NEW PRODUCT DEVELOPMENT

INTRODUCTION

In our previous discussions, a product was defined as
anything that can be offered to a market for attention, acquisition, use
or consumption that might satisfy a want or need. In this regard, a product might be said to include
physical objects, services, persons, places, organisations, and ideas.
In addition, every product should be seen as the packaging of a problem-solving service.

Again, we have also stressed that, every product seems to go through a
life cycle i.e. it is born, goes through several phases, and eventually dies.
Newer products show up in the market to serve the consumer better than the dead
one. These new products would also suffer the same fate as the previous ones,
and another cycle begins.

This product life cycle poses one important challenge
to organisations: since all product eventually decline (in sales or acceptance),
the firm must find new products to replace ageing ones. The focus of this article therefore is on new product development.

WHAT IS A NEW PRODUCT?

Any product
that consumers treat as an addition to the available choices could be considered
a new product. From the viewpoint of the firm, however, new products are those products that are
new to the company.

Firms can
obtain new products in two ways: (a) acquisition (b) new product development.

The acquisition route can take three
forms:

(i)
the firm can pursue a corporate-acquisition programme involving the search for small companies that have
attractive product lines;

(i
) the firm can pursue a patent-acquisition programme, in which it buys the rights to new products from their
patent holders.

(iii)    
the firm can pursue a license-acquisition
programme for manufacturing various
products. It should be observed from all the three cases above that the firm does not develop any
new products, but simply acquires the rights to existing ones.

The new product route can take two
forms:

(i)
the firm can pursue internal product development by operating its own research and development (R&D)
department.

(i ) the firm can pursue contract-new
product development. This involves hiring independent researchers or new
product development agencies to develop
specific products for the firm.

T H E N E
W P R O D U C T D E V E L O P M E N T D I L E M M A

Firms are often free to select any one or a combination
of these strategies for their development. General y, new products account for
a high proportion of growth in many firms and are usual y major contributors to
overall profits for these
businesses. Under modern conditions of competition, firms that do not develop
new products are merely exposing themselves to risks of a business closure. Such
firms will find their products falling victim to changing consumer needs
and tastes, new technologies, shortened product life cycles, and increased domestic and foreign competition.

On the other hand, new product development can be very
risky. A variety of researchers have investigated the rate of failure
associated with new products. It has been reported that between 33% to 98% of the new products introduced fail
to achieve commercial success.

REASONS FOR NEW-PRODUCT FAILURES

Several factors have been found to be
responsible for new product failures:

(i) Dictatorial tendencies of top management: some
high-level executive might push a favourite idea through in spite of negative marketing research findings.

(i ) Over-estimating of
market size: The project
idea might be good, but the market size may be over-estimated.

(i i) Product deficiencies: The
actual product might not be properly designed to fit the needs and wants
of prospective consumers. This often results in poor quality and performance. The product may turn out
to be too complicated and might not offer any significant advantage over
competitive products already on the market.

(iv)      
Lack of effective marketing effort: There could be a failure to
provide sufficient follow-
through effort after introductory programme, and failure to train marketing
personnel for new products and new markets. In addition, the product might be
incorrectly positioned in the market, or even overpriced.

(v)        
Higher costs than anticipated: This often
results in higher prices, with the attendant lower sales volume than projected.

(vi)      
Competitors’ strength/reaction: The competitors might fight back
harder than expected. In addition, the speed and ease of copying an
innovation may overcrowd the
market sooner than expected.

(vii)    Poor timing of introduction: The
new-product might make a premature entry into the market. In some other instances, the product might be
introduced too late

(vi i) Technical or
production problems: The firm might not be able to produce sufficient quantities to meet demand.
In the process, competition might gain an unanticipated share of the market.

To compound the problems faced by
firms, it has been speculated that successful new products may even be more
difficult to achieve in the future for the reasons given below:

(a)     
Shortage of important new-product ideas in
certain areas. For instance,

some scientists
claim that there are too few new technologies for the investment magnitude of
the automobile,

television, computers, xerography, and wonder drugs.

(b)     Fragmented
markets. The intense competition being witnessed is leading to the rapid
fragmentation of markets. Hence, companies have to aim new products at small er market segments rather
than the mass market with the resultant lower sales and profits for each
product.

(c)      Social and governmental constraints.
New products have to satisfy public criteria such as consumer safety and ecological compatibility.

(d)      Costliness of the
new-product-development process. A company

typical y has to generate many
new-product ideas in order to finish with a few good ones. It should be noted
that each product costs more to develop and launch due to the effect of the
recent inflation on manufacturing, media, and distribution costs.

