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Transcript
An executive summary
for managers and
executive readers can
be found at the end of
this article
Global markets and the new
product development process
Rama Yelkur and Paul Herbig
Introduction
New product introduction in today’s technology-driven markets carries
significant risk. New product failure rates can be as low as one out of every
three products (Antil, 1988) or as high as the 90 percent of new grocery
products which are withdrawn within a year of their introduction. New
technology, improved communications, increased profit demands and shorter
product life cycles have added to the inherent risk (Rosenau, 1988). Yet,
without the introduction of new products, deterioration of the firm’s market
position is inevitable (if you stop growing, you start dying!). Without new
products, firms will inevitably stagnate. Initial or early entry of new
products, on the other hand, can result in new market development, longterm market dominance, and foreclosure of competitors’ responses
(Crawford, 1988). Failure to respond to competitive new product
introductions with appropriate speed can result in late market entry, a
permanent loss of market share and dissipated profits (Kotler, 1988).
Timely and responsive new product development has become even more
critical in the highly competitive global environment. The need to respond
quickly to these dynamic global market forces requires the firm to integrate
rapidly the perspectives and needs of both product developers and potential
consumers (Barton and Krause, 1985). However, working against timeliness
is the traditional new product development process, which is sequential, with
each stage following in logical order (Sommers, 1982). An analogy of the
traditional method is the relay race, which requires a smooth transition from
runner to runner (i.e. one group of functional specialists passing the baton to
the next group). Any lack of communication between various departments in
the early stages of product development can be fatal to the success of the
project as a whole.
Concurrent marketing
The solution to the obstacles presented by the traditional linear model is
concurrent marketing, which is becoming common in the new product
development efforts for many corporations (Kochan, 1991). Today’s
metaphor for new product development is the team sprint: teammates in a
sprint can run at the same time, in the same race. Communication is
unhindered and unbroken as teammates do not have to wait until the batonpass to see and talk to each other. For global markets, in order to ensure
success, this product development sprint needs to be combined with the
knowledge of the international target markets. The purpose of this article is
to explain the globalization of new products with the help of a global new
product development model. The model suggests that the joint functioning
of engineering, marketing, market research, R&D and management is
essential, right from the idea generation stage of product development.
Globalization
Levitt (1983) pioneered the concept of globalization, asserting that in an era
of global competition, the marketing strategy of successful companies is
evolving from offering customized marketing mixes to each individual
country market toward that of offering a single standard market mix on a
38
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 5 NO. 6 1996 pp. 38-47 © MCB UNIVERSITY PRESS, 1061-0421
global basis. Although the promotional aspects of globalization have been
widely discussed, the global product strategy development side has been
long ignored. However, increasing interest in the strategic linkages between
product policy and manufacturing have been observed (e.g. Cohen and
Zysman, 1987; Hayes and Wheelwright, 1979).
A holistic method
With the aggressive competition from European and Japanese multinational
firms that emphasize concomitant manufacturing, US firms have realized
that product innovations alone cannot sustain their long-term competitive
position without a product policy linking product and manufacturing process
innovations (Wheelwright, 1985). Progressive companies worldwide are
increasingly using a holistic method, the sprint method – as in rugby, the ball
gets passed within the team as it moves as a unit up the field (Takeuchi and
Nonaka, 1986). Today’s global competition represents a fiercely competitive
environment in which importance is placed on increasing returns to scale
and lowering production costs (Kotabe, 1990) and at the same time requiring
speed and flexibility.
The traditional new product development process
The traditional new product development process consists of eight stages:
idea generation, screening, concept development and testing, marketing
strategy, business analysis, product development, market testing and
commercialization. Ideas are generated and screened and the surviving ideas
are developed into product concepts. A product concept is an elaborated
version of the idea expressed in meaningful customer terms. During this
stage, the product ideas that form the new product implementation list must
be defined more precisely. The ideas must emerge into well-formulated sets
of attributes designed to appeal to specific sets of customers. These
attributes (at least tangible ones) must be transformed into detailed design
blueprints. For this to occur, four major tasks must take place. First, product
designs and/or models must be made available to manufacturing and to the
team for preliminary market testing. Second, market acceptance studies on
current product ideas must be finalized. Third, customer segments must be
identified and target markets selected. Fourth, production studies must be
initiated (Bingham and Quigley, 1989).
