Multimedia Marketing/Marketing.iso/market/chapter5.6p

Text File | 1996-08-22 | 14KB | 312 lines

SECTION 5.6  New Product Development Stages

INSTRUCTIONS Try to imagine the various steps which companies must take in order
to develop new products. Then go through this section for insights into this process.

EXAMPLE

A large producer of aircraft once decided that it should attempt
to build streetcars for various municipalities and transportation
authorities. The firm made the decision to go into this line without
any very structured analysis. Rather, the decision was based primarily
on intuition and management subjective judgment. Four years after
the company secured a contract from a large city transportation
authority it had delivered only 32 of the 175 cars ordered and
only 16 of the 32 ran. This illustrates a pattern--every time an
American aerospace company has gotten into surface transportation,
the result has been a financial disaster. It is apparent that
technological solutions and markets in surface transportation are
far different.

DETAILS

This section covers the steps involved in the new product development
process. These steps are:

1. New idea generation.
2. Screening.
3. Business analysis.
4. Development.
5. Testing
6. Commercialization.

New idea generation means coming up with new product ideas. There
are many sources including monitoring technological breakthroughs,
brainstorming, customer suggestions, sales personnel sugestions, and
even spying on competitors. Some executives visit foreign countries,
see what products are selling well there, and then attempt to
duplicate them in the U.S.

In the idea generation stage the objective should be to produce a
large number of new ideas, but not to test them. Management can
screen out poor ideas at a later time. Generally, the larger the number
of new ideas, the greater the liklihood of finding a good one.

After the idea generation stage comes screening. It involves separating
new product ideas into those worthy of further consideration and those
warranting immediate rejection. The concept of synergy is useful
in making such distinctions; those ideas that do not fit in with the
firm's strengths and experiences from both market and internal
capability perspectives are logical candidates for rejection.

Some managers use checklists for screening. These embody a listing of
various desired product attributes and a scale for assessing each
product idea on each attribute.

The third stage ,business analysis, involves estimating the future
revenues, costs, and required investment of the new idea. This phase,
then, utilizes financial data in great quantity.

An important part of the financial data needed is the forecast of
future sales for the new idea. Corporate forecasters and other
financial analysts are used to estimate this variable. On the other
hand, accountants and engineers estimate expected costs. The
forecasts of sales and costs enable management to predict upcoming
profits. They can estimate return on investment by comparing the
profit forecasts with the estimates of invested capital.

PROBLEM 1

A restaurant chain is engaging in new idea generation to come up with
ideas for new items to place on the menu. The objective should be:

A. To come up with a large number of new ideas.
B. To test the new ideas to see if they are sound.
C. To determine if the proposed new ideas are synergistic to the firm.
D. To estimate the profit potential for the new ideas.

WORKED

A restaurant chain that is in the new idea generation stage to come
up with new ideas for items to place on the menu should strive to
generate a large number of new ideas. Management could solicit
ideas from customers through suggestion systems and monitoring of
informal suggestions. It could ask employees for their suggestions.
Another possibility is brainstorming , where a group of personnel get
together as a group and try to elicit as many suggestions as possible.
The company might review what competitors are doing with their menus.
Also, management could review trends in society, such as the trend to
consume healthy and low caloric foods.

ANSWER  A
INSTRUCTIONS Try to imagine the various steps which companies must take in order
to develop new products. Then go through this section for insights into this process.

EXAMPLE

A large producer of aircraft once decided that it should attempt
to build streetcars for various municipalities and transportation
authorities. The firm made the decision to go into this line without
any very structured analysis. Rather, the decision was based primarily
on intuition and management subjective judgment. Four years after
the company secured a contract from a large city transportation
authority it had delivered only 32 of the 175 cars ordered and
only 16 of the 32 ran. This illustrates a pattern--every time an
American aerospace company has gotten into surface transportation,
the result has been a financial disaster. It is apparent that
technological solutions and markets in surface transportation are
far different.

DETAILS

Development is the next phase of new product generation. This is
possibly the most critical step because it usually requires substantial
investment. Further, this is where management learns whether or not it
can turn an idea into a technical reality. Development involves
concept testing and prototype development.

Concept testing assesses potential buyer reactions to an idea. It
usually involves working with a panel of customers who are
representative of an intended target. It begins by verbally (or
in writing) describing a product concept. For example:

    "This is a card which resembles a credit card. While golfing,
    you can carry it in your pocket. At the end of each hole, you
      would insert it in the card reader and record your score.
    At the end of the course, your total score would be recorded.
    This would compare your score with the par score and with
    the average score and would update your handicap."

Panel members are then asked questions about the overall concept
and its attributes, such as:

1. Are the potential uses for this card understandable? What are they?
2. Does the card have favorable features? What are they?
3. Would you be interested in buying this card? Why or why not?
4. What improvements or additional attributes do you think are
   necessary?

In concept testing, then, management gets a reading of how a
representative group of consumers see the idea of the new product.
They are not actually exposed to a physical product, however.

Once concept testing has been completed, the next step is to build
a prototype. This is one or a few units of an actual product,
created to be used and tested. In many cases, a prototype is a
skeletal product, not a working model, showing the essential
distinguishing characteristics of the new offering. In the appliance
industry for instance, companies produce tools and dies to build a
prototype. They hand-make many assemblies and, since they have not
yet acquired production experience, unit production costs may be
very high.

