

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5. What lessons from the success factors need to be taken account of when organizing for
new product development?

References:

Dr. Anandan, C.(2006) Product Management 2 nd ed. Tata McGraw Hill Education Private
Limited

Product Management in Practice : A Real World Guide to The Key Connective Role of the 21 st
Century by Matt LeMay 2018

Michael Baker and Susan Hart (2007) Product Strategy and Management Second Edition

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