Market strategy
In the market strategy stage, the idea has completed its transformation into a
physical product. Technical and design problems are resolved and consumer
reaction is gauged in order to develop entry strategies. During this stage,
emphasis shifts from technical to market concerns as the product approaches
commercialization. The three major tasks to be accomplished during this
stage are:
(1) Refine the manufacturing process so as to be in a position to introduce
the product.
(2) Quality suppliers must be identified and material arrangements verified.
(3) Refine diagrams and design prints in preparation for market testing,
market simulations, or market entry (Bingham and Quigley, 1989).
Once management develops the product concept and the marketing strategy,
it can evaluate the business attractiveness of the proposal (Kotler, 1988).
Business analysis can be viewed as the dividing line between exploration
and commitment. An idea is deemed appropriate to company mission and
strategy after reviewing the sales, cost and profit projections.
If the product concept passes the business test, it moves to R&D and/or
engineering to be developed into a physical product (Kotler, 1988). The new
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 5 NO. 6 1996
39
product is now translated into a concrete tangible entity (Bingham and
Quigley, 1989). This may entail the creation of computer based models (e.g.
CAD systems) or the fabrication of physical models. After the management
is satisfied with the product’s functional performance, the product is ready to
be dressed up with a brand name, packaging and a preliminary marketing
program, to test it in the market in more authentic consumer settings.
Prototypes that survive the product development stage but do not yet meet
the criteria to proceed to commercialization enter the test market stage
(Bingham and Quigley, 1989).
A physical reality
A product idea has been transformed into a physical reality. The organization
has marshaled its resources and committed to send the product out into the
marketplace. Manufacturing has started; engineering is supporting
manufacturing, and production control is ensuring that production schedules
are keeping up with demand. Marketing is aggressively pursuing necessary
advertising and promotional campaigns to stimulate future sales and is
interacting with intermediaries to obtain cooperation (Bingham and Quigley,
1989).
Globalization of products
Responding to customers’ demands for more and better products, businesses
worldwide are revitalizing the process of new product development, to
ensure that the right product gets to the market quicker, at the right time, and
at the right price. To be successful, global new product development cannot
be a rigid step-by-step process, it has to be dynamic and simultaneous, as in
the rugby or sprint example. To achieve this, companies are adopting an
approach known as simultaneous engineering, parallel engineering, or
concurrent engineering. Simultaneous engineering is the means of reducing
product development time because it compresses the conventionally
sequential product development process so that many of the development
stages take place simultaneously. Central to the methodology is a
multidisciplinary team in which all those different specialists who work on
the same product development project operate simultaneously, at all times
having access to the same information (Kochan, 1991). This is an essential
requirement in the development of standardized global products.
A global marketplace
The marketplace is increasingly becoming global and there are indeed many
successful global products. Among consumer durables, the Mercedes car is a
universal product. Among the non-durable goods, Coca-Cola is ubiquitous.
Among industrial goods, Boeing jets are sold worldwide as a global product
(Jain, 1987). As a result of this globalization, many companies have
discovered that it takes more than the accepted basics of high quality, low
cost, and differentiation to excel in today’s highly competitive multinational
markets.
Global new product development process
With the traditional product development process, functions were
specialized and segmented: the marketing people examined customer needs
and perceptions in developing product concepts; the R&D engineers selected
the appropriate design; the production engineers put it into shape; and other
functional specialists carried the baton at different stages of the race
(Takeuchi and Nonaka, 1986). The global new product development process
requires a constant interaction between various departments so that problems
can be identified in the early stages of the process; the traditional process
will not work. Instead, the new product development team has members
40
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 5 NO. 6 1996
from engineering, marketing, and management who work hand-in-hand in
developing global new products (see Figure 1).
