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Chapter Eight

Planning forNew Products

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Planning for New Products

The Innovation Mandate

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PLANNING FOR NEW PRODUCTS

Importance of New Products Customer Driven Process Steps in New Product Planning

– Idea Generation– Screening/Evaluating/and Business

Analysis– Product and Process Development– Marketing Strategy and Market

Testing– Commercialization

Variation in the Generic Planning Process

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Importance of New Products

Innovation at top of potential value drivers (Ernst & Young)

Innovation initiatives extend beyond new goods and services to include ideas, processes, and business practices

Organizations must build a culture of innovation

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New Product Planning as a Customer Driven

Process New product

classifications:

1. Newness to market2. Newness to company

New product types:

– Transformational innovations

– New product category– Product line extensions– Incremental improvements

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High

Low

New productlines20%

Improvements/revisions to

existingproducts

26%

Additionsto existing

product lines26%

Repositionings 7%

Costreduction

s11%

New-to-worldproducts

10%

High

Newness to market

New

ness

to

c om

p an y

Size of circle denotes number of introductions relative to total.

Source: New Product Management for the 1980s, Booz Allen & Hamilton Inc. 1982.

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TM 5-1

Customer value analysis

Objective is to identify needs for:

1. New products2. Improvements to existing

products3. Improvements in

production processes4. Improvements in

supporting services

Finding Customer Value Opportunities

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TM 5-1

Matching Capabilities to Customer Value Opportunities

– Fit between capabilities and product offering

Transformational Innovations

– “new-to-the-world” ideas– Customers not always the

best guides

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CustomerExpectations

CustomerSatisfactionGap

ActualProductPerformance

OPPORTUNITIES(1) New Products(2) Improvements(3) New and Improved Processes

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Characteristics of Successful Innovations

STRATEGIC INITIATIVES

Creating an Innovative

Culture

Leveraging Capabilities

Selecting the Right

Innovation Strategy

Developing and Implementing Effective New

Product Processes

Making Resource

Commitments

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Developing an Innovation Culture

Innovation Workshop for top executives to

develop an innovation plan.

Innovation Statement highlighting objectives and

senior management’s role and responsibilities. Training programs for employees and managers. Communicate the priority of innovation. Speakers to expose employees to innovation authorities.

Source: Thomas D. Kuczmarski et al., “The Breakthrough Mindset,” Marketing Management, March/April 2003, 43.

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The Innovation Strategy Spells Out Management’s

Priorities for New Product Opportunities

1. Set specific New Product Objectives.

2. Communicate the role of New Products throughout the organization.

3. Define the areas of strategic focus:

Product ScopeMarketsTechnologies

4. Include longer term discontinuous projects in the portfolio along with incremental projects.

Source: Robert Cooper, “Benchmarking New Product Performance,” European Management Journal, Feb. 1998, 1-7.

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CustomerNeeds

Analysis

BusinessAnalysis

Screeningand

Evaluation

IdeaGeneration

MarketingStrategy

Development

ProductDevelopment

Testing

Commercialization

NEW PRODUCT PLANNING PROCESS

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Achieving Cross-Functional

Interaction and Coordination

R & D

Operations

Marketing

Finance

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Coordination of new product activities by a high-level general manager

Inter-functional coordination by a team of new product planning representatives

Creation of a project task force responsible for new product planning

Designation of a new products manager to coordinate planning between departments

Formation of matrix structure for integration new product planning with business functions

Creation of a permanent design center

Responsibility for New Product Planning

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Idea search: targeted or open-ended?

How extensive and aggressive?

What specific sources are best for generating a regular flow of new product ideas?

How can new ideas be obtained from customers?

Where will responsibility for the new product ideas search be placed?

What are potential threats from alternative (or disruptive) technologies?

IDEA GENERATION

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BENETTON’S STRATEGY TO REVIVE APPAREL IDEA GENERATION

“We didn’t take advantage of the [industry’s] quick transformation,” says Silvana Cassano, the ex-Fiat manager who assumed the post of chief executive of Benetton Group on May 5.

