New Products Management(1)

Chapter 1: The Menu

New products management is also known as product innovation management, product planning, research & development, or marketing. It is found in all organizations, not just in business.

New products hold the answer to most organizations’ biggest problems. Competitors do the most damage when there is little product differentiation that price-cutting takes everyone’s margins away or when they have a desired new item that we don’t. A successful new product does more good for the organization than anything else that can happen. Firms expect & get a high percentage of their sales & profits from new products. About 1/3 of company sales come from products introduced within the past 5 yrs (the better firms could get up to 49% of current sales from new products, half achieved at least 33% ROI, half had payback periods of 2 yrs or less, and half achieved at least 35% market shares.

The new product process is very difficult. Hundreds of people from separate departments (with their own agenda) are involved. New products fail at around 40% rate. This failure rate could mean the firm is relying too much on safe, close-to-home innovations, while missing out on the risky breakthroughs (as there are both personal risk & corporate risk). The goal should be to minimize the dollar losses on the failures & to learn from them.

Marketing people are supposed to help the entire team succeed by learning to work with scientists, engineers, lawyers, production managers, and etc. The new product management is not only about the creation of new product concepts but how best to develop & market them. Being creative means we travel on unmarked roads. The decisions are made on grossly inadequate facts as there is never enough time or $. We use heuristics (rules of thumb) which sometimes leave us holding an empty bag; but without them the project just will not move forward fast enough (when R&D disagrees with the production, it’s better to go with the production). We use simple intuition (hunch, gut feel), and select the people to rely on. We are dealing with people under intense pressure (in 1980, 15 people were given one year and billion dollars to create & market a new product – an IBM PC). Sometimes the new product process is almost accidental (serendipity – accidents happening to the unprepared mind) whereas other times we must practice, learn attribute/ gap analysis and do them.

Process innovation – applies to functions (especially manufacturing & distribution process) and every product benefits from this type of innovation.

Product innovation – applies to the total operation by which a new product is created & marketed (includes innovation in all of the functional processes).

New Products – this includes new-to-the-world as well as minor repositioning & cost reductions (the use of baking soda as a refrigerator deodorant, carpet freshener, drain deodorant is just the new use). If a product is new to the world or new to the firm, the risks & uncertainties are higher, as are the cost of development & launch. A greater commitment of human & financial resources is often required to bring the new products out to market successfully. New-to-the-world product revolutionize existing product categories, or define wholly new ones – most likely to require Customer learning &/ incorporate a very new technology (firms must overcome perceived risks, perceived incompatibility with prior experience, or other barriers to Customer adoption). The new product line raises the issue of the imitation product (strictly me-too) – however, it does not mean that the product is not new (since it is new to the firm & requires new products process). Many “new & improved” products which are additions/ improvements/ revisions to existing product lines are extremely successful – nevertheless studies suggest that the most innovative new product categories account for many more product successes. The most and the least innovative new product categories (repositioning & cost reductions) outperformed the middle categories in meeting financial criteria, ROI, and market shares.

The #1 reason for success is a unique superior product. Common causes of new product failure include “no need for the product”, and “there was a need but the product did not meet that need”. It was not unique & superior and offer the user sufficient value added relative to the cost of purchase & use.

New services & B2B: product could be considered as goods & services because almost anything marketed today has a tangible & an intangible component. Some argue that there are only services (everything we buy does something for us). The distinction between B2B products & Consumer products is equally vague – businesses buy printer as do homemakers, bulk of industrial goods are bought by individuals (even for B2B purpose), and most Customers buy houses, cars, vacations as family groups.

The complexity of operations & decisions is the most dramatic hallmark of product innovation. New Product manager must be orchestrator (number of individuals are involved and the new product just means more work). Another fact is that product innovation must be pushed. Innovation is an unnatural human event – as individuals & organizations, we build roadblocks against it, and this resistance is due to the fear of change (Chrysler’s child seat which was so popular took 2 yrs to get the management’s interest, and 4 more yrs overcoming internal resistance). The conflicting set of management demands that product innovators must meet – we must serve up products that have valuable attributes (meet the user’s needs), but also are high in manufacturing & design quality, low in cost, and get to market in short period of time.
Breakthrough innovation is difficult & usually disappointing (like digging for oil). Firms must be willing to take the risk (usually small firms are). Technology is the key.

New product management is a combination of art (intuition, experience, hunch, gut feel) & science (analytical techniques are used). There are 3 critical tests in product innovation:

1) Concept Test – determine if the intended user really needs the proposed item.
2) Product use test – see if the item developed actually meets that need.
3) Market Test – see if we have an effective marketing plan.

New product management is an expanding field (taking on new tasks & performing them in new ways) and a melting pot field bringing in the language of different professions). Invention – dimension of uniqueness (form, formulation, function of something which is usually patentable). Innovation – the overall process whereby an invention is transformed into a commercial product that can be sold profitably. We have far more inventions than innovations.

The end point of a new product project is reached when the new product achieves its objectives – sold enough, made enough profit, established a strong toehold in a new market, and effectively thwarted a particular competitor.

Process overview:

1) Strategy – identifying opportunities & giving the best ones a preliminary strategic statement.

2) Concept generation – how we come up with new concepts.

3) Concept/ project evaluation – decide just how good those concepts are (both now & later as they evolve).

4) Development – marketing & technical development

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5) Launch – implementing & managing the commercialization of the plans & prototypes we have developed.