Adaptation is essential
Idea generation and screening – revised
Good communication skills and empathy for customer needs are the skills a
successful engineer can bring into the new product development. The
engineer should thus get more involved in the idea generation process,
especially with a global product, in order to avoid disparities between
concept and design. Engineering must assess the technical feasibility and the
production resources required to implement the ideas (Bingham and
Quigley, 1989). Manufacturing requirements cannot be incorporated without
identifying the different worldwide target markets. Marketing and marketing
research can make useful contributions regarding the nature and size of the
target markets, the relevant product-related cultural factors, the usage
situations and lifestyles. For example, Japan makes right-hand drive cars for
the European market and left-hand drive cars for the US market, even
though technically the product is standardized. The success of McDonald’s
in Moscow only proves that global products can be standardized but
adaptation to different cultures is essential for success.
The input from the customers’ viewpoint can be augmented by an engineer
with the skill to wear the shoes of the customer and anticipate customer
needs. So, both identifying and assessing the nature of the target markets and
inducting the manufacturing requirements into the product development
process should be done almost simultaneously at this stage. Management
performs the control function here, and ascertains that the product ideas and
designs do not deviate from the company’s inherent objectives.
Three interacting factors
At this stage ideas are eliminated and narrowed down based on three
interacting factors:
(1) feasibility in terms of product design (engineering),
(2) suitability of the product for the desired target markets (marketing), and
(3) adherence to company objectives (management).
Concept development and testing – revised
In the traditional development process, target markets are identified only
after the generation and screening stages have demonstrated the product’s
suitability. But in a highly competitive international market, target markets
are already identified in the previous steps. Steps become overlapped, which
Engineering
• Design and development
of the product
Global new product
development
Marketing
• Target markets
• Cultural differences in markets
and comsumption patterns
Management
• Adherence to
company objectives
• Lifestyles
Figure 1. The new product development team
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 5 NO. 6 1996
41
shortens the product development process. This stage involves marketing
research, engineering, research and development, and management working
together to develop preliminary models (Bingham and Quigley, 1989); or
drafts of those initial ideas that have feasibility at face value.
At this point it is necessary to assess financial feasibility of the product:
details of production capacity, raw materials required, markets expected to
be served, and the channels of distribution. Most important, detailed
blueprints of the product design should be submitted to the finance
department in order for them to estimate the cost of production and estimate
profits.
This procedure further narrows the number of possible new products (to
possibly just one). Finance enters the global new product development
process early. The advice and counsel of a financial expert can prevent the
misdirected waste of valuable time and resources.
Overall business strategy
Market strategy development and business analysis
A company’s approach to global marketing depends, first, on its overall
business strategy. In many multinationals, some functional areas have
greater program standardization than others. Headquarters often controls
manufacturing, finance and R&D, while the local managers make the
marketing decisions. Marketing is usually one of the last functions to be
centrally directed (Quelch and Hoff, 1986). Many multinationals are
coordinating their marketing programs through headquarters in spite of
testing the product in all representative markets. While working to achieve
global coordination, some companies are also trying to tighten coordination
in particular regions (Kodak, Proctor & Gamble) (Quelch and Hoff, 1986).
Products that enjoy high scale economies or efficiencies and are not highly
culture-bound are easier to market than others (Quelch and Hoff, 1986).
Manufacturers’ and R&D scale economies can result in a price spread
between the global and the local product that is too great for even the most
culture-bound customer to resist.
