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Chapter 7
New Product Planning and
Development
Key Terms
New Product Strategy, Market Penetration, Product
Development, Market Development, Diversification, Additional
Profits, Increased Growth, Cyclical Stability, New Product
Planning, New Product Development Process, Out-rotation,
Strategic Risk, Market Risk, Internal Risk, Skunkworks, , Rugby
or Relay Approach, Cross-functional Teams, Time to market,
Warranty, Guarantee, Product Feature
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Additional Facts About New
Products
 Many new products are failures, ranging from 33
percent to 90 percent, depending on the industry
 Sales of new products potentially provide a large
boost to the company’s growth rate
 Companies vary widely in the effectiveness of their
new product programs
 A major obstacle to effectively predicting new
product demand is limited vision
 Common elements appear in the management
practices that distinguish the relative degree of
efficiency and success between companies
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Additional Facts About New
Products
 Inability to satisfy customer needs can be attributed
to three main sources:
 Inadequacy of upfront intelligence efforts
 Failure on the part of the company to stick close to
what the company does best
 Inability to provide better value than competing
products and technologies
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New Product Strategies
 New-to-the-world products – Products that are new
inventions
 New category entries – Products that take the firm
into a new category, but are not new to the world
 Additions to product lines – Products that are line
extensions or flankers to the current markets
 Product improvements – Current products made
better
 Repositioning – Products retargeted for new use or
application
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New Product Strategies
 Developed by H. Igor Ansoff in the form of growth
vectors
 Market penetration – Growth direction through
increase in market share for present markets
 Product development – Creating new products to
replace existing ones
 Market development – Finding new customers for
existing products
 Diversification – Developing new products and
cultivating new markets
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New Product Strategies
Organizational Growth Strategies
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New Product Strategies
 Policy-making criteria on new products should
specify
 Working definition of profit concept acceptable to top
management
 Minimum level or floor of profits
 Availability and cost of capital to develop a new
product
 Specified time period for recuperating operating
costs and contributing to profits
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Factors Associated with
New Product Success
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The New Product Development
Process
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Idea Generation
 Every product starts as an idea
 Most ideas do not become products
 Idea generation – Requires recognizing available
idea sources
 Least expensive step in new product development
 Top-management support – New product development
must focus on meeting customer needs
 Technology push and market pull research activities
play an important role
 Out-rotation – Involves placing employees in positions
that require direct contact with customers, competitors,
and other key outside groups
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Idea Screening
 Strategic risk – Risk of not matching the role of a new
product with a specific strategic need
 Market risk – Risk that a new product won’t meet a
market need in a value-added, differentiated way
 Internal risk – Risk that a new product won’t be
developed within the desired time and budget
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Idea Screening
 Strategic alliance – A long-term partnership between
two organizations designed to accomplish strategic
goals of both parties
 Potential benefits of strategic alliances include
 Increased access to technology, funding, and
information
 Market expansion and greater penetration of current
markets
 De-escalated competitive rivalries
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Project Planning
 Analyze the proposal in terms of production, marketing,
financial and competitive factors
 Establish a development budget with preliminary
marketing and technical research
 Create a “rough form” product
 Alternative product features and components specified
 Create a project plan with estimated costs, capital
requirement, and manpower needs
 Review the project plan with top management
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Project Planning
 Two better-known methods for creating and managing
project teams include
 Skunkworks – A project team can work in relative
privacy away from the rest of the organization
 Rugby or relay approach – Groups in different areas of
the company are simultaneously working on the project
 A key component contributing to the success relates
to the emphasis placed on creating cross-functional
teams early in the development process
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Product Development
 Upon evaluation, if all expectations are met, consider
further research and testing
 Produce a finished product and market test it
 Development report must spell out in detail
 Results of the studies by the engineering department
 Required plan design
 Production facilities design
 Tooling requirements
 Marketing test plan
 Financial program survey
 Estimated release date
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Measurements of New Product
Performance
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Test Marketing
 The main goal is to evaluate and adjust, if necessary,
the marketing strategy to be used in the marketing
mix
 Developers can use interaction with buyers as a
foundation for future product development
 Throughout the process, findings are being analyzed
and forecasts of volume developed
 Upon completion of the test market, prepare a final
marketing plan in preparation for launch
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Commercialization
 The firm commits to introducing the product into the
marketplace
 Heavy emphasis is placed on organizational structure
and management talent needed to implement the
marketing strategy
 Follow-up to eliminate bugs in the design, production
costs, quality control, and inventory requirements
 Procedures and responsibility for evaluating the
success of the new product by comparison with
projections are also finalized
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Time to Market
 Defined as the elapsed time between product
definition and marketplace product availability
 Well documented that companies that reach the
market first with a new product enjoy both profit and
market share advantages
 Increasingly, companies are bypassing timeconsuming regional test markets, when feasible, in
favor of national launches
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Quality Level
 Warranty – Producer’s statement of what it will do to
compensate the buyer if the product is defective or
does not work properly
 To emphasize high quality, organizations generally offer
customers more than implied warranties enforced by
the courts
 Guarantee – An assurance that the product is as
represented and will perform properly
 Imply to some buyers that the manufacturer is confident
of the new products’ quality
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Some Criteria for Determining
Perceptions of Quality
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New Product Decisions
 Product features
 Fact or particular specification of the product
 Determined by what it is that the customer wants
offered
 These wants are not created by effective marketers but
rather are learned
 Product design
 Can clearly differentiate a new product from competitors
 Good design can add value to the new product
 A well-designed product can please a customer without
necessarily costing more
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New Product Decisions
 Product safety
 Safety is both an ethical and practical issue
 Ethically, customers should not be harmed by using the
product as intended
 When users are harmed by a product, they may stop
buying it, tell others about it, or sue the company
 Some products are inherently dangerous and can
result in injury to users
 It may be so expensive to make them safer that buyers
cannot afford to buy them
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Causes of New Product Failure
 No competitive point of difference, unexpected
reactions from competitors, or both
 Poor positioning
 Poor quality of product
 Nondelivery of promised benefits of product
 Too little marketing support
 Poor perceived price/quality (value) relationship
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Causes of New Product Failure
 Faulty estimates of market potential and other
marketing research mistakes
 Faulty estimates of production or marketing costs
 Improper channels of distribution selected
 Rapid change in the market (economy) after product
introduction
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Research Considerations
 What is the anticipated market demand over time? Are
the potential applications for the product restricted?
 Can the item be patented? Are there any antitrust
problems?
 Can the product be sold through present channels
and the current sales force? What number of new
salespersons will be needed? What additional sales
training will be required?
 At different volume levels, what will be the unit
manufacturing costs?
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Research Considerations
 What is the most appropriate package to use in terms
of color, material, design, and so forth?
 What is the estimated return on investment?
 What is the appropriate pricing strategy?
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