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Unit-12 Organizing For Product Development
The Booz, Allen, Hamilton study of new product introduction
suggests that the organizations which encounter the greatest
success in new product introductions are the ones that have given
the greatest care to organizing for developing those products.
Setting up an organizational form for new product development
involves the following related questions:
 Who is to be responsible for new product development?
 What are the tasks to be accomplished?
 How are the tasks to be accomplished?
Setting Responsibility for New product Development:
Responsibility for developing new product can be set at the
corporate level, the divisional level or the operating level.
New product development at the corporate level:
Involvement of the top management in new product development
depends upon the importance that has been assigned to new
products in the overall plan.
Chief executive
officer
New product
unit
division
division
division
Advantages:
 Greater effectiveness and control of innovative activities
 Centralized research units
 Technical staff well equipped to handle a wider range of
problems.
 Insulation from the daily pressures and crisis atmospherereporting directly to CEO
Disadvantages:
 No response to the urgencies of the market place-its
isolation from the commotion and turbulence of
operations makes the corporate level new product unit
responsive to the immediate needs of the market.
 Organizational and spatial separation.
New product development at the divisional level:
Divisional level responsibility for new product development is
most likely when operating units have highly differentiated
product lines.
CEO
division
Division
head
division
New
product
Unit
marketing
R&D
production
Advantages:
 The new product development effort is set apart from the dayto-day activities of operations.
 The job is only an arm’s length away from top management
which aids the integrative process and gives direction to the
division.
Disadvantages:
 Friction between the developmental and functional levels.
 New product development is only a part of the firm’s products
management.
New product development at the operating level:
Responsibility for new product development lodged anywhere
below the divisional level becomes associated with operational
activity.
There are two options:
assign responsibility for new product development to one of
the functional departments, says marketing
Assign it to product manager.
In operating levels the changes occur only in the way an
operational unit functions.
New product development in functional department:
The assigning of responsibility for new product development is
between marketing and research and development.
Chief Executive
division
Marketing
New Product unit
Division head
R&D
division
Production
Advantage :
 In choosing marketing for new product development
responsibility is that the marketing people are in a position to
have the best view of trends in sales, process, competitive
actions, distribution and services - all very important in
bringing a new product to commercialization.
 New product development in high technology fields is also
greatly influences by the components of a marketing program.
Disadvantages:
Marketing personnel may run into difficulty when confronted
with new products involving scientific concepts and complicated
technologies. Hence many industrial marketers recruit
marketing personnel and sales force from among those with
engineering and technical backgrounds.
Personnel other than marketing lack market sense and
sensitivity to the needs of customers.
New product development responsibility of Product Manager:
This type of arrangement is usually made when a rapid
proliferation of products creates a burden too heavy for the chief
marketing executive and his staff.
e.g. ITC in case of cigarettes – it expresses a case of extreme
decentralization.
Such type of organization is called “product management
system”.
Structural Units for New Product Development:
In small companies new product development is often handled
by the existing units. But large firms regard new product
development as an on-going activity
The most common organizational units established
specially for new product development are new product
departments, new product committees ad hoc committees
venture teams and task forces.
New Product development
 Corporate level
 Divisional level
 Operational level
New product committee : it is usually at either the
corporate or divisional level.
Ad hoc committee: they are specialists needed to manage
certain aspects of new product development activity, such as
brainstorming, screening, coordinating
Task force: A task force is established to perform both
integrative and coordinating functions.
Venture team: it is a small interdisciplinary group which
works full-time on a specific mission and discontinued after
the conclusion of venture.
Function of the New Product development units:
Theoretically when different types of structural units
participate and share responsibility in new product
development, each look after a separate function.
But in practice all types take part in the developmental
sequence with varying extents of involvement.
Unit 13 : Generation, Screening and development of new
product ideas
Introduction
One product idea was developed based on creative insight.
Innovation and the new Product development process:
Sometimes innovations are by accident or luck such as the
vulcanization of the rubber process – discovered when a
rubbery mixture was spilled on a hot stove;
Necessity, it seems was the mother of invention for the ice
cream seller who ran out of paper cups and rolled pancakes
into serving cones-the first ice cream cones.
The standard new product development process
model comprises the following stages:
Idea generation, idea screening, concept development,
and testing, marketing-strategy development, business
analysis, product development, market testing and
commercialization.
This unit is concerned with only the first three stages:
1. Generation
2. Screening
3. Development of New product ideas.
Generation of New product ideas:
 A creative approach is needed for the creative process.