“Product innovation orientation” in the USA has led to undue emphasis on
research-intensive product innovations. This concern for the development of
competitive advantage may lead to the neglect of improvements in products
and in the manufacturing process. Process innovations become more and
more rewarding, in terms of returns, as the degree of product innovation
increases. Additionally, firms that follow a policy of product standardization
place greater emphasis on product and process innovations.The markets for
high-tech products like computers are not only very competitive but also
affected by technological change (Quelch and Hoff, 1986). Rapid
technological changes bring about marked product or process design
changes and today’s global competition represents such a competitive
environment. A product’s technological superiority alone may be of shortlived economic significance unless it is backed by complementary process
capacities. These enable the firm to capture returns from product innovations
for a longer period of time. Thus, the interactive nature of product design
and manufacturing process has become increasingly crucial to maintain
market performance (Utterback, 1987). In the market strategy stage process
innovations are vital, i.e. adequate attention should be paid to the
manufacturing process leaving some room for minor adaptations to different
international markets.
42
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 5 NO. 6 1996
Product development and market pretest
Product development is achieved by adopting all the previous steps, because
R&D and engineering actively participate right from the early stages of the
product development process. If there are certain components that can be
outsourced at lower costs, these possibilities might be considered at this
stage.
Laboratory pre-test
models
Laboratory pretest models designed to forecast sales and market share for
new products have been implemented in many organizations (Urban and
Katz, 1983). Laboratory pretests are essential, especially in global
marketing, to reduce chances of failure. If major problems are detected, it is
not necessary to go through the expensive and tedious process of a market
test. The product can be dropped at this stage without incurring heavy losses.
Market testing
If the product passes the product development and pretest successfully and
still seems a profitable prospect, then it is put through the test market
process. Testing the product in all representative markets is an expensive but
essential step in global product development. The products that successfully
pass the laboratory pretest should be subjected to international test markets.
If the product is not feasible in certain nations, then the target market can be
narrowed down by eliminating such markets. This type of market test in
each representative market would help prevent extensive losses in the long
run.
Product introduction
The final step in global product development is the decision as to whether or
not to introduce the product in each of the markets considered. At this point,
with the intense involvement of engineering in process development, it
should be clear to the global marketer whether to introduce the product; and
which markets should receive a concentrated effort.
Successful product innovations introduced into diverse markets require
constant monitoring if a firm hopes to maximize the product’s contribution
to the overall performance of the firm. Where the new introduction enjoys a
great deal of acceptance and popularity, it becomes necessary to follow the
introduction with improvements in production and distribution processes.
Failure to achieve heights of efficiency offers an opportunity for competitors
to gain in the battle for market share (Kotabe, 1990).
Market segmentation
Conclusion
There is no question that we are witnessing global competition. This is
especially true for industrial products such as steel and chemicals (Sheth,
1986). However, global competition has often been mistaken for global
markets. In other words, success of foreign companies doing business in the
domestic markets is probably due to factors other than an emerging
universality of consumer needs and wants. Consumers inevitably demand
more choices, and the result is market segmentation or fragmentation. This
divergence of consumption values is not limited to the advanced countries
but is also prevalent in socially controlled, traditional societies such as India
and China (Sheth, 1986).
Global marketing has its pitfalls, but it can also yield impressive advantages.
Standardizing products can reduce operating costs. Even more important,
effective coordination can exploit a company’s best product and marketing
ideas (Quelch and Hoff, 1986). In this article, we argue in favor of the
standardization of global products and processes. Proponents of the
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 5 NO. 6 1996
43
“standardization” approach to international marketing claim that it offers
benefits in terms of increasing managerial control, reducing costs,
simplifying strategic planning efforts, and taking advantage of home-country
headquarters expertise. While proponents of the “localized” or “adaptive”
approach to marketing strategies argue their position by differentiating
voluntary (the marketing mix variables controlled by the international
marketer) from compulsory (legislative and regulatory intervention by host
country governments) modifications. According to Kotabe (1990),
standardization is more effective than adaptation, because it gives the
marketer an edge over other competitors in terms of time and money.