(e)      Capital shortage. Many companies
cannot afford or raise the funds needed

to research true innovations. Thus,
they emphasize new
product modifications and imitations instead of true innovation.

(f)         
Shorter
growth periods for successful products. When a new product is successful,
rivals quickly jump into the arena to imitate the product, so much that its growth stage is shortened.

ORGANISING NEW PRODUCT DEVELOPMENT

Faced with the above problems how
then can we have successful new-product introductions?. There are two
sides to this. In the first place, the organisation must improve its
organisational arrangements for handling the new-product development process.
Secondly, the organisation needs to handle each step of the process with all seriousness, including using
the best available techniques.

EFFECTIVE ORGANISATIONAL ARRANGEMENT

Since top management bears the ultimate responsibility for the quality of the
new-product- development work, it must start with a clear definition of company
growth strategy that specifies the business domains and product categories in
which the company wants to do business.

Apart from
this, top management should also set specific criteria for new product­idea
acceptance. The criteria can vary with the specific strategic role the product
is expected to play. Such roles may include:

1. Maintaining
   position as a product innovator
2. Defending a market-share position
3. Establishing
   a foothold in a future new market Pre­ emptying a market segment
4. Exploring
   technology in a new way
5. Capitalising on
   distribution strengths.

The consideration of the
acceptance criteria may be based on the fol owing:

1. A specified period
   within which the product can be introduced e.g five years
2. A stated minimum
   market potential and growth rate e.g at least 30 million and a 10 percent growth rate
3. Expected returns e.g. at least 25
   percent return on sales and 35 percent on investment
4. Technical/market
   leadership.

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Furthermore, top management must
determine the budget outlay for new product­development; since R&D outcomes
are so uncertain, it becomes a little bit difficult to use normal investment
criteria for budgeting. A number of alternative ways exist towards finding a
useful solution to this problem. These include:

(i)        
encouraging
and financing as many project proposals as possible, hoping to hit a few
winners;

(ii)     
setting R&D budgets by applying a conventional
percentage-to-sales figure;

(iii)      
spending
what the competition spends

(iv)       
working backwards to estimate the required
R&D investment after keeping the number of successful products needed.

ESTABLISHING A WORKABLE ORGANISATIONAL STRUCTURE

Another
important factor in effective product-development work is to establish workable
organisational structures. The following are some of the ways being adopted by
different organisations:

Product
managers. Some firms
entrust new-product development to their product managers. Two notable faults have been detected in
this system. Firstly, product managers are usual y so busy managing
their existing/current product lines that they give little attention to new
products other than brand modifications or extensions. Secondly, product managers
have been found to lack the specific skills and knowledge needed to develop new products.

New-product managers. This system
professionalises the new-product function. However, new-product managers tend
to think in terms of product modifications and line extensions limited to their product market.

New-product department. In order to support new-product development as a full-time
activity, some manufacturers usual y set up a new-product department. This
small department is headed by a manager who has substantial authority, as well
as access to top management. Typically, these departments are responsible for
generating and screening new ideas, directing and controlling R&D work, and
carrying out field testing and pre­commercialisation work. When a product is ready for full -scale commercial marketing, it is turned over to the appropriate
operating department.

Product planning committee. Organisations that make use of this
approach often have a high-level management commit ee charged with reviewing
new-product proposals. The committee is usually made up of
representatives from marketing, manufacturing, finance, engineering, and other
relevant departments. After the product has successfully passed through the
introductory stages of development, the marketing responsibility for it is then
taken over by another unit – e.g a product manager or a new-product department.
The advantage here is that, in a committee, the ideas and wisdom of several
executives can be pooled. In addition, any new product resulting from the committee’s work is likely to win
the approval of the administrators who took part in its development. However,
one major disadvantage of this system is that committee activity takes much
valuable executives time and slows the decision-making process.

Venture Team. This is a relatively new, rapidly growing
organisational concept for managing product innovation from the idea stage to full-scale marketing. The venture team is designed to avoid the product-development
problems in traditional organisational
structures. Such problems include bureaucratic operation, reluctance to change,
and lack of authority to move a product through the developmental
stages. 

Generally, a venture team is a small, multidisciplinary group,
organisational removed from the mainstream of the firm. This team is made up
of representatives from engineering, production, finance and marketing
research. The main goal of the
venture team is to enter a new market profitably. 

The group is able to work in
an entrepreneurial environment since it sees itself as a separate small business
entity. It is usual for the group to report directly to top management.
Immediately the new product reaches the stage of being commercially
viable, it is typically turned over to another division, such as an existing
unit, a new division, or even a new subsidiary company. The venture team is
then disbanded. In some cases however, the team may be allowed to continue as
the management nucleus when a new company is established.