New Product Development

• In general, 80-94% of new products fail. Even in a large cereal company that invests a great deal in R&D, 40% of their products fail.

• A Booz, Allen & Hamilton study of 700 companies reported that 31% of profits come from new products• Only one of every 60 products makes it from the idea stage to the test market stage

• RJR Nabisco spent $325 million on its smokeless cigarette and $125 million on an updated version called the Eclipse– they failed!

• There are 150 kinds of wine coolers, 75 body washes, over 600 package/flavor/size combinations of one producer of coffee

• In 1997 over 30,000 new products were introduced (doubled since 1986)

• The average supermarket contains about 30,000 products

• In the UK only 2% of products are substantially new

Influence of Product Characteristics on Rate of Adoption

Influence of Product Characteristics on Rate of Adoption

DivisibilityCan the innovation

be used on a trial basis?

CompatibilityDoes the innovation fit the values and experience of the

target market?

ComplexityIs the innovation

difficult tounderstand or use?

Relative AdvantageIs the innovation superior to

existing products?

Communicability Can results be easily observed

or described to others?

ProductCharacteristics

ProductCharacteristics

Causes of New Product Failures

Causes of New Product Failures

• Sales are too low:– Need is not shared by enough

customers.– Lack of awareness– Wrong market definition

• Lack of fit with company:– Low motivation– Failure to build necessary

capabilities

• Not new or different:– No product improvement– No perceived improvement

• Positioning issues:– Unclear Positioning– Inferior Positioning

• Product design problems• Cost of product development• Competitive reaction:

– Unanticipated– Imitation and Improvement

• Supply changes:– Cost of raw material, labor or capital

increase.– Suppliers’ breakdown

• Lack of repeat purchase:– Product only “good on paper”– Product is too good

• Not meeting financial goals:– ROI, breakeven time, etc.

• Lack of channel support:– Availability.– Shelf space– Demo’s– Service

• Forecasting error:– Too optimistic– Too pessimistic

• Bad Timing:– Too early– Too late– Technological and Marketing

windows of opportunity

New-Product Development StrategiesNew-Product Development Strategies

OriginalProducts

OriginalProducts

ProductImprovements

ProductImprovements

ProductModifications

ProductModifications

NewBrands

NewBrands

AcquiredCompanies

AcquiredCompanies

Acquired Patents

Acquired Patents

AcquiredLicenses

AcquiredLicenses

Strategies for Obtaining New Product Ideas

Growth Stage of the PLCGrowth Stage of the PLCSummary of Characteristics, Objectives, & Strategies

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Rapidly rising sales Rapidly rising sales

Average cost per customerAverage cost per customer

Rising profitsRising profits

Maximize market shareMaximize market share

Offer new product features, extensions, service, and warranty

Offer new product features, extensions, service, and warranty

Price to penetrate marketPrice to penetrate market

DistributionDistribution Increase number of distribution outletsIncrease number of distribution outlets

AdvertisingAdvertising Build awareness and interest in the mass market

Build awareness and interest in the mass market

Maturity Stage of the PLCMaturity Stage of the PLC

Summary of Characteristics, Objectives, & Strategies

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Peak salesPeak sales

Low cost per customerLow cost per customer

High profits, then lower profitsHigh profits, then lower profits

Maximize profits while defending market share

Maximize profits while defending market share

Diversify brand and modelsDiversify brand and models

Price to match or best competitorsPrice to match or best competitors

DistributionDistribution Build more intensive distributionBuild more intensive distribution

AdvertisingAdvertising Stress brand differences and benefitsStress brand differences and benefits

Decline Stage of the PLCDecline Stage of the PLCSummary of Characteristics, Objectives, & Strategies

SalesSales

CostsCosts

ProfitsProfits

Marketing ObjectivesMarketing Objectives

ProductProduct

PricePrice

Declining salesDeclining sales

Low cost per customerLow cost per customer

Declining profitsDeclining profits

Reduce expenditure and maintain, reposition, harvest or drop the product

Reduce expenditure and maintain, reposition, harvest or drop the product

Phase out weak itemsPhase out weak items

Cut priceCut price

DistributionDistribution Go selective: phase out unprofitable outletsGo selective: phase out unprofitable outlets

AdvertisingAdvertising Reduce to level needed to retain hard-core loyal customers

Reduce to level needed to retain hard-core loyal customers

Product Life CycleDiffusion of Floppy Drives

Diffusion of Floppy Drives (5.25 and 3.5 inch)

0.00

5.00

10.00

15.00

20.00

25.00

1975 1980 1985 1990 1995

Years

Mill

ion

units

Floppy Drive (million units)Year 5.25 inch 3.5 inch

1976 0.101977 0.301978 1.001979 1.901980 2.501981 3.201982 4.101983 5.80 0.101984 7.96 0.641985 10.14 1.221986 13.32 3.041987 16.20 5.201988 16.20 7.951989 14.70 11.431990 12.80 13.301991 10.90 16.501992 6.50 19.601993 2.00 23.50

The Marketing BSC