 Creativity v/s innovation
Sources of New product ideas:
Inside Company Sources
Sales personnel
Marketing personnel
Outside company sources
Customers
Competitive products
Research and development
Top management executives
Production department
Foreign products
Consultants
Advertising agencies
Purchase department
Customer service division
Researchers / inventors
Distribution channels
Employees suggestion system Public – unsolicited ideas
Methods of generating new product ideas:
Direct Methods
Indirect Methods
Individual Techniques
Group techniques
Morphological
Analysis
Consumer
Surveys
Attribute listing
Conjoint analysis
Heuristic Ideation
Multi-dimensional Focus group
scaling
Estimation
Forced
relationships
Market-gap
analysis
Interviews
Quadrant analysis
Transfer analysis
Motivation
research
synectics
Problem detection
User solution
analysis
Brainstorming
Consumer
Engineering
magnitude
Attribute Analysis:
By decomposing existing products into combinations of
specific parts, qualities or attributes. Attribute listing seeks
to modify one or more of these to improve the whole
product.
e.g. company planning to bring out a toothpaste, it may
want to know a package of optimum level and combination
of various attributes and benefits:
•
•
•
•
•
Whitening of teeth
Breath freshening
Decay prevention
Taste
Price
Osborn has suggested that useful ideas can be stimulated
by putting the following questions to an object and its
attributes:
Put to other uses?
Adapt?
Magnify?
Reduce?
Substitute?
Rearrange?
Reserve?
Combine?
Heuristic ideation Technique (HIT)
In attribute analysis, alternative combination may
practically run into millions. This may make the analysis
very difficult, if not impossible.
For example, in the household cleaning agent, product
ingredients is one of the many dimension.
Benefit – structure analysis:
Benefit-structure analysis proposed by Myers…,this
analysis begins with 25 to 50 in-depth individual or
group interviews wherein the respondents are asked to
recall all occasions when a product class was used.
Brainstorming:
Brainstorming is a rather popular creative technique with a long trackrecord. It was first developed by Alex F. Osborn in 1938 and gained
acceptance by the business world in the 1950s.
Osborn feels that creativity is fostered in an informal meeting where
participants are free to express any and all ideas they concoct.
Criticism is ruled out until the end of the meeting as this inhibits
people from contributing ideas that might prove useful to others.
To ensure creativity the following ground rules are suggested:
1. Do not permit evaluation of ideas
2. Encourage participants to think ‘far out’
3. Put emphasis on creating a large quantity of ideas
4. Encourage participants to modify or build upon ideas of others
Focus Groups:
It relies on the spontaneous interaction of the group and the
members of the group are consumers.
Focus group interviews can be thought of as brainstorming
with consumers/potential consumers.
Screening of New Product ideas:
Screening is essentially an elimination technique. If the
purpose of ideas generation is to have a large number of
ideas.
The purpose of screening is to reduce this number to
profitably viable few.
Criteria for Screening New Product ideas:
1. Screening criteria are established as evaluative
standards in new product development.
2. They make arbitrary decisions less likely.
3. They provide a unity of purpose.
4. They provide a perspective for new product planners.
“Must have” criteria
 Fill a perceived need with a sufficiently defined
group of heavy users for the product.
 Have a unique product characteristics that offer
distinctive benefits to the user.
 Have a sufficient trading profit contribution. E.g.
20% to 50% in case of grocery products.
 Be saleable in large, expanding territories.
“Would like” criteria
 Be compatible with and able to carry the company’s
brand name.
 Provide the basis for a continuing business
 Lend itself to mass media advertising
Preliminary Screening:
1. Preliminary screening is the first, rather rough, attempt to judge the
value of a new product idea.
2. e.g. in case of consumer goods company the following statements
can serve as primary criteria to screen new product ideas:
3. The item should be in a field of activity in which the corporation is
engaged.
4. The item should be capable of being produced on the type and kind
of equipment that the corporation normally operates.
5. The potential market for the product should be at least Rs.6. Return on investment after taxes must reach a minimum level of….
Product profile ratings – Ranked Data
 This technique basically calls for the ideas to be evaluated in terms
of a number of key characteristics.
 One type of such a rating system is the simple ordinal measure
wherein each characteristic is scored on a five-point scale,.
 e.g. each idea can be rated on ten different criteria from very good
(A) to Very Poor(E).
Product profiles – summated Data
 This method of screening new product ideas is very much like that of
ranked data but there are some modifications:
 The ratings are in terms of numerical values. Scores by different
people are averaged.
 Each criterion is given a weight in accordance with its supposed
importance to the success of a new product.
 Scores and weights are multiplied and their products added to obtain
a single overall rating for an idea.
The overall rating is described as follows:
n
R = ∑ WiSi
i=1
R is overall rating,
Wi is weight of the ith criterion
Si is score of the idea on the ith criterion,
n is number of ideas used in screening
Development of New product ideas:
In the process of new product development, screened ideas need to be
converted into product concepts.