Because a standardized marketing program is superior in quality to what
localized approaches can accomplish, even with the benefit of local market
knowledge, executives may welcome it (Quelch and Hoff, 1986).
The issue discussed in this article was the integration of the global marketing
concept with the new product development process. The authors have
attempted to provide a framework for the new product development process
in view of the increasing globalization of markets. Basically, the product
development process was derived from the traditional new product
development process which consists of a specific stage-by-stage approach.
For global markets concurrent engineering helps integrate a few of these
stages, and shorten the new product development process. Also, there are
varied views on the issue of standardization of products for global markets.
It brings about some uniformity while catering to diverse markets.
References and further reading
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Barton, D.L. and Krause, W. (1985), “Implementing new technology,” Harvard Business
Review, Vol. 63, November/December, p. 103.
Bingham, F.G. and Quigley, C.J. (1989), “A team approach to new product development,” The
Journal of Consumer Marketing, Vol. 6, Fall, pp. 5-14.
Booz, Allen & Hamilton (1982), New Products Management for the 1980s, Booz, Allen &
Hamilton, New York, NY.
Calatone, R.J., DiBenedetto, A.C. and Haggblom, T. (1995), “Principles of new product
management: exploring the beliefs of product practitioners,” Journal of Product
Innovation Management, Vol. 12 No. 3, June, pp. 235-47.
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Innovation Management, Vol. 12 No. 3, June, pp. 214-23.
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Cohen, S.S. and Zysman, J. (1987), “Why manufacturing matters: the myth of the postindustrial economy,” California Management Review, Vol. 29, Spring, pp. 9-26.
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Khuri, F.P. and Plevyak, H.M. Jr (1994), “Implementing integrated product development: a
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Levitt, T. (1983), “The globalization of markets,” Harvard Business Review, Vol. 61,
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Nijssen, E.J., Arbouw, A.R.L. and Commandeur, H.R. (1995), “Accelerating new product
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Ranney, J. and Deck, M. (1995), “Making teams work: lessons from the leaders in new product
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Rosenau, M.D. Jr (1988), “Speeding your new product to market,” The Journal of Consumer
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Vol. 3, Spring, pp. 9-11.
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(Rama Yelkur and Paul Herbig are in the Marketing Department, Texas A&M International
University, Laredo, Texas, USA.)
■
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 5 NO. 6 1996
45
This summary has been
provided to allow
managers and executives a
rapid appreciation of the
content of this article.
Those with a particular
interest in the topic
covered may then read the
article in toto to take
advantage of the more
comprehensive
description of the research
undertaken and its results
to get the full benefit of
the material presented
Executive summary and implications for managers and
executives
Global new product development: making it work
“Global new product development cannot be a step-by-step process” say
Yelkur and Herbig in propounding a system predicated on running the
various elements of new product development in parallel. Not just
concurrent engineering, where prototype and manufacturing process
development occur together, but “concurrent marketing” where the “soft”
side of product development – target market analysis, strategy creation and
evaluation – also overlap. And at the heart of this process lies that
increasingly familiar animal – the multidisciplinary team.
Is this approach to new product development an academic pipe dream or
can businesses really concertina the meticulous traditional approach to
product development into a more dynamic approach? Or will we find that
businesses begin to opt for the easily achievable in their search for product
advantage? Yelkur and Herbig don’t answer these questions but do
demonstrate the compelling logic of the simultaneous approach to product
development. After all, there is no reason why target market definition and
assessment should follow the initial prototyping process. Such an approach
is often favored by engineers in high-tech businesses – we’ll invent the new
products and chuck them to marketers who will sell them.
However, many businesses would challenge Yelkur and Herbig on their
description of the “traditional” new product development process.
Especially in industrial markets, new products are frequently driven by the
requirements of customers’ processes rather than the daydreaming of design
engineers. Customers report problems needing attention or gaps that need
filling and, ideally, this feeds back to the design team. From here, it is a
simple step to see how problems and issues in consumer markets can flow
back but only if the business understands its markets.