The transformation saw the best retailers turn into cutting-edge users of digital technology. Benetton’s competitors-notably Spain’s Zara and Sweden’s H&M Hennes & Mauritz-have raised the bar for the entire industry. These retailers can beam new styles from the catwalk to the shop floor in less than a month-and at bargain prices. Both deploy sophisticated technology to track which items are selling and which aren’t, so winners can be speedily restocked and slow movers yanked down from the racks. They’ve got the look down, too-cool and minimal for the working women who love Zara, and over-the-top trendy for H&M’s teen fans. And Benetton’s look? Blan. “The Benetton brand is out of fashion,” says Sagra Maceira de Rosen, retail analyst at J.P. Morgan Chase & Co. in London.

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Cassano is out to change that. The message he delivered in his first encounter with shareholders was short and powerful: Benetton is going to refocus on the apparel business, which encompasses the Sisley and Benetton brands.

It’s no secret that Benetton’s core casual wear business has suffered neglect. In 1994, founder Luciano Benetton launched an ill-fated diversification into sports equipment, snapping up trophy brands such as Prince (tennis rackets), Rollerblade (in-line skates), and Killer Loop (snowboards). But the strategy foundered and last year, Benetton sold the entire equipment division, booking $190 million in write-offs. The company posted its first annual loss-$10.5 million, on revenues of $2.3 million.

Benetton’s Strategy (continued)

Source: “Has Benetton Stopped Unraveling?” Business Week, June 30, 2003, 76.

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METHODSOF

GENERATINGIDEAS

DirectSearch

LinkingMarketing

and Technology

FacilitatingLead UserAnalysis

CreativeMethods

National Policy

ExploratoryCustomerStudies

Alliances/Acquisition/Licensing

TechnologicalInnovation

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IDEA GENERATION

SCREENING(fit/feasibility)

CONCEPT EVALUATION

BUSINESS ANALYSIS

SCREENING, EVALUATING, AND

BUSINESS ANALYSIS

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Business Analysis

Revenue Forecasts

Preliminary Marketing Plan

Cost Estimation

Profit Projections

Other Considerations

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NEWPRODUCTCONCEPT

PRODUCTDEVELOPMENT

AND USETESTING

MARKETINGSTRATEGY

DEVELOPMENT

MARKETTESTING

LAUNCH

PRODUCT AND PROCESS

DEVELOPMENT

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Development of the new product includes:– Product design– Packaging design– Decisions to make or purchase

product components

Product Development Process:– Product Specifications– Industrial Design– Prototype– Use Tests– Process Development

Collaborative Development

Product and Process

Development

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PURPOSE OF

USE TESTS

Does it have therequired attributes?

Verifyclaims

Ideas forimprovements

Identify usesituations

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MARKETING STRATEGY AND

MARKET TESTING Marketing Strategy Decisions

– Market Targeting– Positioning Strategy

Market Testing Options– Simulated Test Marketing– Scanner – Based Test Marketing– Conventional Test Marketing– Testing Industrial Products– Selecting Test Sites– Length of the Test– External Influences

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Less artificial than simulated testing

Costs less than full-scale market test

Test is controlled by using IRI’s 2300 panel members in each test city

Cable TV enables use of controlled ad testing

Tests take about 12 months

Costs are $250,000+

Scanner-based Test Marketing

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COMMERCIALIZATIONThe Marketing Plan

– Complete marketing strategy

– Responsibilities for execution

– Cross – functional approach

Monitoring and Control– Real – time tracking

– Role of the Internet

– Include product performance metrics with performance targets

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Market Target(s)

Marketing Program(s

)Objectives

Marketing Strategy

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Technology Push Processes

Platform Products Process – Intensive

Products Customized

Products

VARIATIONS IN THE GENERIC NEW

PRODUCT PLANNING