“ A product concept is an elaborated version of the idea expressed in
meaningful consumer terms”, says Philip Kotler.
e.g. Cadbury India, gets the idea of producing a powder to add to milk to
increase its nutritional level and taste.
1. Who is to use this product? ( infants, children, teenagers, etc)
2. What primary benefit should be built into this product?
( taste, nutrition, energy)
3. What is the primary occasion for this drink? ( breakfast,
midmorning, lunch, etc)
The concept emerge:
1. A tasty midday snack drink for children.
2. An instant breakfast drink for adults.
3. A health supplement for elderly people at night.
Elaborated version of each concept can be presented to
sample consumers.
Then, the consumers can be asked some questions.
Respondents answers to the questions can lead to the
concept’s communicability and believability ,
 The need level
 The gap level
 Perceived value
 And the purchase intention
A Summary of these answers can tell if the concept has a
strong and broad enough appeal.
Unit – 14
Economic Analysis – Evaluation of New Product ideas /
Concepts
Introduction
Product managers are involved directly or indirectly in the
preparation and presentation of investment proposals for
new facilities new markets, new products or new projects.
what are the financial calculations required to make the
case?
Essentially, the product manger needs to present a
financial logic that demonstrates a financial return at least
as attractive as other identified opportunities before the top
management.
Purpose of economic analysis
Economic analysis is only a continuation of the evaluative process that
began when the new product idea was first generated.
Once the product concept is developed, economic analysis can evaluate
the business attractiveness of the proposal.
Market potential:
 The starting point for any economic analysis should be an estimate of
total market potential.
 It is not a projection of actual sales.
 Rather, it is the maximum quantity an entire industry can sell if its
marketing effort is the utmost.
 e.g. the market potential for baby food logically should be ‘total
number of infants’ multiplied by (some estimated) number of feedings.
 In case of industrial products firms rather than people become the
relevant units of estimation.
Market demand
 Market demand for a product is the total volume that would be bought
by a defined customer group in a defined geographical area in a
defined time period in a defined marketing environment under a
defined marketing program”
 The ratio of company to industry sales gives a company’s market
share.
 Estimating market demand involves two steps:
1. Projecting industry sales and
2. Projecting company sales
Estimating sales:
A firm needs to estimate the minimum and maximum of sales to
determine if the sales will be profitable.
Sales can accrue from one-time purchase of a product, infrequent
purchases of a product or frequent purchases of a product.
Estimating first-time sales:
Bass has used an epidemic equation to forecast sales of appliances
when they were first introduced, including room air-conditioners,
refrigerators, etc.
Estimating replacement sales:
The estimate of replacement sales begins with an idea of products life
or survival age.
Practically, replacement sales are difficult to estimate before the
product is actually in use. That is why marketers prefer estimates of
first-time sales for launching a new product.
Estimating Repeat sales:
Both the first-time sales as well as repeat sales are to be estimated for
a frequently purchased new product.
Sales forecasting methodologies
Sales forecast for new products can be made using different
techniques.
The output of the most new products forecasting systems is
sales or share of market.
Forecasting via judgmental estimates:
Sales force judgment is also used – sales people, sales
manager, or even dealers can be asked to make forecasts
for their respective market areas, and these forecasts can
be totaled,
Forecasting via Awareness-trial-repeat purchase
Say for example a market consists of 3 millions
customers. The purchasing rate per customer is 15 units
per year. Also the firm has the following data from
controlled sales test:
Awareness = 40% of customers
Trial = 30% of those who are aware
Repeat purchase = 60% of those who tried.
The method suggests that the awareness trial and repeat
data can be multiplied by the total market availability to
get a forecast of sales.
Forecasting via mathematical models
Intent-to-buy percentages
Rank order preference data
Estimating costs, sales and profits:
The next required estimates, after the sales forecasts will be
the expected costs and profits of the new product project.
1. Sales revenue
2. Costs of goods sold
3. Gross margin
4. Development costs
5. Marketing costs
6. Allocated overhead
7. Gross contribution
8. Supplementary contribution
9. Net contribution
Break – even analysis:
The break-even analysis, in which the marketer estimates how
many units of the product the firm will have to sell to break-even
(no profit, no-loss) with the given price and cost structure.
Return on investment:
Return-on-investment (ROI) analysis involves four
considerations: amount of return, duration, timing and risk.
The most common methods of assessing return on investments
are
1. Payback: it is mainly concerned with how long it will take the
firm to get back its initial investment.
2. Rate of return, and
3. Discounted cash flow: the discount method of handling cash
inflow accounts for the time value of money.
Economic analysis summary form: e.g. table 1