A frequent danger in developing a prototype is that engineers and
other technicians may attempt to incorporate their own personal
preferences in a product. However, management must insist that
consumer preferences, not the preferences of technicians, be adhered
to in the absence of contradictory marketing research.

PROBLEM 2

A home appliance company that is searching for new product ideas would
conduct concept testing by:

A. Requesting that a group of employees try out the new product.
B. Asking a group of target consumers to react to the idea of the
   new product.
C. Asking a group of managers to technically evaluate a new appliance
   idea.
D. Asking technicians to evaluate the performance of a new appliance.

WORKED

A home appliance company that is searching for new product ideas would
conduct concept testing by asking a group of target consumers to react
to the idea of the new product. The idea would be explained to the
members of the panel and their reactions sought. At this stage, the
objective is to get members of the panel to evaluate the idea of the
product. They are requested to imagine that it exists and to form up
impressions of how they would react to it. Concept testing, then,
is normally much less expensive than is prototype development. However,
it is not as realistic as it does not use an actual product--only
an idea.

ANSWER  B
INSTRUCTIONS Try to imagine the various steps which companies must take in order
to develop new products. Then go through this section for insights into this process.

EXAMPLE

A large producer of aircraft once decided that it should attempt
to build streetcars for various municipalities and transportation
authorities. The firm made the decision to go into this line without
any very structured analysis. Rather, the decision was based primarily
on intuition and management subjective judgment. Four years after
the company secured a contract from a large city transportation
authority it had delivered only 32 of the 175 cars ordered and
only 16 of the 32 ran. This illustrates a pattern--every time an
American aerospace company has gotten into surface transportation,
the result has been a financial disaster. It is apparent that
technological solutions and markets in surface transportation are
far different.

DETAILS

Testing is the next stage of new product development. Here the
company assesses the actual prototype along with its planned
package and brand. Management may use several types of testing.

Durability tests, such as driving new cars on test tracks may be
employed. These help assure that the product meets acceptable
performance standards. Safety tests are also important, such as
those revealing whether product use and packaging can result in
personal injury. For foods and drugs, extensive testing is required
by the Food and Drug Administration. The tests must assess, to the
satisfaction of the FDA, that the products perform as claimed and
that they do not have undesirable side effects.

PROBLEM 3

A cereal producer is testing a new offering. Which of the following
is not one of the components to be tested?

A. The brand.
B. The package.
C. The prototype.
D. The advertising budget.

WORKED

A cereal producer is testing a new offering. The components to be
tested include the brand, the package, and the prototype. The tests
are comprehensive. They should test the major elements that will
determine the fate of the product. The brand, package, and prototype
all have a major bearing on sales levels and should be tested.On the
other hand, the advertising budget does not have an immediate effect
on buyer welfare; it is an internal company management tool. This being
the case, it does not have to be tested.

ANSWER D
INSTRUCTIONS Try to imagine the various steps which companies must take in order
to develop new products. Then go through this section for insights into this process.

EXAMPLE

A large producer of aircraft once decided that it should attempt
to build streetcars for various municipalities and transportation
authorities. The firm made the decision to go into this line without
any very structured analysis. Rather, the decision was based primarily
on intuition and management subjective judgment. Four years after
the company secured a contract from a large city transportation
authority it had delivered only 32 of the 175 cars ordered and
only 16 of the 32 ran. This illustrates a pattern--every time an
American aerospace company has gotten into surface transportation,
the result has been a financial disaster. It is apparent that
technological solutions and markets in surface transportation are
far different.

DETAILS

The marketability of the items might also be tested. This may
involve test marketing, where the product is placed in test markets
(cities or areas that are typical of the total market) and sales
records kept to determine the salability of the item. Sometimes
groups of consumers are asked to take the product home, use it,
and then give their reaction to it. Another possibility is to ask
groups of employees to use the product and then evaluate it.

Whenever testing is used, management must be cautious about revealing
its hand to competitors. A large baker, for example, market tested
soft-on-the-inside, crunchy-on-the-outside cookies. Before the tests
were completed, two competitors had beaten the company to market
with their own brands.

The last step in new product development is commercialization. If
all of the previous stages show positive results in terms of enabling
a firm to close its contribution gap, the commercialization stage
begins. At this stage, the company actually introduces the new item
to the market. Accordingly, product introduction should be timed
to coincide with the period when a contribution gap is expected to
materalize.

PROBLEM 4

A large food processor wants to engage in the testing phase of new
product development for a new coffee offering. This phase could include:

A. Obtaining consumer reactions to the idea of the new coffee.
B. Getting employee reactions to the idea of the new coffee.
C. Producing estimates of the expected sales and costs of the new
   coffee.
D. Test marketing the new coffee in several large cities.

WORKED

If a large food processor wants to engage in the testing phase of
new product development for a new coffee offering, this phase could
include test marketing the new coffee in several large cities. This
test would actually assess how well the new item would sell. This is,
after all, a major objective of the company, so a sales test would
be of major importance. Even if all of the previous new product
development steps produced positive results, if the product will not
sell it should not be introduced. Care must be taken, however, to
the effect that the test cities are typical of the United States at
large. Many consumers in Seattle, for instance, are gourmet coffee
drinkers, so this city might not be typical of the country at large.

ANSWER  D