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.

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 idea stage to full -scale marketing. The venture team is designed to avoid the product-development problems in traditional organisational structure. 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.