Today, computer technology and other advances make the step-by-step
approach faster – virtual prototyping, customer databases, expert systems
and modeling techniques all mean that a previously long-winded and
expensive process becomes easier and cheaper. Time to market is falling and
the product life cycle reduces making managing a manufacturing business
an endless search for new products and improved processes. It is no longer
the case that a business can create a product, sell it for a few years while it
develops the next one and then launch that as a replacement. Product
extensions, additional features and better quality are all expected by
consumers during the life of a product, and the business failing to provide
these advances will struggle. Sadly, the strain of delivering these continuous
improvements often means the entirely new is neglected.
Yelkur and Herbig go on to argue that the emerging global market means
that even this more efficient traditional process will not deliver. Not only are
there more competitors, but the speed of competitor reaction means that
businesses must launch products on an all or nothing basis – gone are the
days when a new product could be launched in one market and then rolledout into other markets around the world. Ford, with its concept of a world
car, knows that it cannot afford to spend the sums necessary to develop new
products without that product providing sales worldwide. As Yelkur and
Herbig observe, the companies that succeed do so on the basis of
standardized products with tweaks rather than a multitude of variations
supposedly to suit individual markets. Japanese motor manufacturers may
make right-hand drive cars for their home market and the UK, but they also
have to make left-hand drive for their other markets. Other changes are
46
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 5 NO. 6 1996
needed as well, both to accommodate legal variations and the particular
preferences of different markets. However, at the heart it is the same vehicle
using the same parts. The same principle applies across other products.
The model proposed by Yelkur and Herbig acknowledges the demands of
modern business by using the idea of a cross-functional team as the lever for
a new product development process based on doing the various tasks of new
product development simultaneously (at least so far as is possible). Clearly,
such an approach must significantly reduce the time involved in new product
development. What follow here are some practical suggestions for businesses
looking to implement this concurrent product development approach:
•
Set up systems to gather customer intelligence – complaints, usage
patterns, structured feedback and orthodox market research can all
inform the idea generation process.
•
Prepare a brief for idea generation based on customer benefits rather
than features. Remember that simply creating new features can add to
consumer confusion rather than provide real benefits.
•
Develop internal information systems allowing for the sharing of data.
Without a decent management information system the concurrent
approach will founder. All the information regarding a project should be
available to all involved. Barriers built on technical or intellectual
prejudices are dangerous since they lead to inappropriate products
developed in a void.
•
Give the new product team ownership of the project right through to
production and make sure they are given recognition when the new
product succeeds. Take a leaf out of Toyota’s book and encourage
individuals or groups to work on their ideas on company time. Don’t
limit idea generation to so-called product development specialists or
senior management.
•
Encourage employees to comment on your products – in many consumer
businesses these workers are also customers and perhaps have a better
grasp of customer issues than isolated senior management.
•
Don’t overlook the service elements of the product or the distribution
channel. Poor service or inadequate distribution are common causes of
product failure. Involve customer service and logistics professionals in
the team rather than expecting them to trot along later with a perfect
solution to distribution and customer care problems. Such processes are
as important as the manufacturing process itself.
•
Avoid the (understandable) view that financial management is there to
sign the cheques. Financial quality and efficiency could make or break a
product, especially in the development and launch phases. Make sure
finance buys your projections and prognostications – if they don’t they
will pull the plug.
•
Try not to be rigid in applying the process. It is not an improvement to
replace a rigid step-by-step approach with a rigid concurrent marketing
approach. Each project needs its own dynamic and its own priorities,
and these are best set within the project team rather than imposed from
outside.
If you do these things I’ll not promise universal success but you will stand a
better chance of making Yelkur and Herbig’s ideas work, and by doing that
you’ll hopefully prosper in a competitive world.
(A précis of the article “Global marketing and the new product development
process”. Provided by Marketing Consultants for MCB University Press.)
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 5 NO. 6 1996
47